News Mentions & Press Releases
Current global economic growth is likely to continue as structural reforms in Europe and Japan spur fundamental changes in those economies, along with rebounds in emerging markets.
That expected growth means international markets are likely to outperform the U.S. markets, which have seen an extended period of growth since the 2008 financial crisis, said participants in a conference call sponsored by BlackRock on Friday.
International markets are already outperforming the Standard & Poor’s 500 stock index this year, with exchange-traded funds such as the Vanguard FTSE All-World ex-US ETF (VEU), the largest international ETF by assets under management, up 23.6 percent year-to-date, while the iShares MSCI ACWI ETF (ACWI) has gained 20 percent. Meanwhile, the SDPR S&P 500 ETF (SPY) is up 16.1 percent.
The structural reforms by Japanese Prime Minister Shinzo Abe are taking hold, Europe’s recovery is broader, and as global trade has improved export-driven economies in emerging markets are benefitting, participants said, citing just a few reasons why they think international markets will continue to outperform.
TD Ameritrade is staking a bold claim in the low-cost ETF space, announcing it will dramatically expand its menu of commission-free funds from leading asset managers.
The custodian plans to offer advisors and retail investors access to 296 commission-free ETFs, nearly tripling its current roster of 100 funds and sending a shot across the bow of rivals Schwab and Fidelity.
TD boasts of its long roots in the ETF space, but amid explosive growth in that sector, the firm’s lineup had gotten “fairly stale,” according to Kostya Etus, a portfolio manager with CLS Investments, an ETF strategist based in Omaha, Nebraska.
Orion Advisor Services, LLC, (“Orion”) the premier portfolio accounting service provider for advisors, today announced Orion Communities, an interactive peer-to-peer exchange that allows Orion clients utilizing its Eclipse trading platform, along with other strategists, to share model portfolios with each other in an open-source platform.
Communities is the only central marketplace that enables advisors and strategists to provide insight into their own investment strategies with each other, while still maintaining full control of the trading process. Orion has partnered with world-class asset management firms Russell Investments, BlackRock, and CLS Investments, which will share their own models, portfolio building tools, market updates and commentaries with the Orion advisor community, with many being offered at zero charge for Orion clients on its Eclipse platform.
“In a dynamic market, it is important for advisors to work together to offer the best possible investment solutions for their clients, and we recognized the market demand for a platform like Communities,” said Todd Clarke, managing director, NorthStar Financial Services Group, LLC, parent company to Orion. “With Communities, Orion is making it easier for advisors to access and leverage each other’s expertise, helping them diversify their practices and serve clients more efficiently.”
Attributes of a Fiduciary
In the investment world these days, fiduciary is a hot word and for good reason. It’s a long-term, win-win situation. Advisors working first and foremost on behalf of their clients, instead of their own interests, is a win for investors and a win for the investment management profession.
The definition of a fiduciary is a person or organization that owes to another the duties of trust and good faith and pledges to act in the other’s best interest. This sounds obvious, but how is that faith typically measured, monitored, and managed? I believe there are three ways being a fiduciary is conventionally measured.
First, advisors are moving toward fee-based business models and away from commission-based. I believe this is a very good trend, but I acknowledge many long-term investors who buy loaded mutual funds will often pay less in fees and have better investor experiences than those who frequently trade no-load mutual funds. With that said, I believe the fee-based model in general should help improve investor behavior as advisors counsel staying balanced instead of emphasizing a sense of urgency. I believe a fee-based model is better in the aggregate and the long-term behavior gap, which is the difference between an investment’s return and the investor’s return (taking into account cash flows in and out of the investment), will improve as more advisors adopt a fee-based model. Since behavior is the biggest cost to investors, this is a very positive change.
Fixed-income investors may consider smart beta bond ETFs as a suitable alternative that could make up the shortcomings of traditional bond index funds.
On the recent webcast, The Fed, Factor Investing and Fixed Income, Martin Kremenstein, Senior Managing Director and Head of ETFs at Nuveen, warned that fixed-income investors should expect some changes in the months ahead.
For instance, the Federal Reserve will likely begin unwinding its portfolio of Treasury and mortgage-backed securities to shrink its enlarged balance sheets, which would put moderate upward pressure on long-term rates. Nuveen also expects the Fed to hike rates in December, followed by two more rate hikes in 2018, and anticipate yields on benchmark 10-year Treasury notes to climb back to 2.45% by year-end.
Joshua Jenkins, Portfolio Manager for CLS Investments, also pointed out that equity valuations appear stretched, which may open up short-term opportunities in fixed-income assets as bond returns have historically exhibited an inverse correlation to equities during periods of heightened volatility or periods of drawdowns in the stock markets.
CLS Investments is excited be featured in WealthManagement Industry Awards 2017 Issue on pages 26-27.
This information is not complete with out this disclosure.
CLS Investments is a top 10 holder in more than 50 different ETFs, many of which are new (and potentially small), but well vetted strategies with enormous potential. While the world of ETFs is still reasonably manageable, we believe investors should scour the available universe for undervalued asset classes. This can be uncomfortable, but highly rewarding. Let’s look at a few obscure examples that likely have flown under the radar of many ETF users.
First Trust Nasdaq Retail ETF (FTXD)
Some readers may just close their browser window right here. Retail? Retail?! This fund was launched about a year ago and, as many would expect with the Amazon onslaught, has not gained assets. However, the ETF tracks an interesting index. It weights securities in the retail industry by trailing 12-month volatility, valuations (cash flow to price) and several momentum measures. This helps to weed out some of the value traps in the space (there are many) and focus on the more attractive names, such as those that actually generate positive cash flow. From a valuation standpoint, although not explicitly screened that way, it looks attractive relative to the rest of the world on a price-to-earnings, price-to-sales, and price-to-cash flow basis. And for what it’s worth, it has a 4% weight in Amazon as of this writing.
While market prices are steadily moving higher this year, risk (defined as price volatility) has declined for many multi-asset ETF portfolios. In turn, returns are steady and providing a smooth ride for investors. No wonder so many surveys lately show investors are feeling comfortable. But will this trend continue?
Risk is decreasing for two reasons. First, in absolute risk terms (as defined by price volatility), overall market volatility is dropping. By some measures, it recently reached its lowest levels since the 1960s.
That alone explains why investment firms are seeing inflows and higher asset-retention rates. Volatility is destabilizing for investors and often a catalyst for emotional decision-making. That is the case whether prices are falling (investors are nervous of losing money), or rising (investors fear missing out on gains).
Millennial investors don’t want their parents’ investments. This is bad news for mutual funds and good news for ETFs. Case Eichenberger of CLS Investments says millennials want ETFs because they’re more cost effective and evidence based.
Trendy quantitative exchange-traded funds, also known as smart beta, give investors exposure to algorithm-based strategies that offer lower fees and volatility than expensive, traditional stock-picking funds.
Unlike active funds, which rely on the decision-making skills of human portfolio managers, smart beta ETFs depend entirely on the numbers. The funds choose stocks and rebalance their holdings based on a mathematical or rules-based algorithm, says Marco Avellaneda, professor of mathematics at New York University and an enthusiast who has tracked exchange-traded funds since the 1990s and quant ETFs since 2002.
Though they have existed for decades, smart beta funds have mesmerized lately as the stock-picking talents of hedge and mutual fund managers hit a wall thanks to a market in full gallop. Unwilling to exit the stratospheric market just yet, investors opt for the low volatility and mathematical strategy of smart beta. But producers of the ETFs also have a goal.
Many investment managers are trying to give the public a variety of ETFs that mirror the Standard & Poor’s 500 or other major indexes, but that use rules-based formulas, which Avellaneda calls “a better mousetrap.” The additional features enable these funds to charge more than a traditional ETF. Hedge funds have also gotten into the game. Not wanting to miss the boat on smart beta, they have added more complex algorithms to their own ETFs and charge even more for the effort.