The Wrapper Choice: Picking the Right Investment Vehicle

The surge in international performance this year may have caught many investors unprepared and under-allocated. Chris Hedges, Managing Director of MFS Investment Management, talks diversification and the benefits of different fund wrappers at Future Proof 2025. 

Transcript

Opening: Advisors Need Choices

Hedges: We invented the mutual fund in 1924, but advisors want more than that. They're coming to us. They want ETFs. They need SMAs. And they need CITs that resemble the fund offerings that they've known from us for decades.

“International Is Actually Showing Its Stripes”

Nadig: Alright, I'm here with Chris Hedges at MFS Investment Management. Chris, what have you been hearing from advisors? What's important and how are you answering their questions?

Hedges: Sure. I mean, advisors have more choices than they've ever had before. It's limitless at this point. So, to kind of answer their questions and answer their needs from us, we have been really leaning into a more wrapper agnostic product suite. So, think funds. We invented the mutual fund in 1924, but advisors want more than that. They're coming to us. They want ETFs. They need SMAs. And they need CITs that resemble the fund offerings that they've known from us for decades. So, we've really been leaning into that to help meet their needs and their clients' needs.

Nadig: So, a lot of what I've been hearing from advisors is repositioning around this current environment. International keeps coming up. The US is actually one of the worst-performing developed markets out there. You guys have some real expertise there. I'm guessing that's part of your pitch.

Hedges: It is. International, up until this year, has been definitely a piece of portfolio frustration, if you will. People keep wondering and asking, "When is it going to outperform? When is it going to outperform?" Well, here we are. You have a situation where the U.S. market's doing just fine, thank you very much, but international is actually showing its stripes. Seems to be a very good valuation situation internationally, so I think people are generally happy that they stuck with that. It really speaks to diversification and why you do it even though you can get impatient with it.

Diversification Is More Than Just Portfolio Assets

Nadig: So, you talk about the multi-wrapper issue. Let's imagine I'm coming at international exposure. I have a relationship with MFS Investment Management. Why might I be picking the SMA version, or the mutual fund version, or the ETF version or whatever else you guys come up with next?

Hedges: Right. Well, it comes down to clients. You know, we understand the ETF wrapper tends to be a little bit more tax-efficient, so that resonates with people. In a retirement plan, the mutual fund is fine. They fit better inside a 401k currently. And then the SMA tends to appeal to a higher net worth person. We can do a little bit more customization around tax and things like that. So, while it is more complex, I think it also speaks to the value of working with an advisor, so that the advisor can help you navigate all of this complexity and figure out really what's best for you.

Nadig: Yeah, we are kind of in this everything, everywhere, all at once market, where you want all the different exposures, you want all the different wrappers. They all have their pros and cons. Chris, thanks for taking some time with us today.

Hedges: You bet, Dave. Good to see you.

Nadig: Cheers