Advisors to focus on ‘total return’ this year

David Settanni of Settanni Financial and Kim Abmeyer of Abmeyer Wealth

Fixed income and individual stocks are among the areas where advisors plan to boost allocations.

It’s now the third week of 2024, and advisors are already taking the reins when it comes to managing their investment strategies.

A recent InvestmentNews survey found that one of the areas set to see the biggest increase in interest on net was US fixed income, with 44% of advisors saying they anticipate more exposure to that sector.

Rob Schultz, wealth manager and senior partner at NWF Advisory Services, said there are two reasons for that, “the first being rebalancing.

“With a strong year in in equities last year, any portfolio would be out of balance after a 20%-plus year in the equity markets,” he said. “The second is that you get paid for owning fixed income. On a risk-reward basis, it’s as attractive as it has been in a few years.”

David Settanni, advisor and chief financial officer at Settanni Financial, an independent RIA, said that while the firm has seen new business as a result of the higher rates, it won’t be increasing its allocation to fixed income.

“We’ve seen an influx of fixed-income business because we’ve been able to gain a little bit of market share from banks or from clients or relationships that had bank accounts that were paying a very low yield,” he said. “Our business hasn’t seen an influx of money that has been invested in fixed income, just because we’ve been able to invest clients in Treasuries and earn them a very reasonable rate of return.”

Kim Abmeyer, founder and wealth advisor at Abmeyer Wealth, said while the firm has some ETFs that invest in a broad sector or are index-based, allowing for participation and passive investing, she tends to lean toward more concentration in individual stock names to help improve performance in areas of the market that she thinks will do well.

“Even in a challenging market, you can still find opportunities, that’s what we focus on,” she said.

Abmeyer expects interest rates will likely lean sideways. “That being said, we are still invested,” she said. “We’re focusing on the municipal bond market, as long as that continues to be a safe haven from a tax perspective. Because it’s tax-free income, you’ve got some strength in that area of the bond market. As far as holding up those valuations, we’re focusing there and then just laddering them out.”

“For the first time in a long time, fixed income is an asset class that you can invest in again,” Abmeyer added. “For the longest time, there was really no point with rates being as low as they were.”

Paul Schatz, president at Heritage Capital, said that he was probably the most bullish person going into 2023. This year, his mindset is different as he takes into consideration all the data.

“The year, to me, suggests we’re going to make between 11% and 15% in the stock market,” he said. “Unlike last year, I think the first half of the year is going to be a lot choppier, bumpy and more difficult.”

Schatz also said that advisors are buying more fixed-income exposure because bond market rates went from essentially 0% to 5% and are now flatlining. “So that would make very intuitive sense that advisors are no longer scared of the bond market, because rates are no longer going up.”

Looking ahead, Abmeyer says the market is back to being one where “advisors will be focusing on total return.” “That’s going to be the strategy that we’re utilizing, where we’re really looking for high-quality companies that pay solid dividends that will be able to ride out a potentially bumpy next couple of years, versus a growth market like we’ve seen.”

“We’ll probably see some rotation within the market, from some of those moving out of growth and more total returns, more stability and high quality,” she said.

While Schatz predicted tech stocks will perform more in line with other sectors, such as financials, he doesn’t foresee a repeat of last year, where the “Magnificent 7” technology companies drove the market.

Abmeyer also expects some types of technology, as well as pharma and health care, to influence stock market returns this year, and added that small-cap stocks could likely bounce back after being out of favor.

“They’re usually the first area of the market to emerge when you work through a challenged economy,” she said.