According to Vanguard, investors that allocated part of their portfolios to low-yielding municipal bonds at the beginning of last year should now be looking forward to the prospect of higher income, thanks to a rapid rise in rates. In a fixed-income report for the first quarter, the fund firm wrote, “Following a year with $119 billion of outflows from municipal funds and ETFs, we expect the tide to turn. For high-income taxable investors, we are expecting a municipal bond renaissance.” According to the report, muni bonds only offered yields of around 1% at the start of 2022, compared to yields that now exceed 3% before adjusting for tax benefits. Tax-equivalent yields are at 6% or even “meaningfully higher for residents in high-tax states who invest in corresponding state funds.” Vanguard said that this makes munis a “great value compared with other fixed income sectors and potentially even equities—especially with the odds of a recession increasing.” According to the Vanguard report, muni bonds also remain strong from a credit perspective, with attractive spreads over comparable U.S. Treasurys and corporate debt. In fact, municipal balance sheets are stronger now than they’ve been in two decades, leaving states well-prepared to navigate an economic slowdown.

Finsum:According to Vanguard, higher yields and solid balance sheets make muni bonds a highly attractive option for investors this year.

Last year was a notable year for ESG investing. While ESG funds dealt with underperformance, anti-ESG initiatives, and regulation, demand continued to be strong for these funds. This year could be just as eventful for the strategy. First, there were record numbers of shareholder resolutions filed at public companies last year due to the SEC’s friendlier stance on them. That is expected to continue as companies set climate-related targets and shareholders press them on ESG matters. Second, while 57% of institutions expect the energy sector to outperform the market again this year, according to Natixis’ Global Survey of Institutional Investors, 46% said that they are increasing investments in renewables, twice the rate of those increasing investments in fossil fuels. Third, while the SEC has proposed a set of rules designed to help curb greenwashing, firms have a bigger motivator to stop, sweep examinations. According to Michael McGrath, a partner at K&L Gates, “That has had a greater impact on the approaches of firms to their ESG marketing actions thus far than have the new rules. That’s really because firms have an immediate concern that needs to be addressed.” The last theme to watch is anti-ESG initiatives. Asset managers that are focused on sustainable investing will have to accept the fact that they may not be competitive in some markets.

Finsum:2022 was a highly eventful year for ESG investing and this year will be no different due to themes such as shareholder resolutions, increased investments in renewables, SEC sweep examinations, and continued anti-ESG initiatives. 

Last year, portfolios that were allocated to 60% stocks and 40% bonds were hammered, as both the stock and bond markets sustained heavy losses. The portfolio has generally yielded steady gains with lower volatility since the two asset classes typically move in opposite directions. However, the strategy backfired last year after the Fed’s tightening policy sent stocks tumbling from record highs and drove Treasuries to the worst losses since the early ‘70s. This made advisors and investors question the viability of the 60/40 model. But the bond market’s selloff last year pushed yields so high that analysts at BlackRock, AQR Capital Management, and DoubleLine expect fixed-income securities to breathe new life into 60/40 portfolios. This year, both stocks and bonds have gained, propelling the 60/40 portfolio to the best start to a year since 1987. Their view is supported by the expectations that the Fed is nearing the end of its tightening policy as inflation comes down. If this view turns out to be correct, it reduces the risk of bond prices falling again and allows them to once again serve as a hedge against a potential drop in equities stemming from a recession. In a note to clients, Doug Longo, head of fixed-income strategists at Dimensional Fund Advisors, wrote “Expected returns in fixed income are the highest we’ve seen in years.”

Finsum:Based on the view that the Fed is nearing the end of its tightening cycle, analysts expect fixed-income securities to once again serve as a hedge against stocks in the 60/40 portfolio.

While some alternative managers have been benefiting from the market volatility, it’s been a challenging environment for fundraising. In fact, some of the top brand-name firms are having trouble hitting their targets, let alone their hard caps, according to industry insiders. While there are several reasons for this, liquidity issues among limited partners from the "denominator effect" is high on the list. The denominator effect is when volatility in the public markets impacts fundraising in the private markets. It occurs when the value of one portion of a portfolio decreases drastically and pulls down the overall value of the portfolio. Last year, capital commitments were down 1.4% to $497.3 billion as of Dec. 22 compared to $504.3 billion in all of 2021, according to Pensions & Investments data. Private equity was the only alternative category in which both the number of funds and the amount of capital committed increased in 2022. However, fundraising by private equity funds worldwide was down 41.8% year over year in the third quarter of last year based on data from Preqin. According to Adam Bragar, New York-based head of the U.S. private equity practice of Willis Towers Watson PLC, “Whether the slowdown in commitments will continue into 2023 depends on investors' current and projected liquidity.”

Finsum: It’s been a challenging fundraising environment for alternative managers stemming from liquidity issues among limited partners due to the denominator effect.

Rockefeller Capital Management recently announced that it has nabbed a team of advisors from UBS. Ladage, Smith, Garcia Wealth Partners joined Rockefeller Global Family Office in Austin, Texas. According to the company, this marks Rockefeller’s first private advisor team to be headquartered in the city. The team is led by managing directors and private advisors Alex Ladage and Landon Smith, and also includes senior vice president and private advisor Jorge Garcia, as well as senior client associates Monica Vallejo and Carl Pavlich. Ladage started his career in 2001 at Merrill Lynch and joined UBS in 2009. Smith began his career in 2003 at Edward Jones. He moved to Merrill in 2005 and joined UBS in 2009. According to Forbes, Ladage’s team managed $1.4 billion as of April 2022. Christopher Dupuy, co-president of Rockefeller Global Family Office, said the following in a press release announcing the move, “As we’ve expanded the reach of Rockefeller across the United States, we see significant opportunity to deliver premium and differentiated wealth management services to clients and prospects in Greater Austin and beyond.” In September, Rockefeller CEO Greg Fleming told Reuters that the company aims to more than double its assets under management over the next three to five years.

Finsum:With Rockefeller Capital Management looking to increase its assets under management by more than double over the next few years, the firm lured a $1.4 billion advisor team away from UBS.