Gaining Perspective

Diversification is a core principle of sound investing, but building a diversified portfolio is much easier in theory than in practice. In the recently published “2024 Diversification Landscape,” portfolio strategist Amy Arnott of Morningstar took a deep dive into the diversification potential of several major asset classes. As advisors build their clients’ portfolios, there are a few lessons from this research. First, it is impossible to predict which asset class will do well in any given year. Holding a variety of asset classes helps guard against being overly exposed to an area that falls out of favor. Second, while the correlation between stocks and bonds has increased, bonds still provide relatively strong diversification benefits. This means that the classic 60/40 portfolio is tough to beat, having produced returns of about 18% in 2023. Third, the asset classes with the strongest diversification benefits may come as a surprise to some advisors. Real estate is a questionable diversifier despite its popularity, while cash is a strong diversified. 

Show Notes

Here are some links to learn more about Amy and her research:

• Get the full report: 2024 Diversification Landscape

The multi-trillion-dollar ESG fund industry faces a regulatory problem. By the end of 2025, funds with net assets of $1 billion or more must comply with the amendments to SEC Rule 35d-1, better known as the “names rule.” It requires funds with names that include ESG terms have at least 80% of the fund invested in assets that aligned with those terms. The amendments strengthen prospectus disclosure requirements, and mandate that terms used in the fund’s name suggesting an investment focus be consistent with their plain-English meaning or established industry use.

My guest today will explain how ESG has become a meaningless term to investors. The result has been massive flows to ESG funds that have large holdings in oil companies, agricultural chemical manufacturers and similar companies that many investors are not aware of. Fund managers are struggling to explain what is going on, as they must to comply with the names rule.

Show Resources
Here are some links to learn more about Jason and Reflection Asset Management:

• Reflection Analytics Launches Digital Platform for Comprehensive ESG Audit and Analysis
• SEC Adopts Rule Enhancements to Prevent Misleading or Deceptive Investment Fund Names
• Reflection AM
• Reflect website

Today’s technology-driven landscape makes it easier than ever for RIAs to embrace automation across their tech stack and supercharge their businesses. Advisors can save time and minimize errors by using trading and rebalancing tools, portfolio management and CRM systems to manage accounts. Automation in data analysis also frees up time to provide more personalized advice or pursue new business. During this episode, Steve Sanders of Interactive Brokers will cover How automation increases operational efficiencies for advisors, why data aggregation and integrated reporting are critical to serving clients holistically and so much more. 

Show Notes
Below are some links to learn more about Steve and Interactive Brokers:

• Interactive Brokers home page: https://www.interactivebrokers.com/en/home.php
• Interactive Brokers page for RIAs: https://www.interactivebrokers.com/en/accounts/advisor.php

With nearly 4.5 million Americans turning 65 in 2024, advisors are navigating four core risks that will impact their portfolios in retirement: longevity, inflation, volatility, and emotions. We will discuss new research by Dr. Wade Pfau, professor at The American College of Financial Services. He did this research on behalf of Equitable to look at how to improve the efficient frontier, enhance risk-adjusted returns and help advisors – and their clients – make the most of their assets through their retirement.

The research looks at the role of a registered index linked annuity (RILA) with lifetime income for a portion of a portfolio and the resulting impact on meeting lifetime spending goals, preserving assets and managing volatility as part of an overall retirement plan.

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Here is a link to learn more about Wade, Pete and Equitable’s offerings:
Equitable’s retirement guide: https://equitable.com/financial-professionals/annuities/tool-center?utm_source=rgnov23

Large international index funds do not account for geopolitical risk. Corruption has costs, and in this age of conflict with rising tensions in the Middle East, Russia, Ukraine and elsewhere, investors are faced with a daunting landscape while US markets are near highs. Should investors ride the momentum or transition and rotate to sectors that represent greater value and higher forward expected returns?  The traditional international funds are attractively valued relative to the US but are fraught with risk. Today we will hear from Julie Cane and Chris Browne from Democracy Investments to discuss democracy as a factor in international investing. 

Show Resources

Here are some links to learn more about Julie, Chris and Democracy Investments:

• To learn more about Democrqacy Investments, and the DMCY fund visit https://www.advisorperspectives.com/pdfs/2024/DI-Overview-3_20_24.pdf 
•  Please find more information and important disclosures at https://www.democracyinvestments.com/fund

Let’s explore the world of cash. One year after the collapse of SVB, fiduciaries need to understand the cash management platforms on the market, including the fine print that can make or break a client relationship. The right platform will help the advisor provide more holistic advice and grow their AUM organically. My guest will discuss what advisors need to know about cash sweep accounts and how advisors can evaluate different platforms. We hope to provide a better understanding of the cash management landscape, the inherent conflicts of interest that occur, and how to talk to clients about cash.

Show Resources

Here are some links to learn more about Gary and MaxMyInterest:

• www.maxforadvisors.com 
• The Impact of Active Cash Management  

On March 8 of this year, BlackRock announced its agreement to acquire the remaining equity interest in SpiderRock Advisors, LLC, a leading provider of customized option overlay strategies in U.S. wealth markets – a move that builds on BlackRock’s minority investment in SpiderRock, made in 2021, and reinforces BlackRock’s commitment to personalized separately managed accounts.

Led by President and Chief Investment Officer Eric Metz, SpiderRock Advisors is a Chicago-based asset management firm focused on providing customized option overlay strategies to investors. The company excels in innovating options strategies, making them a vital asset class for institutions and advisors. By combining technology with comprehensive derivative management expertise, SpiderRock Advisors is committed to making it easy for financial advisors and institutions to add option overlay strategies to their portfolios. SpiderRock Advisors manages approximately $5 billion.

Show Resources

Press release (March 8, 2024): BlackRock to Acquire SpiderRock Advisors- https://ir.blackrock.com/news-and-events/press-releases/press-releases-details/2024/BlackRock-to-Acquire-SpiderRock-Advisors/default.aspx

Web site: www.spiderrock.com- http://www.spiderrock.com/

Investors are choosing bonds in record numbers – in 2023, global bond ETFs gathered an annual record of over $300 billion in flows with iShares leading with $113 billion. My guest today will explain why this will continue, as many investors are still significantly underweight to fixed income, with a 22% average allocation. You will hear why investors need to step out of cash and move faster into fixed income because, historically, the market has priced in rate actions long before they occur.

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Here are some links to learn more about Steve and BlackRock:

• BlackRock Flexible Income ETF (BINC)
• BlackRock Total Return ETF (BRTR)
• iShares iBonds ETFs
• iShares High Yield Systematic Bond ETF (HYDB)
• iShares Core U.S. Aggregate Bond ETF (AGG)
• iShares Core Total USD Bond Market ETF (IUSB)
• iShares Broad USD High Yield Corporate Bond ETF (USHY)
• iShares J.P. Morgan Broad USD Emerging Markets Bond ETF (BEMB)
• BlackRock AAA CLO ETF (CLOA)

The easiest new client to get is the one that you don’t lose. Focusing on client retention is the key to the success of any business – whether you are an RIA or FA with 300 clients, or a mutual fund manager with 300,000 or three million shareholders. What are the lessons learned from past periods of stock and bond market stress applicable to client retention? How can regulators, watching the mutual fund industry and the advisory profession – so important to the national’s retirement savings – benefit from these lessons?

Show Resources
Here are some links to learn more about Avi and his work:

• A like to the latest study: https://www.linkedin.com/feed/update/urn:li:activity:7174395341968920576/ 
• 2015 study: https://static1.squarespace.com/static/579505b4b8a79baa23c97c61/t/65b51ddbba4ee864a636622b/1706368477762/Strategic+Insight+Study+-+Mutual+Funds+and+Systemic+Risk%2C+March+2015+%28FSOC+Submission+Docket+2014-0001%29.pdf
• Avi's LinkedIn page: https://www.linkedin.com/in/avinachmany/
• Avi's personal web site: https://www.avinachmany.com/

The economy, inflation, interest rates and market valuations drive the key questions facing advisors. Does the tech stock landscape mirror the boom of 1996 or the bust of 2000? What will be the impact of Meta's inaugural dividend payment? Is now the time to increase allocations to international Markets? What are the challenges faced by retail banks by not providing competitive rates and the resulting opportunity cost of holding cash? Finally, we will address the complexities advisors face in investment management, client growth, and retention.

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Here are some links to learn more about Jeremy and Wisdom Tree Financial:

• Jeremy Schwartz | ETFs (Exchange Traded Funds) & ETF Investments from WisdomTree- https://www.wisdomtree.com/investments/jeremy-schwartz
• 2024 Economic Outlook & Market Signals | WisdomTree- https://www.wisdomtree.com/investments/strategies/on-the-markets