Special purpose acquisition vehicles (Spacs) have been one of the go-to alternatives for high-income investors in the last year, but for Goldman Sachs that could be changing. The SEC is proposing reforms to Spacs in order to improve transparency and align with traditional investments. Goldman will pause their Spac offerings in response. GS was one of the largest underwriters for Spacs in 2021 and raised almost $16 billion. This isn’t expected to be an isolated event for GS, other Wall Street firms are expected to follow suit as regulation will make these less attractive ventures.

Finsum: Biden’s SEC has been a not-so-quiet regulator when it comes to alternatives where they are quickly expanding scope to come down on these sub-industries

The Fed had its largest hike in two decades, and the ECB has gone ultra-dovish. This has sent a huge influx of Euro area investors into U.S.-short-durations bond ETFs. Funds like the iShares 3-7yr UCITS ETF had over $600 million in inflows last week. Short-duration corporate debt was also favored by euro area investors. Overall the bond market had seen an exodus in the previous weeks but this confluence of factors has been enough to entice investors. While the Fed has made up its mind they have contributed to inflation, bank heads in Europe are mixed which will leave policy to be accommodative for the near term.

Finsum: The Fed could be over-reacting and Europe could be under-reacting to inflation, but if Europe doesn’t tighten they will find their bond market in a similar position to the US a couple of weeks ago.

Volatility ETFs reached infamy in the 2018 Volmageddon episode, but these formerly destructive ETFs making a Lazzarath-like comeback. Both the SVIX and UVIX delivered record style gains amid inflows due to market gyrations UVIX closed 37% higher but was up 42% in mid-day trading. The wild up and downs came in response to the Fed meeting and a tanking S&P the following day. Advisors are steering investors toward both UVIX and SVIX because this is exactly where these products thrive. However, there is still a substantial risk as investors have suffered greatly in the past from these products and the ‘juice’ they are receiving could be detrimental on the downside.

Finsum: This is unprecedented volatility in the post-GFC, and it could continue until inflation is under control.

Markets are in turmoil which has investors looking for more secure options, but American bonds are a risky option with rising yields (falling prices), which means active international is in a good position. Over the last year, 82% of active bonds have outperformed, and while that doesn’t hold up in the long run the unique conditions put them in a good position. International bonds can offer less interest rate risk, already better yields, and comparable credit profiles. The added advantage of international active funds is investors can make hedges with currency trading which can allow investors to hedge or leverage for more potential gains.

Finsum: The Fed will continue to put pressure on both bonds and equities in the U.S., and investors need a backup plan.

Years of QE and ultra-low interest rates have caused income investors to migrate from fixed-income to dividend stocks, but things are shifting. The rising rates from the Fed have caused retail and institutional investors to really consider taxable fixed income as an income alternative. Investors are really interested in 4.5-5% investment-grade corporate debt with longer maturity. Investors believe we are reaching the bottom of the bond prices and short-term rates could be a little over 3% next year. Other advisors and institutional investors are skeptical that longer-term bonds like the ten-year treasury can prove to be appetizing in the next decade.  

Finsum: Things are precarious in the bond market still but medium-range corporate debt is delivering an attractive yield currently.