Annuities have been on a hot streak as of late and that continues into the 2021. Data collected from a combination of Morningstar and Beacon Annuity Solutions shows that sales for all annuities are up 17.3% through the first half of 2021 dwarfing previous years growth. And over the previous year up a staggering 27.9%. But the makeup tells the interesting story, total fixed annuities were up 12.1% while fixed annuities were almost level with 0.2% growth. And within variable annuities it was registered index linked annuities that dominated the sector with 11.2% growth and up 107.8% over the previous year’s same period. The book value of fixed annuities grew from 32% from Q1 to Q2 in 2021 totaling $12.7 billion.

FINSUM: This is a huge growth in annuities, and it probably stems from the inflation risk in the bond market, annuities are just the safer alternative for an income stream vs yield-less bonds.

Private equity firms are overwhelmingly turning to private credit as a buyout means over traditional bank financing. In a survey by Dechert law firm 45% of private equity firms have increased their use of private credit in buyouts in the last three years, which was a 10% increase from the previous year. Now private credit only trails real estate and private equity in private capital assets and is expected to grow to $1.46 trillion by 2025. It's a combination of a borrowing flexibility and yield chasing that has investors opening the doors to private credit. Private markets also seem less tumultuous to global volatility with longer contracts that are locked up and untradable. This is a big reason more than 50% of PE firms said its their preferred method to finance buyouts.

FINSUM: Ultra low yields and global instability are the biggest draws to private markets, because we know they are statistically less correlated with super liquid debt markets.

MetaCap has acquired a MCAP technology company in an equity exclusive transaction. MCAP is a fintech software development company that hosts a suite of software and e-market making services that offer liquidity solutions to institutional investors. Metacap sees the acquisition as part of their growth in client facing businesses and sector expansion. They can leverage the new acquisition by expanding what they can offer customers and grow their clientele. Revenue and EBITA growth has been a key point of success for MTEC and that as a one two punch they can be even stronger with the merger moving forward.

FINSUM: This is yet another dip into digital portfolio construction via buyout or merger, and a sign of how quickly fintech is moving the frontier in the financial industry.

Evergrande’s crisis has been all over the news in the last month, but it appears there is contagion in the high yield debt market. The bond market sell off, particularly from off-shore investors has spread to companies like Tencent and financial companies like Bank of Communication Hong Kong. This has pushed the ICE BofA Asian Dollar High Yield Corporate China Issuers Index to over 25%, which is the peak yield for the index since 2008. Sparking the yield climb is a combination of regulation, high leverage, and low liquidity. A bump in liquidity from the Chinese central bank has calmed domestic investors, but ultimately government policy will have to lighten up for yields to start to fall.

FINSUM: The endless regulation is spilling into the rest of the economy in China, and no amount of liquidity provisions will bring back outside investors. Rather, China needs to loosen the grip if they want to give companies a chance at refinancing their debt moving forward.

Envestnet’s CEO told investors that it oversees $49 billion in direct investing assets and that they see this number going higher in the future. Direct investing is a part of a growth area for the company along with other personalized portfolios, tax overlays, and ESG and impact investing. Direct indexing allows investors to hold the underlying assets and then add or drop stocks for offsetting tax purposes or to hit other financial objectives. Other giants in the financial industry such as Vanguard and Franklin Templeton have acquired direct indexing portfolios and many firms are ramping up competition in this space.

FINSUM: Direct investing makes a lot of sense over traditional hard indexing because of the customization and tailoring to your financial needs, but it does usually come at the cost of higher fees.

ESG investing is all the rage, but it has its limitations. Passive funds prevent real change by creating a stagnant environment that doesn’t encourage change, just look at how much C02 has increased despite all of the ESG inflows, or greenwashing where companies appear to be more environmentally servicing than they necessarily are. Active ESG investing (AESG) could be a game changer because it can rely on qualitative analysis and trends of a company to select them in an ESG fund rather than a gameable statistic. Additionally, active funds can have a bigger impact on diversity in board selection because it can have real corporate accountability rather than once again hitting a target statistic. Active funds can also put together better incentive structures to bring more companies into the ESG fold.

FINSUM: AESG funds is the logical evolution of standard ESG by merging two booming subsectors, and this is the time for active fund outperformance given ultralow yields.

Strategists for Goldman Sachs, Christian Mueller Glissmann and Peter Openhiemer, say that government bonds are failing to meet the traditional hedging requirements and to consider higher cash and equity allocations. There is still a small negative equity/bond correlation and investors shouldn’t leave the traditional 60/40 split immediately. There are other reasons to allocate more to equity though such as a higher equity risk premia. Inflation is eating away very low yields, making cash a better relative investment, and rate volatility could be even higher in the upcoming Fed cycle. If bonds/equity correlation moves to zero then a balanced portfolio is futile and cash is the safer option.

FINSUM: Investors should need to watch the real return on their fixed income investments and high yield debt might not be worth the risk to generate the ‘normal’ bond returns.

President Biden spoke at the Port in Baltimore to celebrate the passage of the $550 billion dollar spending bill which will allocate $17.1b to ports like the one he spoke at. In order to expedite the spending spree, the White House said that $240 million of the bill will be allocated to grants that they plan to move on in the next 45 days. The Biden administration sees port infrastructure spending as part of a key process to alleviate the supply constraints in the U.S. economy that are a key contributor to record inflation in many policy makers' eyes. The Bill is already facing criticism from former President Donald Trump who says only a fraction of the bill's allotment will be spent on infrastructure. However, it was 11 republicans who stepped across the aisle that was key to passing Biden’s first signature piece of infrastructure legislation.

FINSUM: It would be a big win for the U.S. economy if the infrastructure bill could make substantial gains toward reducing inflation which has markets flummoxed and consumers concerned.

The COP26 summit was last week, and the United Nations climate change conference drew leaders from around the globe to address rising global temperatures and greenhouse gas emissions. On Tuesday the conference pivoted to the role of science and innovation in greenhouse gas reduction. The 23 countries came together to announce four ‘innovation missions’. These missions would undertake projects for new clean technologies, c02 removal and new renewable fuels and chemicals. Global temperatures on a projection to rise by 2.4 degrees celsius by 2030, outpaces the target set by the Paris agreement. French President Macron suggests that nuclear energy be a larger part of the energy production in Europe moving forward in order to combat climate change.

FINSUM: C02 reduction is a growing technology field in the combating climate change and plants are being built around the globe.

Congress continues to look for ways to fund the $1.85 trillion bill that aims to spend on social and climate policy. While they have already considered objectives that would align the U.S. with the G20’s global minimum tax rate, the current bill will also affect wealthier individuals’ retirement vehicles. Congress will put limits on large accounts for individuals or couples with $10 million dollar retirement balances. The newest Build Back Better bill also eliminates the ‘backdoor’ Roth IRA by minimizing rollovers and conversions. The date for the former rule change isn’t until Dec. 31, 2028 but the backdoor loophole is set to close Dec. 31st of this year in the current bill.

FINSUM: Substantial changes to savings and retirement could be coming in the upcoming legislation, and investors should be aware of how these changes could affect their retirement vehicles.