Displaying items by tag: volatility

Last month, Innovator launched the Innovator Nasdaq 100 Managed Floor ETF (QFLR). The ETF is designed to offer investors exposure to the performance of the Nasdaq 100 while capping losses at 10% over a 12-month period with an expense ratio of 0.89%.

Innovator achieves this by using a laddered put option strategy managed by Parametric, a Morgan Stanley affiliate, in concert with investing in the securities held by the Nasdaq 100. With these put options, the fund hedges against downside risk while reducing volatility in exchange for upside performance. 

According to Graham Day, Chief Investment Officer at Innovator, “Historically, in positive years, the Nasdaq-100 has averaged returns of 29%, but in negative years it has averaged losses of -30%. Most investors are unable to stomach this type of volatility, and QFLR is a solution to allow investors to remain fully invested in the Nasdaq-100 with built-in risk management.” 

2022 and 2023 illustrate the value of QFLR as double-digit losses in the Nasdaq led many investors to reduce equity exposure and miss out on the big rally in the following year. Previously, Innovator launched the Innovator Equity Managed Floor ETF, which has $132 million in assets. The fund tracks an index of large-cap US stocks and limits losses to 10%. According to Innovator, it essentially captures about 80% of upside while limiting volatility to 70%. In the press release for QFLR, SFLR investors saw about 80% of the equity portfolio’s upside but only 70% of the volatility.


Finsum: The private credit market has boomed over the last couple of years due to anemic public markets and hesitant banks. Now, banks are once again competing for business and offering more favorable terms.

Published in Wealth Management
Monday, 04 March 2024 07:35

Where to Find Value in Fixed Income

The rise in bond yields presents an opportunity for fixed income investors to find value according to Penter Bentley, the co-manager of the BNY Mellon Global Credit Fund. He notes that bond yields are close to their highest levels since the financial crisis and that conditions have been improving for investment-grade debt. 


Due to these developments, he anticipates healthy returns for global and regional investment-grade credit. A key factor is borrowers have strong balance sheets with lower leverage than before the pandemic. In fact, Bentley believes that certain segments within fixed income could perform better than equities. He identifies ‘fallen angels’, short-duration high yield bonds, and emerging market corporate debt as having the most potential for outperformance this year. 


Some uncertainties that could cloud this outlook including the election in November, the Fed’s ability to cut rates, and a tense geopolitical situation with Russia-Ukraine and the Middle East.  Thus, investors should expect volatility to persist all year which means more opportunities for active managers to outperform. 


Another place that fixed income investors can find value is with global credit. Historically, global credit has delivered better returns when markets are emerging from a downturn. In terms of global credit, Bentley sees opportunities in European credit markets and emerging market debt.   

Finsum: Peter Bentley, the co-manager of the BNY Global Credit Fund, believes that investors can find value in fixed income. He sees the potential for strong returns in global credit, short-duration high yield debt, and ‘fallen angels’. 


Published in Bonds: Total Market
Wednesday, 14 February 2024 03:31

The Next Trend in Alternative Investing

One consequence of the outperformance of alternative assets in recent years is increasing democratization of the asset class. According to BNY Mellon, this trend is being driven by the need for higher long-term returns given longer life expectancies. Many governments, around the world, are changing guidelines to increase access to these investment options. 


Increasing access to alternative investments also fits with many governments’ ESG objectives. In turn, alternative asset managers are also working to structure their products to appeal to a different market.


The bank also recommends considering offering alternatives in retirement plans. Until recently, investing in alternative assets like private equity, private real estate, and hedge funds were limited to institutional and ultra-high net-worth investors. 


In the past couple of years, alternative assets have delivered positive returns in an environment where both fixed income and equities have struggled amid a hawkish Federal Reserve and raging inflation. Ideally, the asset class would lead to more resilient portfolios by reducing volatility and delivering non-correlated returns. 


Some drawbacks are increased complexity, higher costs, and reduced liquidity. The bank also adds that investors need to be educated about alternative investments in order to fully understand these products and take advantage of their benefits. 

Finsum: BNY Mellon sees continued inflows into alternative assets due to strong performance in recent years. It sees increasing democratization of the space and potentially even the inclusion of alternative investments in retirement plans. 


Published in Wealth Management

Interest in alternative assets continues to grow. For many, it’s become a core part of their portfolio along with equities and bonds based on the theory that it can increase diversification, reduce risk, and deliver higher returns in high inflation scenarios. 


In response, asset managers are introducing new products at a fevered pace. Examples include bitcoin ETFs, private credit, and infrastructure funds. Advisors have the task of figuring out which of these products will help their clients and become a part of their allocations. 


Some important considerations are properly explained to clients that many alternative investments mean sacrificing liquidity for a multiyear period and are only justified if investors are willing to hold for the long term. Further, focusing on returns is not the right metric, instead these products are more about dampening portfolio volatility and providing a source of non-correlated returns. 


Therefore, the biggest impediment for more adoption of alternatives is education. Many might not have a deep understanding of these strategies and have varying risk tolerances. Advisors should consider allocations to alternatives on a case-by-case basis and also gradually increase exposure levels to gauge comfort levels. 

Finsum: There is an explosion of alternative investment options available to advisors. Here are some tips on how to navigate this expanding landscape.

Published in Wealth Management

Every industry changes and evolves with time. The financial advice industry is no different as advisors increasingly move towards focusing more on financial planning and serving clients with less emphasis on making investment decisions.


This is now being increasingly handled by asset managers and third parties. Currently, about 10% of advisors use home office model portfolios with minimal modifications. 36% of RIAs and independent broker-dealers are building their own allocations from scratch. Most advisors are taking a blended approach by using these models as a starting point and then offering some customization to suit a clients’ specific needs. 

For advisors, the shift makes sense especially as most clients seem to value planning more than performance. Further, it frees up time and energy that can be spent on client service and growing the business. According to Cerulli, advisors who build their own portfolios, spend about 30% of their time on the task. 


Another benefit for advisors is that it makes the business more scalable. For advisors who spend considerable time on portfolio management, there is more of a constraint to how many clients can be added. An interesting finding is that firms with large amounts of assets under management are more likely to use model portfolios. 

Finsum: Model portfolios are becoming increasingly popular, although most are currently using a blended approach. Here are some of the major benefits to advisors. 


Published in Wealth Management
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