Investments Roundup: HFR, Cerulli, Blackstone, VanEck And More

Q&A With HFR President Kenneth Heinz – Our Investments Solutions Leader Of The Month – And Product News Featuring Cerulli, Blackstone, VanEck, Arch Indices, FusionIQ, Smartleaf, SoFi, Simplify and SKYVIEW 1
Chris Latham, Managing Editor, Wealth Solutions Report
Chris Latham, Managing Editor, Wealth Solutions Report

Due to popular demand by financial advisors and wealth management executives seeking access to portfolio strategies, the Investments Roundup will now appear on a monthly basis. This edition, we speak with our newest Investment Solutions Leader of the Month, Kenneth Heinz, President of HFR, on the release of its full-year 2023 hedge fund data.

Other entries this month include VanEck and 10 other providers launching bitcoin ETFs, Cerulli reporting that ETF assets hit record highs, Blackstone’s PE fund for wealthy investors raising $1.3 billion, Arch Indices partnering with Quorus on Arch’s Variance Optimized Indexing, FusionIQ partnering with Avantis Investors to offer advisors access to the Avantis fund lineup,

Smartleaf Asset Management partnering with Clearstead Advisors on direct indexing and subadvising, SoFi launching the SoFi Enhanced Yield ETF, Simplify Asset Management launching the Simplify MBS ETF, and SKYVIEW 1 launching banking indices on checking and savings yields.

Larry’s Take

Larry Roth, CEO, Wealth Solutions Report
Larry Roth, CEO, Wealth Solutions Report

Financial advisors and wealth management firms have tough investment decisions to make at the start of 2024 regarding the abundance of potential opportunities – and risks – in this uncertain market environment.

One question is whether it’s finally time to allocate a percentage of client portfolios to cryptocurrencies. If so, how does that impact a client’s broader alternative investment strategy in relation to hedge funds, private equity, real estate investment trusts (REITs) and so on?

Yet even if “traditional” alts remain safer portfolio diversifiers than crypto, it’s worth asking if the performances of individual fund strategies still justify their fees in an environment where Federal Reserve interest rate decisions continue to hold such outsize sway on financial markets.

If you would like to discuss this Larry’s Take further, including how these trends might impact your business, please contact me at larry.roth@rlrstrategicpartners.com.

1. HFR’s Full Year 2023 Data Shows Surging Hedge Fund Performance

Kenneth Heinz, President, HFR
Kenneth Heinz, President, HFR

HFR released its full-year 2023 hedge fund data, which found that hedge fund performance surged through year-end, with December showing the acceleration of powerful leadership trends from the prior month.

The HFR Database, which is comprised of nearly 6,000 alternative investment products, includes fund-level detail on historical performance and assets. HFR produces more than 100 indices of hedge fund performance. The HFRI Fund Weighted Composite Index has performance dating back to 1990.

And now for our Q&A with HFR President Kenneth Heinz.

WSR: How did the most popular hedge fund strategies perform in 2023, and what factors influenced their performance?

Heinz: Our HFRI indices are designed to capture the breadth of hedge fund performance across strategies and regions, and the leading areas of HFRI performance last year were Event Driven & Activist strategies, closely followed by Equity Hedge. The HFRI Event Driven Index gained 10.7% for the year while HFRI Equity Hedge gained 10.4%. The Activist Event Driven substrategy led substrategy gains with 20.2%. Cryptocurrency focused hedge funds (which are separate from HFRI Index strategies) led indices with a gain of over 65%.

The primary driver of performance was falling inflation and expectations for flat to falling interest rates in 2024. These combine to contribute to an improving economic outlook and led many to believe that strategic M&A is likely to rebound in 2024.

WSR: How can financial advisors use hedge funds, and HFR data, in service to their wealth management clients?

Heinz: Advisors can use hedge funds to provide strategies within a client’s portfolio that may be able to deliver an absolute return regardless of overall market direction. Hedge funds may also provide exposure to niche strategies that are not easy to access with publicly traded vehicles.

For example, there are hedge funds that work to arbitrage opportunities with closed-end funds that trade at discounts or premiums, funds that specialize in cryptocurrency trading to arbitrage price discrepancies on various global exchanges, hedge funds that focus long/short on climate change, market neutral energy strategies, and much, much more.

HFR’s data can illuminate thousands of hedge funds for research by financial advisors based on their areas of interest and statistical requirements.

WSR: What should advisors look to as the major trends set to impact hedge fund strategies and performance in 2024?

Heinz: Investors are looking for a balance of defensive portfolio protection from volatility, as well as specialized participation in broader market gains. Last year’s equity market performance was concentrated in a narrow group of large-cap tech stocks. While rates and inflation risks have fallen, these could re-emerge, and geopolitical risk – which has been at historical highs – remains elevated and could possibly increase based on ongoing or potential miliary conflicts.

2. Cerulli Finds ETF Assets Hit New Record, With Active Strategies Rising

Kurt Cerulli, CEO, Cerulli Associates
Kurt Cerulli, CEO, Cerulli Associates

Cerulli Associates released its latest edition of The Cerulli Edge—U.S. Monthly Product Trends, which analyzes data as of November for mutual funds, ETFs and managed accounts. Total mutual fund assets grew 6.6% in 3Q 2023, to $17.7 trillion. ETF assets grew to a record of $7.6 trillion in November, the highest since December 2021. Active ETFs accounted for 19% of ETF inflows.

The wealth management industry has seen greater adoption of fee-based managed accounts, including unified managed accounts (UMAs), Cerulli found. Technology upgrades also have lowered client investment minimums for customized separately managed account (SMA) offerings.

“To optimize their addressable opportunity, asset managers must be prepared to offer the breadth of their intellectual property through separate accounts in a variety of delivery options to wealth managers that sponsor separate account and UMA programs,” according to Cerulli.

3. VanEck, 10 Other Asset Managers Launch Bitcoin ETFs

Jan van Eck, CEO, VanEck
Jan van Eck, CEO, VanEck

The day after the historic Jan. 10 Securities and Exchange Commission (SEC) ruling allowing bitcoin ETFs, VanEck launched the VanEck Bitcoin Trust, an ETF that provides spot bitcoin exposure under the ticker HODL, which will be priced with an expense ratio of 0.25%. VanEck was the first established ETF issuer to file for a futures-based bitcoin ETF in 2017, and filed for a spot bitcoin ETF in 2018.

Other Bitcoin ETFs include the BlackRock iShares Bitcoin Trust (IBIT), Grayscale Bitcoin Trust (GBTC), Bitwise Bitcoin ETF (BITB), Hashdex Bitcoin ETF (DEFI), ARK 21Shares Bitcoin ETF (ARKB), Invesco Galaxy Bitcoin ETF (BTCO), WisdomTree Bitcoin Fund (BTCW), Fidelity Wise Origin Bitcoin Fund (FBTC), Franklin Bitcoin ETF (EZBC) and the Valkyrie Bitcoin Fund (BRRR).

“VanEck was the first established ETF issuer to prioritize this type of product, and it has taken more than six years to get to this launch today,” said Jan van Eck, CEO of VanEck. “As an experienced asset manager with significant crypto expertise, we’re in a unique position to help investors who have been waiting for this kind of vehicle to begin their own bitcoin journey.”

4. Blackstone’s PE Fund For Wealthy Investors Raises $1.3 Billion

Joan Solotar, Head of Private Wealth Solutions, Blackstone
Joan Solotar, Head of Private Wealth Solutions, Blackstone

Blackstone’s BXPE, its first private equity fund for wealthy individuals with at least $5 million to invest, raised $1.3 billion. BXPE invests across strategies that span corporate, secondaries, opportunistic, growth and credit, according to its website. However BXPE might not access all these strategies, and available strategies may change over time.

BXPE is expected to have monthly subscriptions, quarterly liquidity and no capital calls. As the world’s largest private equity platform, Blackstone had approximately $299 billion in private equity assets under management (AUM) as of Sept. 30 and has deployed over $100 billion in capital during the past three years.

“We think private markets have a lot to offer,” Joan Solotar, Head of Private Wealth Solutions at Blackstone, said in a company video. “We created BXPE so that individuals can achieve diversification across more than a dozen private equity strategies in a single fund.”

5. Arch Indices Partners With Quorus To Provide Indexing

John Hill, CEO, Quorus
John Hill, CEO, Quorus

Index and ETF provider Arch Indices and advisory firm Quorus announced a partnership in which Quorus will offer Arch’s Variance Optimized Indexing (VOI) indexes in personalized, tax-managed accounts, to provide advisors with VOI indexes when generating tax alpha and personalizing accounts for clients.

The first index offered through Quorus is the VOI Core Absolute Income Index, which comprises bond ETFs and dividend stocks weighted to maximize income and minimize volatility. VOI indexes are designed to account for both individual asset volatility and cross-asset covariance, with a goal of reducing overall risk and volatility. In October, Arch announced the launch of the VOI Absolute Income ETF based on the same methodology.

John Hill, CEO of Quorus, said, “The Arch team has developed a thoughtful series of strategies that capture something entirely new when it comes to portfolio construction and optimization, and we ensure that any advisor who uses these strategies will also gain the benefits of our next-gen approach to direct indexing.”

6. FusionIQ Partners With Avantis Investors For Advisor Access To Funds Lineup

Mark Healy, CEO, FusionIQ
Mark Healy, CEO, FusionIQ

FusionIQ, a provider of cloud-based wealth management solutions, partnered with Avantis Investors, an investment strategies offering from global asset manager American Century Investments. Advisors can access the Avantis Investors lineup of ETFs and mutual funds spanning equities, fixed income and real estate, through FusionIQ’s Digital Model Marketplace.

Avantis Investors had $32 billion in AUM as of Nov. 24 and American Century Investments had $218 billion in assets under supervision as of Nov. 29. FusionIQ One – the end-to-end multi-custodian digital wealth platform – serves credit unions, banks, RIAs and independent broker-dealers.

“Avantis Investors’ expertise in launching highly successful exchange-traded funds adds value to client portfolios,” said FusionIQ CEO Mark Healy. “The collaboration between our two fast-moving firms will help advisors and their clients achieve investment goals through a relentless focus on diversification.”

7. Smartleaf Partners With Clearstead On Direct Indexing, Subadvising

Jerry Michael, President, Smartleaf Asset Management
Jerry Michael, President, Smartleaf Asset Management

Smartleaf Asset Management (SAM), the RIA subsidiary of Smartleaf, partnered with the private wealth management and institutional investment consulting firm Clearstead Advisors to improve access for Clearstead clients to personalized and tax-efficient investment options, including direct indexes. Clearstead has over $30 billion in assets under advisement.

SAM will serve as a subadvisor for Clearstead by conducting ongoing review, rebalancing and trading of client portfolios; by implementing client personalization preferences the advisor sets, such as product selection and cash management, as well as religious value, socially responsible investing (SRI) and security screens; and by implementing tax management that includes tax-sensitive transitions, year-round loss harvesting and risk-sensitive gains deferral.

“At Smartleaf Asset Management, we cater to firms that have moved beyond product, trade and performance-oriented value propositions, and instead strive to be their clients’ lifetime financial coach and guardian,” added Jerry Michael, President of SAM. “Clearstead exemplifies this client-centric approach, and we are thrilled to play a role in this ongoing journey.”

8. SoFi Launches Treasuries-Based ETF With Monthly Income

Tobin McDaniel, Head of SoFi Invest, SoFi
Tobin McDaniel, Head of SoFi Invest, SoFi

SoFi Technologies launched the SoFi Enhanced Yield ETF (THTA), which makes monthly distributions through a portfolio of one- to three-month Treasury Bills, has tax-loss harvesting opportunities, and uses a data-driven “credit spread” options overlay strategy.

THTA strives to operate as an alternative investment option with historically low correlation to the S&P 500 Index and interest rates. It will be actively managed by ZEGA Financial. U.S. Bank serves as the custodian of the fund’s assets.

“What a day! Ringing the Bell to close the first day of 2024 trading at the New York Stock Exchange to celebrate SoFi’s newest ETF – THTA,” Tobin McDaniel, Head of SoFi Invest, posted on LinkedIn. “Thanks to our partners NYSE, Tidal Financial Group, and Zega Financial. Also, congrats to Igor Istratov and the rest of the team on the launch.”

9. Simplify Asset Management Launches MBS-Focused ETF

Harley Bassman, Managing Partner, Simplify
Harley Bassman, Managing Partner, Simplify

Simplify Asset Management launched the Simplify MBS ETF (MTBA), which invests in mortgage-backed securities (MBS) and will focus on providing exposure to MBS issued in 2023. Simplify was founded in 2020 and had over $3.2 billion in AUM across more than 25 ETFs as of Jan. 5, 2024.

Initially MTBA will invest in the Federal National Mortgage Association (Fannie Mae) 6.0% coupon bonds, with exposure obtained through investments in To-Be-Announced (TBA) contracts, which are MBS forward contracts. They will be rolled monthly as they approach expiration. Simplify ETFs are distributed by Foreside Financial Services.

“MBS issued this year have larger coupons and shorter durations in comparison to previous vintages, providing a potential cushion against losses if the Federal Reserve keeps rates ‘higher for longer,’ which is something I have been suggesting will be the case for some time,” said Harley Bassman, the Managing Partner at Simplify who built the strategy that fuels MTBA.

10. SKYVIEW 1 Launches Banking Indices On Checking, Savings Yields

Scott Wetzel, CEO and Co-Founder, SkyView Partners and SKYVIEW 1
Scott Wetzel, CEO and Co-Founder, SkyView Partners and SKYVIEW 1

SKYVIEW 1, a white-label digital banking platform and affiliate of SkyView Partners, launched banking indices following the average interest rate that domestic banks pay on checking and savings accounts. The goal is to help financial advisors and their clients with investment opportunities by benchmarking their existing interest rate yield against comparable offerings.

The SKYVIEW U.S. National Average Checking Interest Index (BNKCHX) follows the national average interest rate paid on domestic checking accounts. The SKYVIEW U.S. National Average Saving Interest Index (BNKSAV) follows the average rate paid on domestic savings accounts. The indices are available on Bloomberg, Reuters and Morningstar.

“Historically, the banking sector has lagged behind the wealth and asset management industries as it pertains to interest rate transparency and benchmarking,” stated Scott Wetzel, CEO and Co-Founder of SkyView Partners and SKYVIEW 1. “Depositors should be able to access the interest rate they are receiving on a daily basis and benchmark their current rate relative to national averages.”

Chris Latham, Managing Editor at Wealth Solutions Report, can be reached at clatham@wealthsolutionsreport.com

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