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Fixed Income Insights
Return of the Bond Market: Better Income Opportunities?
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Most investors incorporate bonds into a portfolio to provide diversification. Unfortunately, a smoother return path has not held true in recent years. But now the market has recalibrated, and yields have reset higher. Higher yields mean higher future returns. And for the first time in a while, you can make the argument that bonds provide true competition to stocks.
Behavioral Finance
Direct Indexing and the IKEA Effect
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The “IKEA effect” describes a cognitive bias that happens when people put in some form of labor to complete a project or finish a creation. Direct indexing won’t solve the behavior gap, but it has the potential to create better investor behaviors by allowing investors to play a larger role in the portfolio-building process.
Market Outlooks
Sleeping at Night? Consider Adding an Absolute Return Strategy
Perhaps the most concerning issue for multi-asset investors as we turn to 2023 is diversification—or the lack thereof in recent times. And while this is not the first time that the “traditional” correlation between U.S. Treasuries and equity markets has broken down—people tend to pay less attention when both are producing positive returns—it has been one of the worst years on record for the total return of a 60/40 portfolio in 2022.Herein lies the merits of discussing an absolute return approach with clients.
Market Outlooks
Global Convictions: January 2023 Asset Class Research
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Heading into 2023, bearish sentiment among investors is coming off a very low base, with some of the worst recorded data since tracking started 35 years ago. With a contrarian lens, this could be a positive. However, while the overall valuation landscape has undoubtedly improved, there are many assets which remain around fair value. In such an environment, we continue to balance opportunities against risks.
Behavioral Finance
Market Perspective: There are No Rewards Without Risk
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2022 reminded investors of the risk from investing, but none of this makes losses palatable. As the old axiom goes, “there are no rewards without risk.” Here's perspective from Marta Norton, CIO, Americas, Morningstar Investment Management LLC.
Investing Ideas
As ETFs Boom, Trading Strategies Matter in a Volatile Market
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Capital markets haven’t been an easy road for investors to navigate in 2022, due to a bear market, red-hot inflation and rising correlations that have hampered diversification. Traditional safe havens for long-term investors have struggled too, with cash and Treasuries facing a rising-rate environment alongside historically high levels of market volatility. This uncertainty is one of the reasons behind what could be a record-breaking year in trading volume for exchange-traded funds (ETFs) due to their ability to provide investors with access to a wide variety of market sectors, attractive liquidity and low fees. In addition, many investors are using this vehicle for its tax-loss-harvesting properties as 2022 draws to a bumpy close. All of these benefits have led to a flurry of activity within ETF trading, with one sector in particular— actively managed ETFs—seeing a notable surge in popularity.