Displaying items by tag: hedging

Stable value funds are a conservative investment option that aim to deliver higher returns than cash while preserving principal. They invest in high-quality bonds that are insured through contracts like guaranteed investment contracts or group annuities, which protect investors from losing money. 

These funds are available only in tax-advantaged retirement plans such as 401(k)s, and according to MetLife, more than 80% of defined contribution plans offer them. Stable value funds are often compared to money market funds, since both are designed for safety and stability. Over the 15 years ending March 2023, stable value funds delivered an annualized return of 2.99%, significantly higher than the 0.55% produced by money market funds. 

While money markets adjust quickly to interest rate changes, stable value funds respond more gradually, which can lead to short-term underperformance when rates are rising. Researching stable value funds involves looking at the fund’s goals, portfolio composition, fees, and historical performance.

Finsum: Advisors should also evaluate management tenure and ensure the fund’s returns align with its stated objectives for clients

While standard ETFs are built for long-term investors, more complex products like leveraged, inverse, and synthetic ETFs are designed for short-term or specialized strategies and carry higher risks. Leveraged ETFs amplify daily index returns, but compounding effects mean they often underperform over longer periods, making them unsuitable for buy-and-hold investors. 

Inverse ETFs, by contrast, rise when their benchmark falls and are typically used as temporary hedges against downturns rather than core holdings.

Synthetic ETFs take a different approach by using swap agreements with banks to replicate index performance instead of directly owning the securities, which reduces tracking error but introduces counterparty risk. These advanced products can be useful in the right hands, yet they require a clear understanding of their mechanics and limitations. 

Finsum: These tools can be tactical moves, not long-term wealth building, but serve short term client desires.

Private equity leaders are cautioning that while industry assets are likely to keep expanding, the number of firms competing for those dollars could shrink dramatically. KKR’s CFO Robert Lewin and Apollo’s president Jim Zelter both suggested that smaller managers, burdened by high fixed costs and limited fundraising capacity, may not survive the next cycle. 

Lewin forecasted a wave of organic consolidation over the next five years, while Zelter warned that many firms may already have raised their last fund without realizing it. Larger players, by contrast, are positioned to thrive, offering a wider array of products and attracting investors eager to simplify their GP relationships. 

Consolidation could also accelerate through acquisitions, with bigger firms absorbing weaker rivals. 

Finsum: The same pressures are expected to spread into venture capital, where scale and distribution strength are becoming just as critical.

The target date market surged in the first half of 2025, with combined assets across mutual funds, CITs, and custom solutions rising 10% to more than $4.7 trillion. Vanguard extended its dominance, adding $121 billion to reach $1.6 trillion, far ahead of Fidelity’s $623 billion. 

A major development is the rapid rise of income-enabled target date funds, whose assets climbed to $103 billion, led by TIAA’s RetirePlus model and BlackRock’s LifePath Paycheck series. 

These products reflect growing demand for pension-like security within modern 401(k) structures, blending glide paths with annuity-based income features. Co-manufacturing partnerships between recordkeepers, insurers, and asset managers are fueling much of this innovation, while CIT-based target date funds have overtaken mutual funds, now holding 53% of assets. 

Finsum: Target date funds are a great way to start a portfolio for clients and then to build customization around the edges. 

Private credit has grown so large and intertwined with banks and insurers that it now poses a systemic risk in future financial crises, according to a new Moody’s Analytics study co-authored by economists and regulators. 

The report warns that the opaque nature of private credit and its deepening ties to traditional finance could amplify financial shocks due to increased interconnectedness. Since the 2008 crisis, banks have reduced lending amid tighter regulations, creating room for private credit funds—often lending to riskier, heavily indebted companies—to flourish with less oversight. 

Researchers used business development companies as a proxy for the sector and found their market behavior is now more correlated with broader financial stress than in the past. Although private credit firms argue they are less prone to panics due to their long-term investor base, banks are still deeply exposed through indirect relationships like fund financing and risk transfers. 

Finsum: While private markets tend to be insulated from recessions compared to their public counter parts it’s important to keep this risk in mind when investing