How Differentiated Insights Lead to a Stronger Financial Portfolio
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How Differentiated Insights Lead to a Stronger Financial Portfolio

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The following content is sponsored by MSCI

Differentiated Insights Lead to a Stronger Financial Portfolio

How can wealth managers build better portfolios for a better world? It all begins with the right insights. Using risk and return analytics, along with climate and ESG considerations, wealth managers can:

  • Propose compelling solutions
  • Build stronger portfolios
  • Monitor portfolio performance

In this graphic from MSCI, we show how financial portfolio insights help a wealth manager meet their clients’ needs at each step of the process.

Insights in Action

Let’s look at how these benefits take shape for a hypothetical client and their wealth manager.

  • Client: Faye
  • Investable assets: $1 million
  • Risk tolerance: Medium
  • Preferred strategy: ESG integration

Given this profile, a variety of financial portfolio insights will help Faye understand how a new solution meets her needs.

Build a Strong Financial Portfolio

In the first stage, the wealth manager will begin building a model portfolio by conducting research and risk/return analytics. A stress test shows that the constructed model portfolio would have performed better than its benchmark during historical market downturns.

Downturn EventPortfolio ReturnBenchmark Return
Global Financial Crisis (2007-2009)-34.7%-36.4%
Oil Crisis (1972-1974)-29.3%-31.4%
Argentine Economic Crisis (2000-2002)-23.9%-24.2%
Dot-com Slowdown (2001)-22.2%-24.2%
Market Crash (Oct 14-19, 1987)-15.0%-16.9%

Financial portfolio construction can also include analyzing exposure to factors, or the investment characteristics that drive risk and return.

To take ESG into account, the wealth manager compares an ESG model portfolio to one of their traditional model portfolios across various metrics. They find that the ESG portfolio has similar risk and a higher historical return, along with a higher ESG quality score.

Propose Compelling Solutions

Once the wealth manager has built the financial portfolio, the advisor can use data and analytics to propose the solution to Faye. Relative to Faye’s current portfolio, the proposed portfolio has had higher returns during its best years and a smaller loss during its worst year. This is more in line with Faye’s risk tolerance.

To highlight the ESG characteristics of the proposed portfolio, the advisor shows Faye the ESG ratings distribution for both portfolios.

ESG RatingFaye’s Current PortfolioFaye’s Proposed Portfolio
AAA - Leader5%18%
AA - Leader10%30%
A - Average26%30%
BBB - Average30%15%
BB - Average12%5%
B - Laggard10%1%
CCC  - Laggard7%0%

Note: Numbers may not sum to 100 due to rounding.

Almost half of the proposed portfolio holdings are ESG leaders, compared to only 15% of Faye’s current portfolio holdings. The proposed portfolio also has a 53% lower carbon intensity than Faye’s current portfolio, a reduction that is equivalent to 406,843 miles driven by average passenger cars.

Monitor Financial Portfolio Performance

During portfolio reviews, Faye’s advisor provides meaningful information in order to increase Faye’s satisfaction. This also helps ensure they can make adjustments as needed. Faye’s advisor shows her a breakdown of her portfolio holdings according to their weighting and risk score.

Investment% of PortfolioRisk Score
Delta Air Lines21%228
The Walt Disney Company15%165
UPS4%165
Automatic Data Processing6%115
iShares MSCI USA Equal Weighted ETF30%115
iShares Total Return (TR) MSCI KLD 400 Social ETF12%101
Nushares TR ESG Emerging MKTS Equity ETF12%100

Given Faye has a medium risk tolerance, she may consider reducing her portfolio’s concentration in Delta Airlines.

With regards to ESG, Faye’s advisor can show her how her financial portfolio has been performing in relation to a traditional benchmark. Her advisor shows her that her portfolio has outperformed the non-ESG benchmark year-to-date, and over a five year timeframe.

Positioned for Success

With insights tailored to their preferences, clients are more likely to understand and commit to their financial portfolio. This means wealth managers are positioned to increase client satisfaction—leveraging the power of better portfolios.

Learn more about how MSCI helps wealth managers generate insights here.

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Visualizing America’s Electric Vehicle Future

The U.S. is accelerating its transition to electric vehicles but obtaining the minerals and metals required for EVs remains a challenge. In this infographic, we explore America’s transportation future.

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Visualizing America’s Electric Vehicle Future

The U.S. is accelerating its transition to electric vehicles (EV) to address climate change. However, obtaining the minerals and metals required for EV batteries remains a challenge.

In this infographic from Talon Metals and Li-Cycle, we explore the country’s strategy to have vehicles, batteries, and key parts be made in the United States.

Then, we look at how this strategy could be fueled by domestic mining and battery recycling.

The All-Electric America

Gasoline-powered cars are one of the biggest sources of carbon pollution driving the climate crisis. As a result, the Biden Administration has set a target for EVs to make up 50% of all new car sales in the U.S. by 2030. Today, fewer than 1% of the country’s 250 million vehicles are electric.

In November 2021, Congress passed the Bipartisan Infrastructure Deal, which includes:

  • Replacing the government’s 650,000 vehicle motor pool with EVs.
  • Electrifying 20% of the country’s 500,000 school buses.
  • Investing $7.5 billion to build out a network of 500,000 electric vehicle chargers across the country.

The idea also has popular support. According to a poll, 55% of voters in the U.S. support requiring all new cars sold in their state to be electric starting in 2030.

However, rising EV sales are already driving demand for battery metals such as nickel, lithium, and copper, threatening to trigger a shortage of these key raw materials. So, does the U.S. have the raw materials needed to meet this rising demand?

Currently, the U.S. is import-dependent with large parts of the battery supply chain captured by China. Likewise, some essential metals for EVs are currently extracted from countries that have poor labor standards and high CO2 footprints.

Nickel in the Land of Opportunity

The Biden Administration’s 100-day review of critical supply chains recommended the government should prioritize investing in nickel processing capability.

Today, the only operating nickel mine in the U.S., the Eagle Mine in Michigan, ships its concentrates abroad for refining and is scheduled to close in 2025.

To fill the supply gap, Talon Metals is developing the Tamarack Nickel Project in Minnesota, the only high-grade development-stage nickel mine in the country. Tesla has recently signed an agreement to purchase 75,000 metric tonnes of nickel in concentrate from Tamarack.

Since the development and construction of a mine can take many years, recycling is considered an essential source of raw material for EVs.

The Role of Battery Recycling

Battery recycling could meet up to 30% of nickel and 80% of cobalt usage in electric vehicles by the end of the decade.

The bipartisan $1.2 trillion infrastructure bill already sets aside $6 billion for developing battery materials processing capacity in the United States.

By 2030, the U.S. alone is projected to have more than 218,000 tonnes of EV battery manufacturing scrap and 313,000 tonnes of end-of-life EV batteries per year, presenting a massive opportunity for recycling. Currently, Li-Cycle, a leading lithium-ion battery recycler in North America, can process up to 10,000 tonnes of battery material per year—and this capacity is set to grow to up to 30,000 tonnes by the end of 2022.

Li-Cycle also has a hydrometallurgy refinement hub under construction in Rochester, New York, which will process up to the equivalent of 225,000 EV batteries annually into battery-grade lithium, nickel, and cobalt when it is operational in 2023.

America’s Electric Vehicle Future

The auto industry’s future “is electric, and there’s no turning back,” according to President Biden. It’s expected that EV sales in the U.S. will grow from around 500,000 vehicles in 2021 to over 4 million in 2030.

With rising government support and consumers embracing electric vehicles, securing the supply of the materials necessary for the EV revolution will remain a top priority for the country.

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Retirement Spending: How Much Do Americans Plan to Spend Annually?

Retirement expenses can vary significantly from person to person. In this graphic, we show the range of expected retirement spending.

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Retirement Spending

Americans’ Expected Annual Retirement Spending

Planning for retirement can be a daunting task. How much money will you need? What will your retirement spending look like?

It varies from person to person, based on factors like your health, outstanding expenses, and desired lifestyle. One helpful trick is to break it down into how much you estimate you’ll spend each year.

In this graphic from Personal Capital, we show the expected annual retirement spending of Americans. It’s the last in a three-part series that explores Americans’ spending and savings.

The Range of Retirement Spending

To determine how much people expect to spend, we used anonymized data from users of Personal Capital’s retirement planning tool. It’s worth noting that these users are proactive regarding financial planning. They also have a median net worth of $829,000 compared to the $122,000 median net worth of the U.S. population overall.

Here is the range of expected annual retirement spending.

Expected Annual Retirement SpendingPercent of People
$10K1.3%
$20K3.3%
$30K7.5%
$40K9.8%
$50K5.2%
$60K12.7%
$70K10.2%
$80K6.4%
$90K9.1%
$100K5.4%
$110K1.5%
$120K9.7%
$130K1.5%
$140K2.8%
$150K2.2%
$160K0.9%
$170K0.4%
$180K2.7%
$190K0.7%
$200K0.8%
$210K0.5%
$220K0.2%
$230K0.1%
$240K1.6%
$250K0.3%
$260K0.2%
$270K0.1%
$280K0.1%
$290K0.1%
$300K0.7%
Over $300K2.1%

Users are a mix of single individuals and people in a relationship. In all cases, expected retirement spending is what the household expects to spend annually.

The most commonly-cited expected spending amount is $60,000. Interestingly, this is roughly in line with what Americans spend annually on their credit cards. This suggests that people may be using their current bills to help gauge their future retirement spending.

Median spending, or the middle value when spending is ordered from lowest to highest, falls at $70,000. However, average spending is a fair amount higher at $100,000. This is because the average is calculated by adding up all the expected retirement spending amounts and dividing by the total number of users. Higher expected spending amounts, some in excess of $300,000 per year, skew the average calculation upwards.

Of course, given their higher net worth, it’s perhaps not surprising that many Personal Capital users expect to spend larger amounts in retirement. How does this compare to the general population? According to the Bureau of Labor Statistics, Americans age 65 and older spend about $48,000 per year on average.

Chances of Retirement Success

Once you’ve determined how much you’ll spend in retirement, your next step may be to wonder if your savings are on track. Based on an assessment of Personal Capital retirement planner users, here is the breakdown of people’s chance of success.

Retirement Spending Chance of Success

The good news: more than half of people have an 80% or better chance of meeting their retirement spending goals. This means they have sufficient financial assets and are contributing enough, regularly enough, to meet their expected spending amount. The not so good news: one in five people has a less than 50% chance of meeting their goals.

This problem is even more troublesome in the overall U.S. population. Only 50% of people have a retirement account, and the Center for Retirement Research at Boston College estimates half of today’s workers are unprepared for retirement.

Setting Your Own Retirement Spending Goals

While seeing the goals of others is a starting point, your annual retirement spending will be very specific to you. Not sure where to start?

Financial planners typically recommend that you should plan on needing 70-80% of your pre-retirement income in retirement. This is because people generally no longer have certain expenses, such as commuting or childcare costs, when they retire. However, keep in mind your expenses could be higher if you still have a mortgage, encounter unforeseen medical expenses, or want to splurge on things like travel when you retire.

It requires some upfront planning, but being realistic about your retirement spending can give you confidence in your financial future.

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