between what is a low cost approach to asset allocation to
“one with a better understood story that truly makes clients
This not only means differentiating between the needs of a
30-year-old vs. 60-year-old, but differentiating “between the
needs of a high income 30-year-old who’s highly educated and
has a good net present value of salary vs. a 30-year-old who’s
an entrepreneur and may be
all in on a small business,
verses a 30-year-old who’s a
high school graduate and has
a very different income profile,” Browne explained.
“That’s going to be really exciting for the industry.
[Advisors] who get that differentiating correct and can take
and provide the appropriate
solution to each of those three
types of 30-year-olds is going
to set the trend for the next
several years,” he said.
Bonds, Yes Bonds
Bonds have taken on new fervor according to a couple experts.
For example, bonds in taxable accounts have seen a dramatic
inflow, according to Finke.
“There seems to be a strong appetite for lower-risk assets,
which makes some sense since the wealthiest cohort of
Americans in history (the boomers) is now at or approaching
retirement. Flows into municipal bonds are equally dramatic,”
“Both trends are a little worrying because interest rates are
so low, and because corporate debt is not at a peak of around
52% of U.S. GDP (as of Feb. 21). And 2019 saw a large net inflow
into high yield funds to capture higher potential returns in a
low-yield category, but there’s mounting evidence that inves-
tors are taking on too much risk for the credit premium they’re
hoping to capture,” Finke added.
DFA’s Lee says her firm believes “systematic bond strate-
gies are set to dethrone” those that are more popular today.
“Many investors want diversification, higher expected returns
and better risk controls. They
don’t want surprises.”
Looking at a broader pic-
ture, Raymond James’ Adam
believes it’s a losing game to
position bond holdings based
on who’s in the White House.
“While it is important to
understand the policies of the
presidents and their respec-
tive party, the person sitting in
the White House is of second-
ary importance,” he said.
“We believe more important factors to assess in determining preferred sectors include the strength of the economy,
valuations, earnings growth, Fed policy and investor sentiment,” Adam added.
Adam also believes that “as we expect volatility and disper-
sion to remain elevated in 2020, active money managers
In his mid-February comments (when the S&P 500 was
still in a bull market), he explained that “Valuations are at
multi-year highs, building geopolitical (e.g. coronavirus)
and political risks (2020 election), selectivity within port-
folios will be critical over the next 12 months and likely will
income space with a new suite of bond model portfolios
including four strategies using mutual funds and exchange-traded funds.
The new model portfolios were “designed to maximize risk-adjusted total return as well as accommodate a range of risk
preferences, including duration and credit risk,” the company
said. They also supplement Fidelity’s Bond Income Model
Portfolio, launched in 2019, that “aims to maximize risk-adjusted yield,” it noted.
The newcomers are: Fidelity Short Multi-Sector Bond
Model Portfolio, designed to provide a lower duration bond
portfolio with a focus on investment-grade mutual funds/
ETFs complemented by a limited allocation to non-invest-
ment grade); Fidelity Core Bond Model Portfolio, designed
allocation to investment-grade mutual funds/ETFs; Fidelity
Core Plus Bond Model Portfolio, designed to provide a
diversified bond portfolio with a focus on investment-grade
mutual funds/ETFs complemented by a limited allocation to
non-investment grade); and Fidelity Dynamic Bond Model
Portfolio, designed to provide a diversified bond portfolio
of fixed income mutual funds/ETFs while offering greater
investment flexibility through duration and credit allocation),
the company said.
The additions to Fidelity’s line come as “demand for model
portfolios continues to grow among advisors,” it said, pointing to Cerulli data that indicated 95% of advisors said they
always or sometimes used asset allocation models for specific strategies or objectives.
— Jeff Berman
“Opportunities for active money
managers are already building,
as S&P 500 sector dispersion (the
difference between the best and
worst sectors — tech vs. energy
in 2019) rose above the previous
20-year average in 2019.”
—Larry Adam, Raymond James