John P. Bryson leads the firm's investment consulting team, which is responsible for initiatives and businesses, including portfolio consulting, product channel consulting, exchange-traded fund capital markets, college savings, and stable value. He is a member of the John Hancock investment committee and the John Hancock 529 investment oversight committee, and he serves as chairman of the John Hancock pension and 401(k) investment subcommittee. Prior to joining John Hancock Investment Management in 2008, he held product management and development positions at Fidelity Investments in the intermediary and defined contribution business units. Other previous roles include client service, investment training, and product specialist positions at New England Funds and Putnam Investments. John earned a B.S. in Finance and an M.B.A. from Boston College.Subscribe on Apple Podcasts
Portfolio Intelligence podcast
The Portfolio Intelligence podcast features interviews with asset allocation experts, portfolio construction specialists, and investment veterans from across John Hancock’s multimanager network. Hosted by John Bryson, head of investment consulting at John Hancock Investment Management, the dynamic discussion explores ideas advisors can use today to build their business while helping their clients pursue better investment outcomes.
Our market outlook looking ahead to 2023
November 18, 2022 | 16:52 | Ep. 57
In this episode, our chief investment strategists, Emily R. Roland, CIMA, and Matthew D. Miskin, CFA, analyze recent market movements and discuss what they’re expecting to see in 2023. They offer their views on the potential course of the U.S. Federal Reserve’s interest-rate increases in coming months, explore opportunities in equities and fixed income, and unpack the impact of U.S. dollar volatility on international equities. Finally, Emily and Matt discuss the market impact of the U.S. midterm election.
Read the transcript
Hello, and welcome to the Portfolio Intelligence podcast. I'm your host, John Bryson, head of investment consulting and education savings at John Hancock Investment Management. Today is November 11, 2022, and a heartfelt thank you to all of our veterans on this Veterans Day. It has been an exciting and surprising week on many fronts, so I invited back two of my most popular guests, Emily Roland and Matt Miskin, our co-chief investment strategists here at John Hancock Investment Management.
As you all know, Matt and Emily are the architects behind our quarterly capital markets outlook piece titled Market Intelligence. Matt, I want to jump right in with you. The markets just posted their strongest day since early 2020. Tell us what's happening in the marketplace.
We got a , or inflation report, that came in below expectations, and boy, did the markets love to hear that. Inflation has been the number one public enemy of the markets throughout the course of the year. And although it wasn't a huge miss, if you will, or below estimate reading on inflation, it was enough. So we came in at 6.3% on core CPI on a year-over-year basis. The prior level was 6.6. The month-over-month reading was about 0.2 to 0.3.
We were doing about 0.6 before that, but what also hasn't even really manifested itself into that inflation number is the housing market. Half of the inflation gain on a month-over-month basis was actually shelter or housing, and we see that as actually something that's going to filter into that inflation number in the next several months in a negative way, meaning it's going to help bring it down.
But we go back to a 60/40 portfolio in general, and this has been the toughest year for a 60/40 portfolio, probably dating back to the 1930s. And really, it just goes to show that inflation is not the friend of a balanced portfolio. But if inflation does decelerate here, which is our call, we think a 60/40 portfolio for long-term investors is going to actually come back pretty strong.
So there's some volatility in the near term. We do see, cycle-wise, some more downside in terms of the economy in the next 6 to 12 months, and potentially earnings, but for longer term investors, if inflation does come down, what yesterday told you was that a 60/40 portfolio long term can have a nice comeback.
Okay. So I think a lot of people are looking at this and saying, "Hey, inflation is no longer a problem," or certainly that's how the market reacted. Emily, should we read into that, and to Matt's comments around housing that the Fed is done, or they're going to make a pivot? Or is this just a small bump in the , and we shouldn't expect much change from the Fed?
Yeah, I mean, I think that markets were probably a little bit overly exuberant on the report. It doesn't change a ton for the Fed. The Fed is really focused on lagging economic data. One is the jobs market, and we have no problem at all with the unemployment rate sitting near a 50-year low.
Inflation is also lagging, and to Matt's point around housing or shelter, that does tend to be a stickier element of inflation. It takes time to come down. So, for now, the Fed needs to keep tightening. The bond market's now pricing in another 50 basis point or half a percentage point, here in December, more hikes in February and March, and then actually some cuts later into 2023. So we think the more that the Fed needs to tighten now, the more that they'll likely need to cut later as they start to deal with the unemployment side of their mandate.
So we're seeing this show up in the yield curve inversion. We're seeing really, really extreme readings, which is basically a sign of the bond market telling the Fed that they're moving too far, too fast. Again, labor market continuing to hold up here, but we're starting to see some cracks there. Companies are talking about hiring freezes, job cuts. So we do think that the Fed is going to be in a much different situation a year from now, which is really a key input into our cross-asset view, that leaning into or emphasizing the income on high-quality bonds right now makes a ton of sense.
So you mentioned a couple things there that I want to dig into. One of them revolves around the volatility. I mean, we're recording this podcast on Friday, and by Monday, things can be very different. That's the challenge we have in this volatile, fast moving market. Stretch it out for me a little bit. Let's talk about what people should be doing. Let's start with the fixed-income sleeve.
Matt, I'm going to go to you. With that long-term view, what are you advising clients to think about with their fixed-income sleeve?
What you're locking in is, again, these yields are about 5% to 7% on high-quality bonds; the tax equivalent yield on municipal bonds is more like 7% to 8%.
By the end of the year, we think the Fed is mostly done with rate hikes, as Emily had outlined. And we think that's the time when you want to gravitate more to fixed income, increase duration a bit to more the intermediate part of the curve, and move up in quality. And usually, we don't get this kind of yield. It's been over 10 years since we've had this high a yield in high-quality bonds.
The income that can be produced is income that can provide distributions at a pretty attractive distribution rate. In a tough year in volatile market environments, investors like to see cash flow hit their accounts and that's what the bond market can do with these higher interest rates.
Emily, let's pivot to equities. Earning season's wrapping up. How has the earning season gone? Let's talk about the conversations you're having with folks on their equity sleeve.
Yeah. So we're most of the way through Q3 earnings season, about 90% of companies having now reported. We're looking at blended growth of about 2%, so not as bad as feared. But important to note, though, that the expectations coming into the quarter or right before were for about 9.5% earnings growth. So the bar was certainly lower, and I think that the fear was that earnings were going to be worse than they were.
Looking under the hood, we're seeing an interesting development here as the baton is being passed from a cross-sector perspective. So while we've seen some challenges to the technology space, which I think is something to be expected, considering the fact that so much demand and growth was pulled forward for the tech space during the height of the pandemic, whether it was computers for the kids or video conferencing software or digital ads aimed at online shoppers, tech did a ton of the heavy lifting during the pandemic, and now we're seeing the old economy take over as the earnings engine this quarter.
We look at railroad earnings growth as a great example of something that's outpacing technology. So some interesting dynamics playing out there, but broadly speaking, we are seeing a moderation in earnings estimates. We've seen, for the year, expectations per FactSet for about 5% earnings growth, that's come down. 2023 is also expected to see about nearly 6% earnings growth, but earnings estimates are softening. And that makes sense to us.
Margins are coming under pressure, and we're seeing a dynamic in which companies have too much inventory in a lot of cases. We're seeing supply chains cleared, and at the same time, we're seeing demand starting to slow. So we're seeing increased evidence that there are cracks in the consumer story. They're not as willing to absorb higher costs anymore. Given the fact that the cost of capital is elevated, inflationary pressures are still there. So, we do see that.
We do expect that earnings are going to become challenged into next year. That's not to say that there aren't opportunities. We're finding them in higher-quality areas, ones with great balance sheets, good return on equity, lots of cash, a limited need to tap the capital markets in order to be profitable. Interestingly enough, those are the types of companies that have actually underperformed the broad markets so far in 2022.
So that's what we would be thinking about amidst an earnings deceleration or potentially earnings recession into next year, really getting active in finding those companies that can do okay in this challenging macroenvironment.
Wow. So, Emily, I want to pivot here a little bit. What I'm hearing from you and Matt are some of the back to the basics: high-quality bonds, invest in equities that are high quality, high cash flow, a strong balance sheet. Can you expand on maybe the crypto and the back to basics, if you will?
Yeah, I mean, what a week in terms of the cryptocurrency market. Significant turmoil amongst this major exchange, and probably more to come here. Matt and I talked a lot about this, and we really highlighted the idea that this idea around liquidity and the speed at which these exchanges can process trading as being rethought, and we're looking at these crypto exchanges not allowing distributions.
How is that going to impact investor trust over time? It's going to make a pretty significant dent. The money may not even be there based on the misuse of client funds. There's no backing for these crypto exchanges, and it made us think about the value of due diligence, especially in bull markets when it can get forgotten. And I think this was a prime example, given the amount of liquidity and given the amount of speculation that went on during this cycle. Due diligence can help minimize mistakes, it can help prevent significant losses of capital. We think that we're going to be looking back on this as a potentially big misallocation of capital given the lack of due diligence.
Wow. I mean, what a week, right? There's so many things that as I was, coming into this podcast, I thought we'd be talking about, and now I find we're just going off in different directions. I do want to hit a couple more rapid-fire items because I think our audience will appreciate it. Matt, U.S. dollar: We saw that fall yesterday, strong, big move. What do we read into that? What impact is that having on your thoughts for international equities?
Yeah, so we've seen the dollar really tumble here. It started actually amidst last week when there was a rumor that China was going to reduce zero-COVID policies, and that actually spurred more risk on commodity markets. It decreased the dollar, so on and so forth. And then the weaker-than-expected CPI report really continued that trend.
International equities are now basically tied for U.S. equities on a year-to-date basis, both down about 20% in dollar terms. So as a U.S. investor, if you're going abroad, you're picking up that currency exposure, but when it goes down, you reprice that lower. But now, actually, the currencies abroad are coming back, so that's actually helping you get some returns back that had been lost. But when we look at the dollar and its direction from here, we still see if our macro work is right—that the leading economic indicators are negative, the yield curve is inverted, earnings likely have downside—the dollar is going to be still more of a risk-off currency.
We , globally, there'll be a demand for dollars in economic contraction. And right now, it's risk-on. I mean, there's very little pricing in a recession right now. High yield spreads are tight, oil's up, commodities are up, copper's up, and we're just reluctant to in and say that that was the death of the dollar there, because we think that in what we're looking forward, we want to be in currencies that are less cyclical and more risk-off in nature. So the dollar, we think, actually could recover some ground here as we go into the end of the year.
All right. Makes a lot of sense. I think what I'm hearing from a lot of the conversation is don't get too excited with the move yesterday. We've got some long-term challenges, but a high-quality, balanced portfolio is probably the best way forward, which is what you two advise me all the time and advise our clients all the time.
Last question. Emily, I'm going to go to you on this one. I literally thought all week that we'd be spending most of our time talking about this, and it's the midterm elections and the surprising non-red wave that we saw, if you will, maybe we saw a red ripple. Talk to us about that and talk to us about the market impact and how we should think about it going forward.
Yeah, sure. I think it probably makes sense for it to be towards the end of our agenda, given the other dynamics that are playing out that are probably more important around the Fed and around inflation. But what we're looking at right now is still an uncertain outcome. It looks like the Republicans have the edge in the House. The Democrats may have the edge here in the Senate, so most likely outcome here will be a divided government, which is a modest market positive.
I think markets rallied to some extent into that outcome. It probably means less fiscal spending, which may make the Fed's job a little bit easier to bring down inflation here. But broadly speaking, we continue to feel that politics and portfolios really shouldn't go together. I know that's a tough one, because it's a very personal thing and people are passionate about it, but we've learned a lot about trying to use politics as an input to making our asset class decisions or asset allocation decisions.
2018 was the last midterm election year that we experienced, and there was a lot of optimism that once the outcome was decided, that markets would take off, and the data suggested historically that maybe that would be the case. But then if everybody remembers the close of 2018, the last couple of months we saw big bear market that was not a happy holidays-type situation as the Fed said that they weren't even close to neutral, meaning the Fed was going to continue to raise rates. Markets did not like that.
Ultimately, we saw a rally play out the following year as the Fed paused, but it was a lesson to us that the macro backdrop in Fed policy is a far more important input to making those decisions. So that's what we'll be watching closely here amidst this uncertain political backdrop.
Got it. Well, folks, it is a volatile market out there. There is always something to talk about. What I recommend you do is you follow Matt and Emily on LinkedIn. You can follow Emily at @emilyrroland, and then you can follow Matt at @Matthew_Miskin. They're always keeping us up to date in what's going on in the markets and helping people design their portfolios for the best possible outcome.
Folks, if you like the podcast, please subscribe on iTunes or wherever you subscribe to your most popular podcasts. And also visit our website, jhinvestments.com, to catch up on any of the new developments that we're sharing with folks. As always, Matt and Emily, thanks for joining us. I'm looking forward to my Christmas gift. I got to get shopping for the two of you. And to our audience, thanks so much for listening to the show.
This podcast is being brought to you by John Hancock Investment Management Distributors LLC, member FINRA, SIPC. The views and opinions expressed in this podcast are those of the speaker(s), are subject to change as market and other conditions warrant, and do not constitute investment advice or a recommendation regarding any specific product or security. There is no guarantee that any investment strategy discussed will be successful or achieve any particular level of results. Any economic or market performance information is historical and is not indicative of future results, and no forecasts are guaranteed. Investing involves risks, including the
How financial professionals may benefit from leveraging the power of model portfolios
November 18, 2022 | 23:49 | Ep. 56
In this episode, Katie Baker, senior national account manager and model delivery lead at John Hancock Investment Management, and Bruce Picard, CFA, portfolio manager and head of model portfolios at Manulife Investment Management, discuss potential opportunities in model portfolios. They explore the potential benefits of leveraging asset allocation models on the business and the investment front, explain how using model portfolios could potentially be helpful to advisors throughout their careers, and identify what attributes to look for when researching model portfolios. Finally, Katie and Bruce discuss how their teams seek to ensure that the model portfolios they build align with the needs of advisors and their clients.
Read the transcript
Hello, and welcome to the Portfolio Intelligence podcast. I'm your host, John Bryson, head of investment consulting and education savings at John Hancock Investment Management.
As always, the goal of this podcast is to help investment professionals deliver better outcomes for their clients and their practice, and today's topic addresses both of those. If we look at the marketplace, model portfolios continue to see strong growth as advisors increasingly allocate a larger portion of their client assets to asset allocation models. We look today at how advisors are using model portfolios in their practice and touch on some of the important criteria advisors should be looking at when finding a model portfolio provider.
To explore this topic, I've invited Katie Baker, senior national account manager and model delivery lead for John Hancock Investment Management to the call. Katie’s responsible for growing the distribution of our ever-growing model portfolio business.
Joining her is Bruce Picard, portfolio manager and head of model portfolios at Manulife Investment Management. Bruce is responsible for the development of the multi-asset solution team's model portfolio business, which provides discretionary and nondiscretionary investment models to investment professionals and broker-dealers around the world.
Katie, Bruce, welcome to the podcast.
Thanks so much for having us, John. We appreciate being here. This is an exciting thing for us on the model team today.
It sure is. All right. Katie, I'm going to start with you. Maybe you can give us and our audience an overview of the models landscape.
Yeah, sure. So we know that based on what we're seeing here at John Hancock Investment Management, but also across the industry, that models are becoming a larger and larger part of advisors' practices, and we started to see this trend a handful of years ago when home offices started to want their advisors to use model portfolios. And then at the same time, advisors who were, maybe used to their own specific home office model started to say, "Hey, there's more out there. I want access to more," meaning, "I want to look at this third-party model landscape that's growing."
And so some home offices have been pushing their advisors toward using both home office and third-party models and to get them away from being repo's[CC1] portfolio manager to potentially increased diversification in their client portfolios, and then also to ease some of the compliance burdens that are really put on financial professionals today when they're managing portfolios.
And when we think of the landscape and some of the statistics around it, according to reports from Bloomberg and Broadridge, both that came out earlier this year, January of this year, we know that since 2016, assets and model portfolios have more than doubled, from $2.1 trillion to more than $4.9 trillion, and that was through Q3 of this year, of 2022.
And then looking at the numbers and how they're going to grow, the expectation is that they're probably going to more than double again, maybe to an estimated $10 trillion by 2025. So we've seen this trend certainly at our firm level, but also backed up by industry data like that.
Also, in 2020, Cerulli released their annual report on U.S. asset allocation model portfolios, and they noted that over 16,000 advisor practices indicated their primary portfolio construction process involved model portfolios created outside their practice that they don't alter or modify, which is, of course, music to our ears.
And as a third-party asset manager, we pay careful attention to both these types of stats. And if we're seeing home offices continue to influence their advisors toward using third-party models like the models that we offer—and like that Cerulli report I just referenced—we think that the model portfolio space has a long runway and that there's significant opportunity to capture some of these assets, particularly as we see baby boomers start to pass on some of their wealth to that next generation.
And anytime that me and my team we're talking to advisors, it's a challenge of getting everything done for your clients and really focusing on the clients. So dig into this for our audience, the benefits on the business side and the investment side of leveraging asset allocation models.
Sure. I know we only have 20 minutes, I could probably talk for 45, so I'll try to limit my statements here. So when we think about the evolution of an advisor's business, they've really evolved from back in the day: They were stockbrokers, and they were picking mutual funds and SMAs and annuities, and then on ETFs. And then of course, now today, we're really looking at a lot of advisory products being used in an advisor's practice, which of course includes model portfolios.
And from a practice management standpoint, model portfolios are really an important tool to scale business, to manage risk, and potentially deliver a better overall client proposition.
Now, starting back at the top, in terms of providing scale, we know that the key to growing successful business is really to scale the things that can be scaled and then spend time on the high-touch aspects, which very often are the relationship management aspects that really require that one-on-one attention that we know clients are seeking from their financial advisors.
The advisors starting out can immediately tap into expert resources, knowledge and expertise and investments, and they can leverage the knowledge base to benefit their clients, and they get fully researched and constructed portfolios that are aimed at a specific level of risk from conservative to aggressive, or for a specific purpose such as an income model. So that's the advisor starting out looking at this landscape.
When we think of an advisor who's been doing this, for let's say 20 years, they can certainly gain a significant amount of time savings, which then can be used to secure more clients, grow their client base, or maybe deepen relationships with existing clients.
And then thinking about an advisor that's maybe toward the end of their career, and they may be looking to retire themselves, or they just want to be less hands-on in their business, or maybe transitioning the business to their kids' control, or maybe they're looking to sell their practice. Those are obviously a variety of scenarios that we've seen for the end of someone's business. But for these advisors, models can provide a foundational scalable base, which means that they have more time to, again, whatever it might be for that particular advisor, grow their business, deepen relationships, or for that business’s succession planning.
And then in terms of managing risk, it's certainly not a secret that financial advisors’ duties are getting more and more stringent with greater levels of compliance and recordkeeping requirements than we ever have seen in the past. And these are needed to show a thorough and robust research and investment process that has been followed prior to making an investment recommendation.
Now, operationally, as an advisor's practice grows, the work around the investment and manager due diligence, asset allocation, and investment monitoring grows as well. They go hand in hand. And if an advisor doesn't choose to scale this particular side of their business, operational risks can certainly just grow and grow over time.
And as the investment landscape changes, it becomes more complex. Asset correlations, return expectations, and manager performance changes, which really makes an advisor's job more complex: trying to cover all of these available asset classes and check all those boxes at the same time.
And last, models help deliver a potentially better overall value proposition for clients. And we certainly know that holistic financial planning is becoming more and more often the number one client need out there, and clients want more of that high-touch interaction with their advisors, which of course, in turn, requires more time out of an advisor's day. And this is evident during times where we have a lot of volatility in the markets and clients want and they need more consultation and communication with their advisors during these times.
And when we look at the landscape and we look at some of these volatile times, we lean on our behavioral finance knowledge, and that tells us that clients may freeze during these times in terms of making decisions that really need to be made, especially as investors are surrounded by so much access to, likely, negative news when they turn on the news about the markets.
And one of the advisors most important duties at this time is to really keep the clients focused and to be a reminder of the basic principles of investing, like focusing on long-term performance and avoiding the urge to sell everything.
And an advisor who during these times is using asset allocation models, really gains from the investment rationale of the fund manager. And then, in turn, they make out because they can then spend more one-on-one time with their clients, consoling them, talking through what's going on in the markets rather than scrambling, trying to research and keep up with the markets overall.
So again, I could talk for 45 minutes about the business case for using model portfolios, but those are just a few.
No, those are great. And I certainly look back, today's November 1, we look back in October and September. We saw a lot of people leave the markets in September and they would've missed the gains in October, and that's the benefit of a portfolio like this.
So, you mentioned on the business side, I loved what you said at the beginning, managing your business risk, achieving scale as an advisor, and then delivering better overall client proposition and results.
Bruce, I want to pull you into this conversation and get into the investment case. So, talk to us: What is that case for using models? What are you talking about with advisors, things they should consider?
So once again, John, thanks for having me today, having us today. This is a great conversation.
I think when it comes to the investment side for model portfolios, we're really seeing this strong growth driven by financial advisors and their clients seeing the benefits of investing through them. And I think if I could pull it together, it's really bringing institutional-grade oversight to individual accounts. Key elements of that are researching and choosing the specific holdings, whether it be ETFs or mutual funds, and then combining that with understanding the markets and putting together an asset allocation mix that's appropriate.
And I think there also are some forgotten parts, and part of that is just the ongoing monitoring of portfolios, monitoring the markets, trading portfolios. That really comes together.
And this goes back to a lot of the things that Katie mentioned, which is the financial advisor is still very important, but rather than them focusing on the day-to-day burden of management, they can really judge the firms and the model portfolios, what their offerings are. So they can look at seeing whether the firms have the depth, the teams, the global reach, and the experience to run portfolios so that they can really build long-term relationships.
So, listeners to this podcast know a lot about the John Hancock Investment Management model. We're a multimanager model. We have all these different asset managers around the world. We leverage our internal capabilities, which are really strong in asset allocation, your team, and fixed income. But talk to me about how you’re leveraging all those strengths that John Hancock and Manulife have and pull it together in this process.
I think when it comes to our offerings, we have a long history of managing model portfolios, since 2011, which is pretty early for this emerging part of the industry. But as you noted, we're really well positioned to deliver model portfolios because you need to have a wide range of model portfolio solutions.
So model portfolios, we have over $5 billion in AUMA, and you really want to do this, in order to do this, you really need to have a wide range of mutual funds and ETFs. And so, for me, as a portfolio manager, the John Hancock approach, the multimanager approach, our wide range of choices that go well beyond just equity and fixed income into things like alternatives, really gives me a lot of choice.
One of the key differentiators for the John Hancock model portfolios are that the model portfolios are run by the same asset allocation team that runs over $120 billion that you know from a wide variety of other offerings.
So it's not a separate group. We're not removed from the investment expertise. We're part of that well-established team that first started running asset allocation portfolios in the 1990s.
And then you bring that together with another key differentiator for us is our global manager research team. So just like our portfolio managers, global manager research is a deep experienced global team, and they really open up our platform so that we can confidently access a wide variety of asset classes and styles, the things you find in our portfolios. And we also believe it gives us the potential to add value from both asset allocation and those manager selection decisions.
Now, when I'm talking with advisors and my team is talking with advisors, we're highlighting that we're often on the same side of the table. We're doing a lot of the same things they're trying to do. We're just trying to make it easy for them with our model. How do the models that you’re building align with the needs of the advisors that you're talking to?
Sure, absolutely. We find that advisors are looking for, these days in 2022, they're generally looking for maybe a core asset allocation-type model. I know Morningstar in 2021 said that roughly 75% of assets flowing into the model portfolio space tend to go into the target-risk portfolios.
And now we're finding as we move through 2022 that advisors are starting to look for more, meaning completion-type models.
So, for example, the fixed-income space has been pretty rough the last couple of years. So advisors may say, "You know what? I want to utilize an asset manager who has an expertise in fixed income. I want them to look for different types of fixed income based off the market environment, and I want to add that sleeve to my existing portfolios to complete that fixed-income space and take that work off my plate,” if you will.
So the space is starting to evolve a little bit in that sense, in that we're moving outside of just those core asset allocation-type model portfolios and moving on to a little bit more advanced and flashy, if you will.
That's great, and Bruce, maybe you can dig in a little bit more and highlight the different models that you and your team offer.
Thanks, John. I'd definitely love to. We have a range of strategies that are available widely. They're all built on our multimanager capabilities. We have three suites of target-risk portfolios, and these align with our history of lifestyle investing as well. In target risk, we have an ETF suite, we have a mutual fund suite, and a hybrid suite. These portfolios have five different risk levels, from conservative to aggressive, so pretty traditional, and these are designed to be a primary allocation for clients. We also have a multi-asset income model. This is a diversified blend of both fixed-income and income-generating equities, and we go well beyond core fixed-income strategies in this portfolio to build income over time. The portfolio utilizes both ETFs and mutual funds, and as noted, it's designed to have to a yield advantage versus traditional fixed income. This type of strategy can be used as a primary fixed-income holding for clients who are looking to go beyond core fixed income, or it also can be used to complement a core fixed-income strategy, so as part of a wider asset allocation.
We also offer a core global equity strategy that is a blend of strategic and active management where we're looking at different market caps in the U.S., we're looking at different regions of the world, international, emerging markets, so on and so forth. We also are looking at our best ideas when it comes to implementing some sector allocations where we think there's value to be added there. This is really designed to be a core allocation where we're in the markets paying attention to what's going on and adjusting the portfolios for investors who are looking to have that approach for their equity allocations. That's our lineup.
Now what's really appealing to me about the whole process is you're taking an institutional-level approach, but you're customizing it for all these different outcomes that clients need, and you're making the advisor's life easier by making it scalable and allowing them to spend time on their most important asset, which is their clients. So, Katie, if I'm an advisor, and I'm on board with the concept, how do I go about getting started?
Good question, John. Thanks. So thinking about this, I go back to the amount of advisors that I've talked to over the last few years, specifically about our models and our models business in so many conferences, so many events, and the one thing I have heard time and again, is the myth that if an advisor is going to transition to models, they have to have an all-or-nothing mentality.
This is simply not true. Advisors can actually segment their book using a few primary criteria and then figure out from there, maybe they don't want to move all their clients to model portfolios. Maybe they want to take a certain segment of clients and put them in model portfolios. Maybe they want to have a segment of clients where some will be in model portfolios, some won't.
And the way of really starting this process is first looking at the qualified accounts, of course, for the clients that aren't liable for taxes when changing the underlying investment components. And then next, looking at the nonqualified accounts, which can further be segmented by low or high unrealized gains.
Of course, investors with low unrealized gains may benefit from a move into model portfolios without significant tax consequences.
Segmenting clients by assets in revenue can also be another criterion. So some clients have highly complex needs, and they may not be appropriate for model portfolios, but then there are many clients who have similar needs, and you could really have them be candidates for model portfolios, and you can lump them together into maybe three distinct model portfolios based off their investment needs.
And advisors can also adopt a hybrid approach, where an outcome-based model, such as an income model like referenced earlier, can be used to complement an existing portfolio.
And then another myth that we've heard is that introducing models into a practice is going to be time consuming: “I don't know if I want to use models because my business is running right now, and if I'm going to change things up, it's going to take all this time out of my practice."
But if you really sit down and have a very segmented approach to putting clients in model portfolios, moving into model portfolios, it becomes relatively easy to identify clients that might benefit.
And last, the sales and advisor support is really a key element of helping advisors navigate the landscape and decide how best to fit models into their practice.
I always say models are the product, of course, that an advisor needs to choose, but the advisor also needs to make sure that they're going to work with a partner that is going to help them not only transition to using model portfolios, but also to use them day in and day out and supply them with every single thing they might need in terms of if a client called them up out of the blue and they have up-to-date information, they have full knowledge of what's working inside that model portfolio.
So to get started, I would really sit down, I would segment your clients, and I would certainly work with the asset manager who you've chosen to work with to learn about what's worked for other advisors in the past and how they can help you transition.
Excellent. And, Bruce, I have one last question for you. You've mentioned the heritage in running asset allocation models and multi-asset strategies. You've talked about leveraging the existing platform, the multimanager options that John Hancock has and the different vehicles, mutual funds, ETFs, etc. How do you stay on top of the evolving landscape so that the next model that we offer is going to continue to evolve and meet client needs?
So I think that's a great question. I think what has been wonderful for me since I've been here, I came here about four and a half years ago, is really working with the resources we have as an organization, whether it be the John Hancock distribution force, over 120 staff members who are a line of sight into what's going on with financial advisors, talking to intermediaries, so on and so forth.
We certainly have our product folks where we look at some Cerulli data and also keep track of that. I think it's really just keeping track of what's going on in the industry, and part of it is you do have to plan ahead. So we also try to think about what do we have for capabilities? What do we have for something that could be a useful tool for a financial advisor and their clients going forward? So it's really a mix.
As a portfolio manager, I'm focused on the markets and macro environment, so on and so forth, but you can't do that in a vacuum, so I do try to stay plugged into that. We have a variety of regular meetings, Katie will attest to, so really just making sure that you're not just doing your investment work in a vacuum, but really getting plugged into what clients and their advisors want.
I think that that end point is the most important one, what clients want and how we can evolve to meet their needs. Bruce, Katie, thank you so much. It is a fascinating topic. I'm looking forward to having you on in the future to hear what other developments have happened in the space.
Folks, if you want to learn more, you can always visit our website, jhinvestments.com, to catch up on our model business, on all of our portfolios, and if you like this, you can always subscribe to the Portfolio Intelligence podcast on iTunes or wherever you download your favorite podcast. Thanks, everybody, for listening to the show.
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