Investments Roundup: Morningstar, RBC, Broadridge, E*trade and More

Q&A With Philip Straehl Of Morningstar – Our Investments Solutions Leader Of The Month – And Product News Featuring RBC, Broadridge, J.P. Morgan, Morgan Stanley, Prudential, Hamilton Lane, IndexIQ, Advyzon Investment Management, Envestnet, Cerulli And HFR.
Philip Straehl, Chief Investment Officer for the Americas, Morningstar Wealth
Philip Straehl, Chief Investment Officer for the Americas, Morningstar Wealth
Chris Latham, Managing Editor, Wealth Solutions Report
Chris Latham, Managing Editor, Wealth Solutions Report

In this edition of the Investments Roundup, we speak with our newest Investment Solutions Leader of the Month, Philip Straehl, Chief Investment Officer for the Americas at Morningstar Wealth, who discusses his new role and the company’s upcoming annual conference in Chicago.

Other entries include RBC appointing Donald Sanya as CEO of RBC Global Asset Management-U.S., Hamilton Lane releasing a private markets survey of investment advisors, IndexIQ launching the IQ MacKay Securitized Income ETF, Broadridge releasing its annual U.S. Investor Study, Advyzon Investment Management and Envestnet working with top asset managers, Prudential launching two laddered funds of buffer ETFs, Cerulli noting that mutual fund assets fell again as infrastructure assets surged, HFR reporting that directional Equity Hedge and Event-Driven strategies led hedge funds higher, Vestwell expanding its 401(k) partnership with J.P. Morgan to advisors, and E*TRADE reporting on monthly sector rotations.

Larry’s Take

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

Most financial professionals like to think that they are above falling for the hype of whatever asset class or investment vehicle happens to be popular at the moment. When questioned, they tend to explain either that their strategy actually is based on rigorous fundamental research, or legitimate technical signals, or time-tested firsthand experience with market cycles.

Conversely, it’s common for financial advisors and portfolio managers to avoid products that they don’t understand or trust even when clients ask about them and market conditions favor appreciation in their value over the long-term. Depending on whom you ask, either view could be correct about certain cryptocurrencies, private market investments, ETFs with complex structuring and even unified managed account (UMA) strategies.

This is why events such as the upcoming Morningstar Investment Conference can be of great benefit. Nothing beats the combination of onsite panel discussions, one-on-one conversations and live demonstrations of wealthtech platforms with experts and insiders. This can occur at any number of industry conferences this year, and the summer circuit is just now heating up.

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.

The annual Morningstar Investment Conference will be held from June 26 to June 27 at Navy Pier in Chicago, coinciding with the company’s 40th anniversary. Morningstar Wealth also recently appointed Philip Straehl to Chief Investment Officer for the Americas. He reports to Dan Kemp, Global Chief Investment Officer. Straehl has been with Morningstar for over 20 years, and most recently was CIO of Quantitative Strategies for the Investment Management group.

And now for our Q&A with Straehl.

WSR: What are your responsibilities as the new CIO for the Americas?

Straehl: As the Chief Investment Officer for the Americas team, I am part of a group that oversees $293.3 billion in assets under management and advisement globally, as of March 31. My responsibilities include supervising a diverse array of investment teams that cover multi-asset investment, manager selection and quantitative strategies.

Philip Straehl, Chief Investment Officer for the Americas, Morningstar Wealth
Philip Straehl, Chief Investment Officer for the Americas, Morningstar Wealth

In my capacity as CIO, I ensure that our portfolios reflect the best ideas from Morningstar’s research and data and that they are constructed robustly to meet the investment objectives of our clients. Additionally, as CIO, I establish the guardrails based on our investment principles and processes, within which portfolio managers are empowered to make investment decisions. The Americas Investment Committee, which I chair, serves as the principal governance body overseeing our investment decisions.

Morningstar Wealth is a truly unique place to serve as CIO. We have a clear mission to empower investor success, and every decision is weighed against this objective. Morningstar also has a clear set of investment principles that are shared across Morningstar’s entire research and investment team and are espoused by the leadership team. Working with this talented team of investors, who all share the same mission, is an absolute joy.

WSR: What are the major investment trends that financial advisors should be aware of now on behalf of their clients?

Straehl: Technology has enabled personalization at scale which empowers financial advisors to offer bespoke solutions for their clients. At Morningstar Wealth, we want to make sure that personalization choices help investors better achieve their financial goals. Our research suggests that personalization makes sense both in terms of selecting the right broad asset mix as well as in selecting individual securities. We are focused on creating investment solutions that help end investors achieve their goals.

Active ETFs have attracted significant interest in recent years. Active ETFs combine the tax advantages of the ETF structure with active management, often at lower management fees than other active vehicles. Financial advisors can benefit from using active ETFs that provide transparent and tax efficient access to investment strategies that provide differentiated returns relative to benchmarks.

Convergence of public and private markets is a trend worth watching. We see more retirement plans that we work with adding liquid alternative options, such as private credit and private equity. As fiduciaries, we must ensure that these investments add value for end investors after fees and provide adequate diversification even during periods of market stress.

WSR: What can advisors get out of attending the upcoming Morningstar Investment Conference in Chicago?

Straehl: This year marks the 36th anniversary of the Morningstar Investment Conference (MIC), and it’s set to be better than ever. The conference improves each year, and I expect that to continue with MIC 2024. Here are some highlights.

We have presentations and panels by industry leaders on market trends, economic outlooks and innovative investment strategies; networking to connect with financial professionals, thought leaders and potential partners; as well as the latest research to stay updated on the newest investment research, tools and data.

Attendees also can participate in professional development such as workshops and sessions to sharpen skills and earn continuing education credits; obtain product knowledge by exploring new investment products, services and technologies; and gain perspectives on investor behavior and preferences.

2. RBC Appoints Donald Sanya As CEO Of RBC Global Asset Management-U.S.

Donald Sanya, CEO, RBC Global Asset Management-U.S.
Donald Sanya, CEO, RBC Global Asset Management-U.S.

RBC Global Asset Management appointed Donald Sanya as CEO of RBC Global Asset Management-U.S., effective Aug. 1, when he takes over for Mike Lee, who is retiring. He also will continue in his role as Managing Director and Head of RBC GAM’s U.S. Institutional business. Sanya will report to RBC GAM CEO Damon Williams.

Sanya will be responsible for strategic direction and implementation, budgeting, culture and risk remediation for the U.S. business of RBC GAM. For the U.S. Institutional business, he will provide overall strategic direction and day-to-day oversight for U.S. client services, consultant relations, institutional and intermediary sales, and liquidity management. RBC Global Asset Management has over $453 billion in assets and approximately 1,500 employees.

“Donald’s appointment to CEO of RBC GAM-U.S. supports our focus on continuing to grow our U.S business and bringing the best of RBC GAM’s investment capabilities to U.S. clients,” Williams said.

3. Hamilton Lane Survey Finds Advisors Plan To Boost Clients’ Private Markets Exposure

Steve Brennan, Head of Private Wealth Solutions, Hamilton Lane
Steve Brennan, Head of Private Wealth Solutions, Hamilton Lane

Hamilton Lane, a global private investments firm with over $920 billion in assets under management and supervision, released the results of a survey of 232 investment advisors, over 90% of whom allocate to private markets. The survey found that 52% of respondents plan to allocate at least 10% of clients’ portfolios to private markets and that 70% of respondents plan to increase clients’ allocation to private markets compared to 2023.

Half of respondents rated clients’ private markets investments knowledge as beginner, or having little to no knowledge of the asset class and requiring basic education. Only 4% of respondents rated clients’ private markets knowledge as advanced, or well versed in the asset class and confident in talking about private market details, trends and products.

“We’ve found that a foundational understanding of the asset class affirms initial interest from new investors and contributes to a sustained investing appetite for those who are already allocated,” said Steve Brennan, Head of Private Wealth Solutions at Hamilton Lane. “We anticipate that, as private wealth investors become more knowledgeable about and familiar with the asset class, private markets allocations will likely also increase.”

4. IndexIQ Launches Actively Managed IQ MacKay Securitized Income ETF

Neil Moriarty, Co-Head of the Global Fixed Income Team, MacKay Shields
Neil Moriarty, Co-Head of the Global Fixed Income Team, MacKay Shields

IndexIQ, a New York Life Investments platform of exchange-traded funds, launched the IQ MacKay Securitized Income ETF (SECR). The actively managed fund is designed to provide diversified exposure to income-generating securities across investment grade structured products. These include mortgage-backed securities, collateralized mortgage obligations, commercial mortgage-backed securities and asset-backed securities.

Neil Moriarty, Michael DePalma and Zachary Aronson, of the MacKay Shields Global Fixed Income Team, apply an integrated top-down and bottom-up investment process. It combines macroeconomic analysis with security selection, in an effort to deliver total return with an emphasis on current income.

“Most ‘Core’ and ‘Core Plus’ fixed income strategies tend to have allocations to securitized debt closely aligned with the Bloomberg Aggregate Index,” said Neil Moriarty, Senior Managing Director, Co-Head of the MacKay Shields Global Fixed Income Team. “With an actively managed approach overseen by the highly experienced portfolio managers on MacKay’s Global Fixed Income Team, SECR seeks a diversified source of potential outperformance and enhanced risk-adjusted return potential.”

5. Broadridge Investor Study Shows Rise In Younger Investors, Self-Directed Platforms

Dan Cwenar, Head of Data and Analytics, Broadridge
Dan Cwenar, Head of Data and Analytics, Broadridge

Broadridge Financial Solutions released its annual U.S. Investor Study. It found that Gen Z, millennial and Gen X investors are continuing to increase their share of assets while those held by boomers and the Silent Generation decline, that self-directed investing is increasing in popularity across generations, and that U.S. allocations to mutual funds are slowly declining as allocations to ETFs and U.S. equities rise.

A huge increase in the number of investors adopting self-directed online discount platforms occurred between 2018 and 2023, with 31% of all investors allocating assets to online discount brokerage platforms, approximately one-third of whom also have an advisor, according to Broadridge. Investors also are intentionally increasing their asset ownership through online discount brokerages, rising from 14% in 2018 to 23% in 2023.

“The rise of younger investors and self-directed investing has led to asset managers, broker-dealers and advisors evolving their practices to better serve a more diverse class of investors across generations,” said Dan Cwenar, Head of Broadridge Data and Analytics. “Against this backdrop, it’s critical to have a complete understanding of investors’ decision-making and appetite for different investments to better inform portfolio customization, customer service and prospecting.”

6. Advyzon Investment Management Adds BlackRock, Invesco And Others To Platform

Meghan Holmes, Chief Operating Officer, Advyzon Investment Management
Meghan Holmes, Chief Operating Officer, Advyzon Investment Management

Advyzon Investment Management (AIM), a turnkey asset management program that is part of the technology firm Advyzon, added several more asset managers and strategists to its platform, which is available to financial advisors. These include BlackRock, Dimensional Fund Advisors, Potomac Fund Management and Invesco.

Since the start of 2024, AIM also added Washington Crossing Advisors, Brentview Investment Management, Morgan Dempsey Capital Management and Clark Capital Management. AIM now has more than 280 strategies from 46 asset managers on its Nucleus Model Marketplace.

“These recent additions are based on advisor-driven requests,” said Meghan Holmes, Chief Operating Officer at AIM. “By providing access to some of the most well-known asset managers, while also supporting smaller boutique providers, advisors have choice and flexibility in customizing a client’s overall portfolio in order to meet their needs.”

7. Envestnet To Launch Personalized UMA Strategies With Top Asset Managers

Dana D’Auria, Group President of Solutions and Co-CIO, Envestnet
Dana D’Auria, Group President of Solutions and Co-CIO, Envestnet

Envestnet plans to deepen relationships with BlackRock, Fidelity Investments, Franklin Templeton and State Street Global Advisors by building customized investment strategies that financial advisors can use to help meet the specific goals, risk tolerances and circumstances of individual investors. Envestnet has more than 109,000 advisors on its platform.

The enhancement aims to deliver UMA-eligible personalized direct index solutions from each of the managers; one-to-many models for advisors to offer ultra-high net worth and high net worth clients solutions from these asset managers; as well as one-to-many or one-to-one bespoke models for accounts over $1 million featuring solutions created by the asset manager or Envestnet | PMC, and supported by investment and client-facing portfolio managers.

“Our advisors and their clients are asking for personalization at scale and affordable platform options that leverage our UMA capabilities,” said Dana D’Auria, Group President of Solutions and Co-CIO at Envestnet. “We believe working with a focused opportunity set of like-minded asset managers invested in our mutual success will enable us to provide the choice and functionality our clients want now and the roadmap to an even more enhanced ecosystem down the line.”

8. Prudential Launches 2 Laddered Funds Of Buffer ETFs

Stuart Parker, President and CEO, PGIM Investments
Stuart Parker, President and CEO, PGIM Investments

Prudential Financial launched two laddered funds of buffer ETFs, the PGIM Laddered Fund of Buffer 12 ETF (BUFP) and the PGIM Laddered Fund of Buffer 20 ETF (PBFR), on the Cboe BZX. They aim to generate returns by U.S. large-cap equity market exposure through a laddered portfolio of the firm’s underlying buffer ETFs, the  PGIM U.S. Large-Cap Buffer 12 ETF series and the PGIM U.S. Large-Cap Buffer 20 ETF series that launched in January.

The new ETFs will be offered at a net expense ratio of 0.50%. The underlying buffer ETFs aim to provide limited protection against a decline in the U.S. large-cap equity market, with a cap on market gains, during a specified time period. BUFP targets an equal-weight investment in each of the 12 PGIM U.S. Large-Cap Buffer 12 ETFs. PBFR targets an equal-weight investment in each of the 12 PGIM U.S. Large-Cap Buffer 20 ETFs, with a remit to rebalance back to an equal weight on a quarterly basis.

“Laddered buffer ETFs are one of the fastest-growing segments of an already accelerating defined outcome ETF market – but flexibility and accessibility is critical in this space,” said Stuart Parker, President and CEO of PGIM Investments. “We’ve seen strong client demand for both the underlying buffer ETFs as well as single-ticker solutions that can provide efficient exposure to this style of investing while reducing some of the operational load of investing in the individual monthly vintages.”

9. Cerulli: Mutual Fund Assets Fall Yet Again, As Infrastructure Assets Surge

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 April on mutual funds, ETFs and infrastructure manager acquisitions activity. Mutual fund assets fell 3.6% and below $19 trillion, experiencing outflows in five of the last six months. Although ETFs experienced $251.7 billion in net flows in the first four months of 2024, in April ETF assets fell 3.5% to $8.5 trillion.

Meanwhile infrastructure manager assets are increasing, Cerulli found. In addition to large drawdown funds, KKR, StepStone, Meketa, Brookfield and other managers are amassing infrastructure assets through semi-liquid products aimed at ultra-high net worth and high net worth investors. State and local governments own many crucial U.S. infrastructure assets, including transportation assets.

“A stream of infrastructure manager acquisitions – and plans to acquire such capabilities – indicate a push to ramp up infrastructure investing and deliver the exposures to a more retail client base,” according to the report.

10. HFR: Directional Equity Hedge, Event-Driven Strategies Boosted Hedge Funds In May

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

HFR found that directional Equity Hedge (EH) and Event-Driven (ED) strategies led hedge funds higher in May, as investors prepared for continued inflation and geopolitical risks amid improving economic growth. Approximately 70% of hedge funds had positive performance in May, according to HFR.

The HFRI Equity Hedge (Total) Index increased 2.5%, the HFR Cryptocurrency Index increased 13.6% and the HFR Risk Parity Vol 15 Index increased 3.0% in May. The HFRI Macro (Total) Index fell 0.65% and the HFRI Macro: Systematic Diversified Index fell 1.3% in May. Year-to-date through May, the HFRI EH: Quantitative Directional Index gained 8.6%.

“Hedge funds have effectively positioned portfolios in a tactical sense for these highly fluid and uncertain situations, including not only military threats, but possibilities for supply chain disruptions, outright trade embargoes or halts, and destabilizing dislocations and volatility associated with banking and broader financial market operation,” said Kenneth Heinz, President of HFR.

Wirehouse / Big Bank Activity

11. Vestwell Expands 401(k) Partnership With J.P. Morgan To Serve Financial Advisors

Steve Rubino, Head of Retirement, J.P. Morgan Asset Management
Steve Rubino, Head of Retirement, J.P. Morgan Asset Management

Vestwell, a savings platform for businesses and individuals, expanded distribution of the J.P. Morgan Asset Management Everyday 401(k). J.P. Morgan’s workplace savings platform for small businesses, offered through JPMorgan Chase business banking, is now also available to financial advisors and jointly distributed with Vestwell.

Everyday 401(k)’s new capabilities include allowing advisors to serve as a 3(38) investment manager on the workplace retirement plan. Vestwell also provides advisors with personalized onboardings, ongoing administration and maintenance, navigating legislation and assisting with planning for clients. Last year, Vestwell partnered to expand J.P. Morgan Asset Management’s recordkeeping options.

“J.P. Morgan is committed to providing industry-leading, smart retirement solutions to our clients, and we’re pleased to announce these important enhancements to our joint offering,” said Steve Rubino, Head of Retirement at J.P. Morgan Asset Management. “Enabling advisors to serve as a 3(38) investment manager, and complementing our own distribution with Vestwell’s team, will enable us to reach even more financial advisors and their clients with Everyday 401(k).”

12. E*TRADE: Information Technology, Consumer Staples Led Sector Rotation In May

Ted Pick, CEO, Morgan Stanley
Ted Pick, CEO, Morgan Stanley

E*TRADE from Morgan Stanley released the data from its monthly sector rotation study, based on customer notional net percentage buy/sell behavior for the underlying equities that comprise the S&P 500 sectors.

According to the report, information technology experienced the greatest increase in sector rotation for May, at 10.23%, while consumer staples experienced the greatest decrease, dropping by 15.77%. In April, information technology experienced an increase of 3.16% and consumer staples experienced a decrease of 13.03%.

Consumer discretionary experienced a sector rotation increase of 8.87% in May after an increase of 6.60% in April. Financials experienced a sector rotation decrease of 6.46% in May after an increase of 1.96% in April. Energy exhibited the smallest change on a monthly basis, with a sector rotation increase of 0.80% in May after an increase of 1.45% in April, according to the report.

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

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