Wealth Management
Bond funds delivered modest results last year, with the average fund returning 4.8%, though nearly all finished in positive territory. Surprisingly, high-yield and emerging-market bond funds dominated the top performers, buoyed by strong global growth and favorable currency trends despite an inverted yield curve.
Their outperformance suggests a speculative tone in markets, as riskier assets typically lag when investors grow cautious about the economy. However, higher volatility weighed on their ratings, leaving most of the top 20 funds with only “hold” grades, except for Delaware Pooled Trust High-Yield, which earned a B-minus.
In contrast, lagging funds saw declines in principal value, weak dividend payments, and overall “sell” ratings, with inflation-protected funds failing to meet expectations.
Finsum: The divide highlights how chasing yield in riskier segments delivered gains last year, while traditionally safer strategies struggled to keep up.
Small cap growth stocks have rallied sharply since April 8, with the Russell 2000 Growth Index up 34.2%, but large cap growth stocks still outpaced them with a 40.5% gain over the same period. Over the past decade, small growth stocks have significantly lagged large growth, delivering less than half the return.
Research shows that active management has historically outperformed the Russell 2000 Growth Index, though recent rebounds have favored the passive benchmark as high-beta and unprofitable companies surged.
Sector and industry standouts in small growth include materials, industrials, technology, and niche firms such as Credo Technology and Joby Aviation, with many of the highest returns concentrated in the most volatile stocks. Active small cap growth funds typically avoid the riskiest and least profitable names, which hurt short-term performance but aligns with evidence that profitable small caps outperform over time.
Finsum: Active strategies may still offer investors a more resilient path within small growth equities despite the recent rally.
High-yield dividend opportunities are harder to find in today’s market, but Realty Income, Healthpeak Properties, and Pfizer all stand out with payouts above 5%.
- Realty Income, a net lease REIT, offers a 5.5% yield and decades of consistent growth, supported by a vast property portfolio and international expansion potential.
- Healthpeak Properties, which merged with Physicians Realty last year, now provides a 6.8% yield as demand for lab space stabilizes and medical office buildings strengthen its base.
- Pfizer shares have fallen about 60% since their pandemic peak, but the company has raised its dividend for 16 consecutive years and now yields 6.9%. While looming patent cliffs pose risks, Pfizer has invested heavily in acquisitions that could add $20 billion in annual sales by 2030.
Finsum: Collectively, these three dividend payers offer compelling income opportunities with the potential for steady long-term growth.
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Municipal bonds are drawing increased attention as investors seek stability amid equity market uncertainty, with recent volatility making tax-exempt yields more attractive on both an absolute and relative basis. Despite negative year-to-date returns across much of the muni market, relative valuations compared to taxable fixed income suggest excess return potential ahead.
Longer duration exposure gives munis sensitivity to interest rate changes, and if the Federal Reserve moves toward cuts later this year, investors could benefit from both quality and yield opportunities.
American Century offers strategies like TAXF and CATF that combine diversification, credit research, and active management, while also providing tax efficiency within an ETF wrapper. For California investors in particular, CATF can deliver taxable-equivalent yields above 8%, highlighting the value of tax-exempt strategies in high-bracket states.
Finsum: Active management adds further advantages, including the ability to navigate sectors and credit qualities excluded from passive indexes.
Faith-based investing is gaining momentum as an alternative to ESG, with Christian financial firm GuideStone noting a surge in demand over the past three years. Will Lofland, GuideStone’s Head of Investments Distribution, explained that many investors began seeking values-aligned strategies during the COVID era, when intentional living and faith-driven financial decisions gained traction.
Unlike ESG, which often emphasizes broad social agendas, faith-based investing focuses on applying Christian principles to business practices, from employee treatment to product integrity.
Younger investors have been early adopters, but GuideStone reports growing interest among baby boomers, who hold a significant share of wealth. Lofland stressed that faith-based investing is not about driving social change but encouraging companies to concentrate on core business excellence while adhering to ethical standards.
Finsum: With rising interest across generations, the strategy is emerging as a powerful opportunity for advisor when pitching clients in the broader investment landscape.
Passive investment strategies such as ETFs and index-tracking mutual funds have grown rapidly over the past decade, offering low-cost and tax-efficient exposure to broad markets. However, these vehicles are not always as straightforward as they seem, with three common misperceptions shaping investor decisions according to JPMorgan.
First, passive funds may not perfectly mirror their benchmark indices due to regulatory constraints and concentration limits, which can lead to performance differences, particularly in sectors dominated by a handful of large-cap stocks. Second, while often inexpensive, specialized passive funds can carry higher expense ratios than expected, in some cases rivaling or exceeding actively managed alternatives.
Third, passive ETFs are not universally tax efficient, as separately managed accounts can provide greater flexibility through tax-loss harvesting and charitable gifting strategies.
Finsum: Understanding the nuances of passive investing is critical for aligning portfolios with long-term wealth goals and ensuring fees, exposures, and tax strategies fit the investor’s broader financial plan.