Jenna’s Top Picks: One Megatrend in the Making

Since most of us love a good underdog story, we’ll look at a few asset classes that could go from sitting the bench to hitting home runs, as well as one demographic that’s historically been underrepresented in the wealth management industry that could be poised to be the new face of it.

First up at bat is ETFs. Few people had even heard of them a few decades as mutual funds ran the show. Now, we are seeing mutual fund to ETF conversions and ETF flows have been outpacing those of mutual funds. Matt Collins, CFA , Head of ETFs at PGIM Investments , puts things into perspective on Asset TV’s ETF Masterclass and looks at one area within the ETF space that makes up the minority of AUM but is seeing explosive growth: 

“Over the last three years ETFs are averaging about 650 billion of net positive inflows on an annual basis. Mutual funds are averaging about negative 300 billion. These are just astonishing numbers and I think there's two things going on. One, there's been a preference for ETFs, just generally speaking, for quite some time due to cost. Really for us, we think about it as open access. It is the most accessible investment vehicle that we have, period. Anyone can access an ETF, and that's really one of the big drivers of growth out there in the market. I'm sure we'll talk about today, it has been the year of active ETFs. Active ETFs, despite only being about 6% of a AUM took in 25% of new flows last year across the industry. We talk about when is this going to taper off? It's not. It's going to continue. What you're going to see is just continued growth to the vehicle and active ETFs.”

With the painful memory of 2022 still fresh, bonds have also soured many investors' thoughts on the fixed income asset class out of fear that this traditional portfolio ballast could be capable of more double digit losses. However, we are in a very different rate environment now and PIMCO CIO Global Credit Mark Kiesel is particularly bullish on one area of fixed income:

"We think it's an excellent time to invest in high quality corporate bonds, and a lot of this is basically because of the strength of the private sector, the consumer and businesses are doing quite well. The economy's proven to be very resilient. Most importantly, there's catalysts for lower yields ahead. We think that growth has peaked and we're going to start to see a slowdown in growth. Not a recession necessarily, but clearly a slowdown. And also inflation is clearly coming down, so with that, we should see over the next 1 to 2 years lower yields. At the same time, we think investors can earn near equity returns by investing in bonds today. These yields are basically at 15-year highs. If you look at both nominal and real yields, we haven't seen these yields in 15 years. So this is an excellent time for investors to own high quality bonds, benefit from potential price appreciation as those yields go lower, and also invest in very high quality companies where the fundamentals are very strong."

And for our third area climbing the ranks, WisdomTree Global CIO Jeremy Schwartz makes the case for Indian equities, which are now leading emerging markets after being cast aside:

“When you go back and you think about the last decade, and I think about 10 years ago, and India was a member of the fragile five countries. And this was a time when they had what's called these twin deficits where they were spending more than they were collecting in revenue. They were importing a lot more than they were exporting. Their currency was under pressure. They had a lot of inflation, and it was a real struggle. I mean, you had both the currency and the equity markets being challenged. Today, it's the leader in the emerging market. It's been booming, sort of the best population growth leading to best GDP growth. And the equities have been sort of the best in the emerging markets. So really, it's come a very long way. They've addressed a lot of their key issues and we see where people are moving money internationally. People say, ‘Why go anywhere outside the US? American exceptionalism.’ Well, one of the few countries taking in real money has been India. So they're seeing the macro story. They're seeing some of the other dynamics and they're going to India.”

Finally, here’s Allspring Global Investments 's Katie D'Angelo and Megan Miller, CFA , on why one megatrend in the making - the great wealth transfer - could lead to more opportunities for women.

“One McKinsey article stated that by 2030, American women are expected to control much of the $30 trillion—with a T—in financial assets of the $84 trillion expected to change hands here over the next several years,”  says D'Angelo. “A potential wealth transfer of that magnitude, actually, when you put it into context, it approaches the annual GDP (gross domestic product) of the United States.”

“I think it's amazing,” says Miller. “I think it's great that women are about to be the new face of wealth. That's awesome. And it just provides so much opportunity for women and in the industry. And as we discussed, it's been an industry that's been so male dominated. And so, this trend will just lead us to a new era of investing and one where we have women on both sides of the table. I think it's, like I said, amazing that women are inheriting all this wealth, but with that wealth and inheritance comes a lot of responsibility for managing that wealth. And so, I think we'll see an increase in financial literacy. I think that more women will be making decisions on how to manage those assets. And who better to be on the other side of the table than another woman, helping make those decisions? So, I think it's just great for the industry to embrace gender diversity and, for nothing else, to engage with a new audience.”