According to the Index Industry Association’s annual ESG survey, 76% of respondents integrate ESG when running both passive and active fixed income mandates. This is a large jump from 42% in 2021. The survey, which was conducted with 300 asset managers, also found that 87% of passive asset managers are integrating ESG into their bond allocations. 85% of asset managers stated that ESG had become a higher priority over the past 12 months. Out of this figure, 43% said the concern around climate and corporate governance was the driving force behind that decision. Other reasons were a need for more diversified returns, regulatory and reputation risk, high energy prices, and geopolitical events. Almost a third cited a desire for increased returns. The biggest driver was their client’s knowledge of ESG, with 53% stating they were “very confident” in their clients' ESG knowledge.

Finsum: Asset managers are implementing ESG into fixed income allocations at a higher rate due to climate and corporate governance, diversified returns, higher energy prices, and client knowledge.

2022 has seen one of the most volatile six-month stresses that hasn’t included a full-blown economic collapse. With the U.S. recession looming, Fed tightening, surging inflation, and international conflict all still very much in play investors need a volatility strategy. Most investors’ loss aversion keeps them out of market gains and a negative bias, and a low volatility strategy can curb those fears while allowing participation. This is a factor-based approach to investment where a considerable factor can be on stocks with more stable price movements in comparison to the rest of the market. Typically this strategy favors older, medium to large companies, with stable performance. If markets take a large hit many of these bear less of the losses, but they still can capture the rallies during high volatility.

Finsum: A momentum factor strategy has the advantage in low-interest rate booms, but favoring stable price movements might beat markets in this environment. 

The markets rally in response to the Fed’s latest tightening cycle, but it's the movement in combination with bonds that are potentially concerning. The longer end of the yield curve may not be realizing the extent of the Fed tightening with the 10-year rates falling in response. Analysts say this could be markets reading what they want from the Fed and not taking this phase of tightening seriously. This also could be the opposite, as the ten-two-year yield curve inverts, this could be the markets predicting a recession on the horizon, that is if the U.S. isn’t currently in one. Regardless, Powell made it completely clear that inflation is concern number one, and the Fed doesn’t believe the economy can function normally until inflation is tamed.

Finsum: There’s a possibility markets are happy there is a recession, because it could be the return to easy money and low rates. 

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