Displaying items by tag: risk

Many investors may be looking to diversify their portfolios given recent gains in equities. While there are many options, leveraged index annuities can reduce portfolio risk while still offering some growth potential.  

Leveraged index annuities are typically bought upfront with a single payment. The interest earned on these products is not taxable until it is withdrawn, which also makes them an effective vehicle for saving.  

These annuities are leveraged to a major market index like the S&P 500. Interest is earned when the underlying index appreciates; however, there is no loss of principal in the event that the index suffers losses. 

The tradeoff is that interest earned on the annuity is capped depending on the terms of the annuity agreement. For instance, the maximum earnable rate of interest could be set at 12%. This means that in a year like 2023, when the S&P 500 was up 24%, the annuity owner’s earned interest would be capped at 12%. On the other hand, the annuity owner would have seen no loss of principal when the S&P 500 was down 19% in the previous year.  

This combination makes leveraged index annuities ideal for investors who want to diversify and de-risk their portfolios while still growing their wealth.

Finsum: Leveraged index annuities are a way for investors to reduce risk and increase diversification while still allowing for appreciation. 

Robert Mitchnick, Blackrock’s digital asset lead, believes that bitcoin is more like ‘digital gold’ rather than a ‘risk-on’ asset, despite its strong correlation to equities in recent years. Throughout bitcoin’s existence, there has been a constant debate about its true nature. Some argue that bitcoin is like gold given that there is a fixed supply, which means that it should provide protection against inflation. 

While this may be true in theory, in reality, bitcoin has largely moved in the same direction as equities, which undermines the argument that it offers diversification. In 2022, bitcoin tumbled as the world dealt with the highest levels of inflation in decades. Notably, equities were also down 25% in 2022. In the following year, as equity markets made new highs, bitcoin also followed and made new highs as well. 

Despite this relationship, Mitchnik believes that historically, bitcoin has demonstrated very little correlation to stocks. He attributes the recent rally to excitement around the launch of bitcoin ETFs in the US. In terms of allocation, he recommends between 1 and 3% for investors to provide diversification and differentiated returns. The argument about bitcoin’s nature is germane for investors who want to understand whether it will make their portfolio more risky or more diversified. 

Finsum: There are two camps when it comes to bitcoin. One sees bitcoin as an asset that is closely correlated to equities; while the other believes that bitcoin is more like gold and can help diversify portfolios.

Investors grappling with market uncertainty are exploring ways to manage risk effectively while staying invested; utilizing buffer strategies, which employ options to provide targeted downside protection, offers a solution by mitigating losses during market downturns while limiting upside potential.

 Accessing buffer strategies through ETFs simplifies the process, avoiding the complexities of managing options directly or the expense of structured notes. Buffer ETFs, managed by experienced professionals and offering intraday liquidity at a low expense ratio, present an accessible option for investors. 

Designed for long-term strategic allocation, these ETFs can be utilized by investors looking to reduce equity drawdown risk, seeking moderate growth, or exploring outcome-oriented strategies within their portfolios, thereby providing a flexible approach to risk management in uncertain markets.

Finsum: Buffer strategies seem to make the most sense when there is overall upside but potential for volatility, similar to our current macro landscape.

Apollo Global Management Inc. has launched a new private credit fund, initially offering no fees for the first year and halving fees for the subsequent year, with investments coming from Mubadala Investment Co. and other institutional investors. 

Structured as a business development company, it diverges from the norm by providing fee breaks, unlike many similar vehicles catering to retail and high net worth investors. Contributions from Mubadala and Apollo's affiliate amount to over $290 million, while the fund's assets total over $790 million, predominantly acquired through leverage. 

Named Middle Market Apollo Institutional Private Lending, the fund is an extension of the collaboration between Apollo and Mubadala, established in 2020, focusing on investments in US middle market companies, with a target allocation of 70% to 80% in loans. The fund's filing also stipulates a provision where Apollo would redistribute cash from sales or loan repayments to investors if it fails to double its investment commitments to $900 million within five years.

Finsum: Private credit could provide an uncorrelated return as macro uncertainty permeates markets.

Lincoln Financial Group unveils the 1 Year S&P 500® Dual Trigger (Dual Trigger) account option for its fixed indexed annuities, offering growth potential in all market conditions with 100% downside protection. 

Consumer concerns about inflation, investment losses, and market volatility have driven demand for such products, with 61% of consumers seeking investments balancing growth and protection. With industry projections expecting fixed indexed annuity sales to reach nearly $100 billion in 2025, Lincoln Financials’ enhancements aim to simplify strategies, providing growth opportunities while safeguarding against volatility. 

Additionally, Lincoln introduces the 1 Year S&P 500® 10% Daily Risk Control Trigger for its OptiBlend® fixed indexed annuity, offering potential for higher trigger crediting rates in certain markets. With a commitment to helping investors protect their savings, Lincoln Financial expands its annuity product portfolio to offer clients more choices for building wealth and confidence in retirement, working with over 22,000 financial professionals in 2023 to provide new annuity contracts.

Finsum: The recent uptick in annuity products appears to be driven by demographic shifts and boosted demand.