The Biden administration’s SEC has lept from one sub-financial industry to the next whether it's crypto or ESG, but now they are gonna take a closer look at private equity and other ‘alternatives’ like hedge funds. The process is mainly would limit what retirees and savers have opportunities in private equity and hedge funds through their plans and limit them to accredited investors. Alternatives have taken off in the last few years and the SEC is looking to increase transparency and possibly limit access. They are cautioning other companies from putting PE in retirement portfolios.

Finsum: This limited access could take the many savers and retirees out of the huge gains in PE over traditional equity markets, and might only hurt the general public.

Many investors are fretting over the rising bond yields which are sending their prices tumbling, but this could just be the tip of the iceberg. The aggregate bond index AGG has already fallen 3.9% and that's with the critical 10-year T-bill only rising to a 2% yield. If the 10-year hikes all the way up to its high of 3.25% in 2018 that could be a disaster. With inflation at a 40-year high that's a real possibility and any yield you are getting is all eaten away at. However, if inflation is temporary (caused by supply chains) or Fed pulls breaks fast enough then yields might be maxing out, and bond prices could turn around.

Finsum: Inflation expectations are remarkably low which means that investors are convinced either the Fed will credibly bring inflation down or as supply chains loosen that will bring inflation down. Markets are saying that bond risk is priced in.

Direct indexing is in its infancy in UK and Euro area, whereas across the pond it has taken off quickly. Driving the growth in the U.S. is the ability for direct and custom indexing to accommodate the US tax system and those benefits just aren’t present in Europe. However, ESG is a well-developed market and direct indexing is turning the heads of many ESG investors for its custom approach. Experts say the institutional knowledge in Europe could make it a haven for direct indexing because larger ETFs take too simple of an approach. Morgan Stanley’s Paramterics sees a natural marriage of these industries because experts can develop more robust indices or individual investors can drop the greenwashers from the indices they are tracking.

Finsum: ESG could vault direct indexing to the investing frontier in the way that tax-loss harvesting has in the U.S.

Annuities have had rapidly growing interest in the post covid era, and this has been especially true for variable annuities. What makes variable annuities attractive is inflation and interest rate risk which will elevate their value, however, for annuities providers and insurers, this is represented as risk. In an action to mitigate those risks Aegon, the parent company to Transamerica, engaged in a buyout program that ended in January. In total 18% of annuity holders capitalized on buybacks to settle their portfolio. Transamerica also expanded its hedging strategies to ensure against interest rate and equity risk for the remaining balance of its variable annuity portfolio.

Finsum: Recent legal changes have drastically affected the insurance and annuity industry which has been key to their growing demand, in addition to the covid-19 pandemic and rising subsequent unemployment.

Active management seems to be making a comeback, and adding to that rising rates have many investors eyeing fixed income. For overall active funds in 2020 and 2021, it was a nearly a 50/50 shot that they would outperform similar passive counterparts; in other words virtually no advantage. However, research shows that passive equity has an advantage but over the past 10-years active fixed income leads the way over passive funds. In the last decade, the average bond manager beat the Bloomberg Aggregate Bond Index nearly three-fifths of the time. However, fixed incomes risk mitigation isn’t captured here, and active funds have the advantage to adjust the risk factor over passive funds, carrying an additional advantage.

Finsum: The ultra-low interest rate environment has been the difference-maker for fixed income managers who have just capitalized better than passive funds.