Market Data as of Week Ending: 9/24/2021 unless noted otherwise
U.S. stocks rebounded and finished the week in positive territory after declines early in the week. Investor sentiment shifted following the Fed’s announcement that they could begin reducing the monthly asset purchases as soon as next meeting. Mid cap stocks outperformed both smaller and larger sized peers and value stocks generally outperformed their growth counterparts. Sector performance was mixed with gains in more cyclical and economically sensitive sectors such as energy and financials. Traditionally defensive sectors such as real estate, utilities, consumer staples, and health care finished the week with losses. Developed foreign stocks in Europe and Asia underperformed U.S. stocks while Emerging Market stocks lagged developed foreign markets.
U.S. Treasury yields advanced sharply as the 10-year increased to finish the week at 1.45%. Projections from the Fed showed that half of officials expect at least one interest rate hike in 2023 and inflation expectations have increased for next year. All bond segments finished the week with losses and the sudden rise in yields put the most pressure on long duration government bonds. Despite a favorable backdrop for risk assets, both investment grade and high yield corporate bond yields rose and ended the week with yields above 2.1% and 4.6%, respectively.
Economic data released during the week was mostly overshadowed by the Federal Reserve’s two-day policy meeting. However, there were a few notable reports that delivered mixed results. Shortly after reaching a recovery low, weekly jobless claims rose for the second consecutive week to 351,000. Both the services and manufacturing flash PMI figures declined compared to last month and came in below expectations at 54.4 and 60.5, respectively. However, housing data was much better as both housing starts and permits beat expectations. Housing starts in August increased nearly 4% compared to last month and more than 17% year-over-year to a seasonally adjusted annual rate of 1,615,000. Economic data was also unfavorable for Europe as the Flash Eurozone PMI Composite dropped to a 5-month low of 56.1.
Actively managed model portfolios are becoming increasingly prominent across the retirement industry. There has been a major shift away from the antiquated approach of managing portfolios via recordkeeping systems, towards a modeling system where portfolios can be unitized at a global level and synchronized across plans, reducing the time and hassle of distributing model portfolios to plan participants.
Mid Atlantic Capital Group designed ModelxChange®, an actively managed model portfolio platform, to benefit plan participants by allowing advisors to efficiently integrate ETF and mutual fund investment strategies into 401(k) plans. We were among the first to provide this technology over a decade ago, which was a unique option compared to the primarily retail-oriented models offered at the time. As the retirement industry began to see increased demand for active management, our model platform continues to be a leader in this space.
Model portfolio trends in the industry today
As the demand and usage of models becomes more widely used, we see three key trends driving the retirement plan industry today:
- Efficiency is key. Retirement plan advisors are constantly looking for more efficient ways to manage plans, investment menus and offerings for their participants. Investors are also looking for a more efficient path toward retirement, calling for a “work smarter, not harder” mindset. The Mid Atlantic platform is a one-stop shop where managers and advisors can run different rebalances, manage allocation changes and fund swaps at a global level and see a trickle-down effect across the entire platform for their plans and participants. ModelxChange is a great way for advisors to internally run their own models, if desired, or use the third-party management features to free up more time to advance their business and relationships with current and future clients. This flexibility has also been increasingly important throughout the pandemic, as the retirement industry took a major hit and participants needed the extra one-on-one time with their advisors.
- Active management is growing. The transition from passive management to active management is another trend fueling the shift to model portfolios. Participants feel more comfortable having their investments managed by a professional money manager who is responsible for their choices. This style of management allows for a portfolio to be highly personalized to the individual investor and desired risk tolerances. After the turbulence of 2020, customized risk management is seen as essential by many investors.
- Technology is driving adoption. As in most industries, technology also plays into the increased traction for model portfolios. Technology is rapidly outpacing the older systems that have long been in place and offers more flexibility to those who have investments in model portfolios. For example, if a participant leaves their company or retires, but likes their current investments, investments from a 401(k) can be rolled over into an IRA or other type of retirement plan within the platform itself. This provides flexibility (and added value) to participants who want to take their investments wherever they go. In the Mid Atlantic platform, a rollover is possible today with a little effort, but we believe as the industry evolves, rollovers could be processed with the click of a button.. Advisors should expect to see this evolution happening sooner rather than later.
Benefits of model portfolios in 401(k) plans
Model portfolios and ModelxChange are so attractive to advisors and sponsors because of the customization, flexibility and personal touch they provide. In traditional investments, risk tolerance is based on age. Alternatively, with the active approach taken in model portfolios, advisors can plug in key points and dive into the personal risk tolerance of the individual investor, regardless of that person’s age. This offers a level of freedom not found in other platforms.
The ability to customize investment strategies encourages people to stay invested in their accounts. Far too often, early-career individuals get discouraged by a big loss and stop investing. On the other end of the spectrum, if someone nearing retirement experiences a big loss, their timeline could be completely derailed. A customizable, active management style and the increased agility it provides, can help prevent such occurrences.
ModelxChange is an open-architecture platform. Managers and advisors can build models that are not limited to plan fund lineups, offering greater flexibility. In the Mid Atlantic model portfolio platform, there are over 27,000 investments available to build into these strategies, providing managers with a large pool of options. After the initial portfolio construction, investments can be swapped in and out, as desired
The coronavirus pandemic derailed people’s lives and initiated a retirement crisis for the whole country. When stressful circumstances occur, such as the unavoidable economic struggles people have experienced over the past year, advisors need to free up time to touch base with their clients and calm their fears. An active approach to investing for retirement could be the solution that helps those impacted get back on the right track, especially when coupled with a models-based strategy that offers customization, increased efficiency and less of a time commitment compared to the outdated approaches lingering in the industry today.
For more information on ModelxChange, click here or feel free to reach out to me directly and I’d be happy to show you the efficiencies the system can provide you.
SVP Institutional Retirement Services | Mid Atlantic Trust Company
A: 1251 Waterfront Place
Market Data as of Week Ending: 9/17/2021 unless noted otherwise
U.S. stocks were generally down for the week as the economic impact of the coronavirus continues to present supply challenges and labor shortages. Some investors are concerned that stock prices do not reflect additional problems that may arise from the coronavirus becoming endemic. The S&P 500 is expected to grow earnings more than 27% in the third quarter, which is the third-highest growth rate since 2010. Small cap stocks outperformed their larger peers and while styles such as value and growth were less important. Most major economic sectors were down for the week with notable exceptions in the energy, consumer discretionary, and real estate sectors. The materials and utilities sectors were the worst performing sectors as both were down more than 3%. Developed foreign stocks in Europe and Asia underperformed U.S. stocks while Emerging Market stocks lagged developed foreign markets.
U.S. Treasury yields were mixed as the 10-year increased and ended the week at 1.36%, whereas the 30-year declined and ended the week at 1.91%. The combination of lower yields and risk aversion was favorable for long duration government and corporate bonds as both recorded solid gains for the week. Intermediate-term government bonds were the worst performing segment. Investment grade corporate bonds ended the week with yields above 2.0% and high yield corporate bonds are yielding nearly 4.6%.
Economic data released during the week was generally better than expected and was headlined by inflation data that shows signs of easing. The Labor Department announced that consumer price inflation dropped for the second consecutive month in August. After reaching 0.9% in June, the figures in July and August have come back down to 0.5% and 0.3% respectively. The year-over-year growth rate remains elevated at 5.3% but also declined compared to the prior month of 5.4%. After excluding food and energy, the year-over-year core inflation rate fell from 4.3% to 4.0%. Retail sales increased 0.7% in August, rebounding from a drop in July and were better than expected. Excluding autos, the gains were even stronger, up 1.8% with strong demand across a wide range of products. Weekly jobless claims rose to 332,000 yet remains near the recovery low.
Market Data as of Week Ending: 9/10/2021 unless noted otherwise
U.S. stocks declined as economic growth slows from the recent spike in coronavirus cases and a combination of persistent supply and labor challenges. Investors will soon start to shift attention toward the next quarterly cycle of financial reporting. The S&P 500 is expected to deliver a 27.9% earnings growth rate for the third quarter. Larger companies outperformed small and mid-sized peers and growth stocks generally outperformed their value counterparts. All major economic sectors were down for the week with losses most notably in the real estate, health care, and industrials sectors. The consumer discretionary sector was the best performing sector followed by communication services, and a few defensive sectors such as consumer staples and utilities. Developed foreign stocks in Europe and Asia outperformed U.S. stocks while Emerging Market stocks narrowly lagged developed foreign markets.
U.S. Treasury yields generally moved higher as the 10-year ended the week at 1.34%. Longer duration government and corporate bonds recorded gains for the week as investors looked for safety to offset some of the risk in other assets. Long-term corporate bonds were the best performing segment and intermediate-term government bonds lagged the most. Investment grade corporate bonds ended the week with yields at just over 2.0% and high yield corporate bonds are approximately 4.6%.
Economic data released during the week has increased concern for some investors that economic growth may have peaked in the first half of the year. The Federal Reserve revealed through their reporting that economic growth slowed in August and was largely attributable to a reduction in dining, travel, and tourism in most parts of the country. Despite slower economic activity, businesses continue to face higher input and production costs as supply has not been able to keep up with demand. Producer Price Inflation (PPI) rose 8.3% from a year ago, which is the largest increase in more than 10 years. On the positive side, weekly jobless claims reached another new recovery low of 310,000 even though the figure remains elevated compared to the weekly average of 218,000 back in 2019.
Market Data as of Week Ending: 9/3/2021 unless noted otherwise
U.S. stocks advanced despite a combination of rising coronavirus cases in most parts of the U.S. and a weaker than expected jobs report. The S&P 500 set another record high on Thursday as companies near the end of quarterly reporting with a 90.9% earnings growth rate for the second quarter. 87% of companies in the S&P 500 reported either a positive earnings or revenue surprise, which are the highest values since FactSet began tracking this metric in 2008. Size was not a significant factor, but growth stocks once again outperformed their value counterparts. Most of the major economic sectors were positive and led by gains in more defensive sectors such as real estate, healthcare, and consumer staples. Economically sensitive sectors such as financials, energy, materials, and industrials were down and lagged the broader market. Developed foreign stocks in Europe and Asia outperformed U.S. stocks while Emerging Market stocks significantly outperformed both developed foreign and U.S. markets.
U.S. Treasury yields narrowly moved higher as the 10-year ended the week at 1.32%. Bond market sentiment favored risk assets as high yield bonds outperformed and long-term government bonds were the only major segment in negative territory. Investment grade corporate bonds ended the week with yields at just over 2.0% and high yield corporate bonds dropped to 4.6%.
Economic data released during the week was generally worse than expected. The U.S. non-farm payrolls increased by 235,000 which was substantially lower than the consensus expectations for a gain of nearly 750,000. Despite the deceleration in job gains, the unemployment rate fell to a new recovery low of 5.2%. Weekly jobless claims also reached a new recovery low of 340,000 yet remains elevated relative to the weekly average of 218,000 back in 2019. There are still more than 5 million fewer jobs in the U.S. than in February 2020 and approximately 3 million people have dropped out of the labor force. In other economic news, housing prices advanced 1.8% for the month while pending home sales dropped for the second consecutive month. The ISM reported that the Services PMI® dropped from the all-time high of 64.1 in July to 61.7 which is the 15th consecutive month of growth for the services sector.