News Mentions & Press Releases
Over the July 4 holiday, I had the privilege of stepping away from the office for a while, and I found myself watching a lot of financial television, probably too much. Financial media has many positives and negatives – a discussion for another time – but, what has become apparent lately is that these “newfangled ETFs” are being covered in very different ways across networks and media outlets — if they are covered at all. Some observations are warranted to keep investors informed.
First, is the apparent negativity towards ETFs? Typical ETF-focused headlines (and, let’s be honest, a lot of headlines in general) only focus on the potentially negative aspects. Whether passive instruments are owning the whole market, causing flash crashes, or contributing to market volatility, there are generally several unfounded arguments against ETFs that make a lot of the headlines.
Factor investing is all the rage, but many financial advisors are still unsure of its benefits. Factors such as value, momentum, size, minimum volatility, and quality are well-documented as robust and persistent across markets over time. Advisors and investors alike must now determine how to harness some of the latest ETF innovations to deliver better outcomes in their portfolios.
While there are many academic studies available, there is still much to be understood in regards to the key selling points and long-term benefits of incorporating factor investing into broader investment portfolios. Below is a quick look at a few strategic reasons advisors should consider making the move into factor-based ETFs.
Washington is in gridlock and the White House faces scrutiny. Valuations are at the highest levels since the financial crisis. There’s been straight months of outflows from the biggest exchange-traded fund tracking the S&P 500.
Traders shrugged it all off in another positive week for the U.S. equity market that ended with the benchmark gauge at a record — the 25th this year. The S&P 500 added 1.4 percent for the best week since May, the Dow Jones Industrial Average climbed for the sixth week in seven and the Nasdaq 100 posted the best advance of 2017.
The CBOE Volatility Index ended at 9.51, a 24-year low, falling 15 percent.
As corporate earnings start to trickle in, it’s time for U.S. corporations to show investors what they’re paying for. Expectations for profits, the cornerstone of many a bull case, are some of the loftiest in history by some measures.
Here’s a breakdown of some of the key components for this season:
Halfway through 2017, only two of Nebraska’s big publicly traded companies have outpaced the broader stock market.
Ag-irrigation and road infrastructure company Lindsay Corp. has more than doubled the almost 9 percent gain in Standard & Poor’s 500 index so far this year. And Omaha-based trucker Werner Enterprises has beaten the S&P 500 benchmark by a few percentage points.
But none of the others in Nebraska’s largest dozen has managed the same.
“Taking what the market has done year-to-date into consideration, depending on what company you were allocated to in the Cornhusker State, you either fared relatively well or are questioning whether home cooking is best for your portfolio,” said Mark Matthews, an analyst at Omaha adviser CLS Investments.
Warren Buffett’s plans to acquire the parent company of Texas’ largest electricity-transmission operator says a lot about the current appeal of the utility sector, according to industry analysts.
“They paid a lot for that utility business, but the arbitrage makes sense for Berkshire,” said Travis Miller, energy and utilities strategist at Morningstar.
The reported agreement has Mr. Buffett’s Berkshire Hathaway paying $9 billion in cash for Energy Future Holdings Corp., the parent company of Oncor Electric Delivery Co.
Welcome to the July issue of the Latest News in Financial Adviser #FinTech — where we look at the big news, announcements, and underlying trends and developments that are emerging in the world of technology solutions for financial advisers and wealth management!
This month’s edition kicks off with the big release of Riskalyze’s new Autopilot platform, which has morphed from “just” a robo-onboarding tool for a TAMP, into a full trading and rebalancing solution that operates as a “Model Marketplace” allowing advisers access to third-party managers and their models for a cost of 10 – 15bps. But the real news is that Riskalyze is also launching a series of its own proprietary “Risk Number Models,” which will be made available for “free” to advisers … because their clients using those models will then be invested at least in part into a series of new Riskalyze “smart beta” proprietary ETFs charging 0.50% to 0.77% expense ratios, as Riskalyze uses its big $20M Series A round to pivot from being “just” a FinTech solution into a proprietary ETF manufacturer that uses its technology to help distribute its own asset management products.
U.S. lending rates are rising, and investors are holding on to $151 billion worth of dividend ETFs. Cue the sell-off?
Not so fast. Even as the Federal Reserve increased interest rates last week for the fourth time since the financial crisis, assets in ETFs that hold high dividend stocks hardly budged. So far in June, investors have pulled $26 million from the funds, the first monthly outflows in more than a year, but a drop in the bucket for the second-largest smart beta category after value.
It seems investors are bucking the conventional wisdom that rising rates mean it’s time to get rid of the dividend payers in their portfolios.
“While there are definitely some people that go in for yield, there is another dimension here, which is that people simply value stocks that pay dividends,” said Eric Balchunas, a Bloomberg Intelligence ETF analyst. “Dividend ETFs really held their own and in some cases took in money during past rate rises,” he said.
Investors have a range of options of where to get advice and park their assets. Banks, trust companies, traditional stock brokers and online trading platforms are all viable alternatives.
But a growing number of investors have turned to registered investment advisors. An RIA firm offers its services for a fee and acts as a fiduciary.
By definition, a fiduciary manages the assets of a client and has a legal and ethical obligation to put the client’s interests first. Financial advisors who are fiduciaries must disregard how they will be compensated in order to help the client make the best decisions.
The Securities and Exchange Commission regulates RIAs.
“RIAs are becoming the desired model for financial advice,” says Brent Brodeski, CEO at Savant Capital Management, a fee-only RIA based in Rockford with offices throughout the Chicago area. “The advantage to consumers is more transparency and objectivity.”
“Smart beta” exchange traded funds are doing okay but many of the people running them are doing dumb things that undercut the active management business — and have put de facto dumb beta ETFs in the driver’s seat.
That harsh assessment came not from a shill of another product category but rather as a takeaway from smart beta’s best and brightest gathered at last week’s second annual Inside Smart Beta Conference, which drew 350 attendees to the Convene Midtown West, on the fringe of Manhattan’s theater district.
The good news for smart beta ETFs is the scorching growth rate — jumping from $200 billion to more than $600 billion just since 2013. In the past year, 120 new funds were added as firms that missed out on the first ETF wave make certain this one doesn’t pass them by. The wild ride that Goldman Sachs took to launch its first ETF — one that even an RIA could love?
Here’s one for the record books: In 2016, the average annual expense ratio paid by mutual-fund and exchange-traded-fund investors dipped to its lowest point ever—0.57%—versus 0.61% in 2015, according to Morningstar’s most recent fee study, released late last month. This marks the greatest annual decline since the firm started tracking the data in 1990.
What happened? Chalk it up to a combination of factors. Morningstar tallied asset-weighted averages—meaning the fees of the funds with the most money in them counted more than smaller funds—so the ongoing migration of investor assets from high-cost active funds to low-cost index funds and ETFs was certainly a factor. There has also been a wave of fee reductions at some of the largest fund complexes, and, not least of all, a rising stock market.
“One big tailwind for lower fees for the industry as a whole has been the stock market rally,” says Russ Kinnel, director of mutual fund research at Morningstar. Because Standard & Poor’s 500 index funds are among the cheapest of the bunch, any relative growth in assets in that group—even if it stems purely from performance—will lower the average asset-weighted expense.