Annuity sales reached a record $385 billion last year, up 23% from the previous year, driven by a growing demand for retirement income security amidst rising interest rates. To meet this demand, life insurers are investing in corporate debt and commercial mortgage bonds to fund these products.

Despite recent declines in bond yields, annuity sales are expected to remain strong due to demographic factors and higher interest rates, maintaining tight valuations in the investment-grade corporate bond market. Fixed-rate deferred annuities, especially popular among those nearing retirement, saw their best-ever quarterly sales of $58.5 billion in the fourth quarter of last year, indicating sustained demand among individuals approaching retirement age.

Looking ahead, annuity sales are likely to continue robustly, supporting corporate debt markets and providing stability to investment-grade corporate bonds and commercial mortgage-backed securities. This trend underscores the enduring appeal of annuities as a favored choice for individuals seeking guaranteed income in retirement and highlights their role in shaping the landscape of financial markets.

Finsum: Expect annuities products to continue to have very high demand for the foreseeable future given the aging U.S. population, and this shows fixed income demand will also increase as a result. 

U.S. House of Representatives push back on one of President Biden’s most recent energy initiatives, pausing approvals for liquified-natural-gas exports. The GOPs bill passed on a measure of 224 to 200 in the House and a similar bill making its way to the Senate. 

Biden’s pause on LNG-exports sent shockwaves through the energy markets last month as prices plummeted to the lowest point in nearly four years. 

The halt of LNG exports was praised by climate activists and was seen as a pivotal step by the current administration in dealing with one of the more pressing issues of our times, but conservatives fear this initiative puts a restriction the U.S. ability to generate jobs in this area. Moreover, countries like Russia could step in to fill the void in production. It was only a year ago Biden was pleading with European countries to decrease their reliance on Russian natural gas production. 

The final piece of this puzzle is the legislation would limit the ability of the Department of Energy to regulate and control LNG, and Democrats have made the plea that if this bill was enacted it would increase prices for consumers.

Finsum: Declining natural gas prices could also be affected by this year’s historically warmer temperatures mitigating the need for typical winter consumption. 

Ever since the end of the pandemic, oil demand has seen strong growth and reached new highs. Last year, oil demand increased by 2.3 million barrels per day. According to Bank of America, demand should increase by 600,000 barrels per day on an average annual basis over the next decade. 

Increased demand from emerging markets in Asia and Europe is enough to offset lower demand in developed economies. Over the longer-term, increased use of electric vehicles, more investments in energy efficiency, and greater share of energy production from renewables will impact oil demand. However, there’s still a vigorous debate about the extent and timing.

The International Energy Agency (IEA) sees demand for fossil fuel peaking before the end of the decade. OPEC has strongly disagreed with this prediction and believes that it can be dangerous if it discourages investments in new production especially since oil demand has been so robust following the pandemic despite many skeptics. 

OPEC Secretary General Haitham Al Ghais remarked that “Given these growth trends, it is a challenge to see peak oil demand by the end of the decade, a mere six years away.” He also added that there have been numerous predictions about oil demand peaking in the past which turned out to be incorrect.

Finsum: Oil demand continues to rebound and hit new highs in 2023 at 102.9 million barrels per day. It’s forecast to keep growing over the next few years, although there is a vigorous debate about when it will peak.

Fixed income investors have had to deal with considerable volatility over the past couple of years. The asset class has provided investors with generous yields between but has not lived up to its potential in terms of moderating portfolio volatility and serving as a counterweight to equities. 

In the near term, this volatility is likely to persist especially given uncertainty about the economy and interest rates. Due to these circumstances, fixed income investors should consider actively managed ETFs which are better equipped to navigate these conditions. Active managers are able to optimize holdings and take advantage of opportunities that are unavailable to passive managers. 

Not surprisingly, active bond funds have outperformed since 2022 when interest rate volatility started spiking. Yet, many advisors have been slow to embrace active fixed income ETFs. Some have stuck to actively managed mutual funds instead. According to Capital Group, 80% of assets in fixed income mutual funds are actively managed, while only 12% of assets in fixed income ETFs are actively managed. 

Actively managed ETFs offer advantages such as lower costs, more liquidity, and tax advantages. Capital Group attributes slow adoption to a lack of awareness of the benefits of active fixed income ETFs and limited supply among advisors. To this end, it’s investing in educating advisors about why they should consider actively managed fixed income ETFs over other options. 

Finsum: Active fixed income ETFs have many advantages over passive fixed income ETFs and actively managed fixed income mutual funds especially in the current environment. Yet, adoption has been slow for a few reasons.

Passive fixed income inflows have accelerated in recent years, yet the category still trails passive equity strategies in terms of market share and adoption. Over the last decade, passive equity funds have become the dominant way in which investors get exposure to equities. Currently, passive equity funds account for 45% of global funds, while fixed income accounts for 24%. In terms of the global market, passive equity funds account for 19%, while passive fixed income comprises just 2%.

S&P Dow Jones Indices anticipates that we will see increased adoption of passive fixed income strategies over the next decade, similar to how passive took over the equity landscape. Already, inflows and market share of passive fixed income strategies are growing at a faster rate than equities. 

It should be noted that bond index funds in ETF form didn’t arrive until 2002, while equity ETFs launched in 199 and there are a limited number of fixed income benchmarks relative to equities. It’s also more difficult to replicate a bond index given that they tend to have thousands of securities, higher trading costs, more turnover, and require higher levels of oversight given maturation dates, defaults, credit rating changes, and new issues. Overall, it requires about 10 times more trades to track a fixed income benchmark than an equity benchmark. 

Finsum: Passive fixed income flows have accelerated in the last couple of years due to attractive yields. Here’s why some see the category exploding over the next decade, similar to passive equities, and what’s held it back.

There have been concerns that the housing market could be on the verge of a decline given the stress created by high interest rates and a weakening economy. However, one reason to be sanguine about the housing market despite near-term headwinds is that household balance sheets are in strong shape.

It’s sufficient to dismiss alarmists who see another housing crash on the scale of the financial crisis and Great Recession in 2008. While economic headwinds have started to damage the standing of renters, young people, and those with lower FICO scores, there is no indication that homeowners are in a troubled position.

In fact, bankruptcy and foreclosure rates have remained low even after the expiration of the CARES Act moratorium. This is a departure from the Great Recession when many households were overly leveraged, and higher rates led to a surge in foreclosures. Another major difference is that regulations have led to higher lending standards and the disappearance of exotic mortgages. 

Following the housing crisis, most buyers gravitated towards 30-year fixed mortgages. Periods of ultra-loose monetary policy also led to major waves of refinancing. Cumulatively, this means that the vast majority of households continue to enjoy low rates and have seen the value of their homes rise. 

Finsum: Inflation and higher rates have been damaging to certain segments of the population. Yet, homeowners are an exception as they have locked in low rates, while showing little indications of stress.

The rally in bonds since Fed Chair Powell’s pivot at the December FOMC meeting has been fully wiped out following recent economic data and a more hawkish than expected FOMC at the February meeting. 

Over the last month, forecasts for the timing and number of rate cuts in 2024 have been severely curtailed. Entering the year, many were looking for 6 rate cuts with the first one in spring. Now, the consensus forecast is for 3 cuts, starting in July. This is consistent with FOMC members’ dot plot at its last meeting.

The narrative is clearly changing with some chatter that the Fed may not cut at all. Prashant Newnaha, senior rates strategist at TD Securities Inc., noted that “January CPI is a game changer — the narrative that Fed disinflation provided scope for insurance cuts is clearly now on the chopping board. There is now a real risk that price pressures will begin to shift higher. The Fed can’t cut into this. This should provide momentum for further bond declines.”

Given these developments, Amy Xie Patrick, the head of income strategies at Pendal Group, favors corporate credit over Treasuries. She views the strong US economy as providing a tailwind to risky assets, while making Treasuries less attractive. 

Finsum: Bonds have erased their rally following the December FOMC meeting when Chair Powell signaled that rate cuts win 2024. Here are some of the drivers and thoughts from strategists. 

Bonds and stocks weakened following a stronger than expected January CPI report which led traders to reduce bets on the number of rate cuts in 2024. The 10Y Treasury yield climbed 15 basis points, while the 2Y yield was up 19 basis points. 

On a monthly basis, prices were up 0.3% vs expectations of 0.2%. Annually, there was an uptick at 3.1% vs expectations of 2.9%. Food and shelter prices were major contributors with gains of 0.4% and 0.6%, respectively. Along with the recent jobs report, the data undermined the notion that the Fed would be turning dovish later this year. The anticipation of a Fed pivot has been a major catalyst, fueling strength in equities and fixed income over the last couple of months. 

Instead, the status quo of ‘higher for longer’ remains. Some investors are now anticipating that the 10Y yield will rise further. According to Skyler Weinand, chief investment officer at Regan Capital, “Bond yields have not peaked, and we believe that a 10-year Treasury yield with a 5-handle is more likely than a 3-handle in 2024. Persistent inflation, full employment and strong growth may delay the Fed’s rate cuts.”

Finsum: Stocks and bonds declined as the January CPI came in hotter than expected. Fed futures showed traders reduced estimates for the number of rate cuts in 2024.

Any advisor who is serious about acquiring high net-worth clients’ needs a solid marketing strategy. This is because there is intense competition to land these clients, and it’s necessary to differentiate your services in the marketplace.

The first step is to clarify what exactly you are trying to accomplish with your marketing plan. This can include increasing awareness of your practice, building trust with prospects, branding, creating credibility, and highlighting your expertise and knowledge. 

Next, it’s essential to understand the needs, goals, and challenges of your target audience. Some themes that are likely to resonate with wealthy clients are areas like legacy planning, minimizing tax liabilities, or superior levels of service. 

Building authority and credibility is an important prerequisite when it comes to landing wealthy clients. Some ways to do this are through interviews with journalists, being a guest on a podcast or program, collaborating with other professionals, and building a following on social media by regularly sharing valuable information. 

During the process of converting a prospect into a client, advisors should ensure that all interactions with prospects and full of value with the intention to create trust. This starts from the first interaction with a client and should always remain a primary ingredient in every point of engagement.

Finsum: It’s quite competitive and difficult for advisors to land wealthy clients. Here are some tips on how to be successful. 

A recent survey of financial advisors showed that separately managed accounts (SMAs) are seeing more traction in comparison to model portfolios. Only 22% of advisors plan to increase reliance on model portfolios, a 5% drop from the previous year. In contrast, allocations to SMAs are forecast to reach 26% in 2025 from 18% currently. The trend is more pronounced among advisors serving high net-worth clients who see allocations reaching 31% in 2025 from 23% now.

Some of the reasons cited by advisors in the survey for less interest in model portfolios were higher fees, underperformance, a need for customization, and more investment options. The survey is an indication that model portfolio uptake and growth have stalled as only 29% of advisors using model portfolios report increasing use over the past year. 

The survey was conducted by Cogent Syndicated in October and November of last year. The firm surveyed 403 registered financial advisors with an active book of at least $5 million. The report suggests that model portfolio providers are losing ground as many advisors and clients are gravitating towards direct indexing and SMAs due to their customization and tax optimization, while model portfolios fall short in these regards despite offering other advantages for advisors and clients. 

Finsum: A survey of financial advisors showed that model portfolio adoption has stalled. Here are why advisors are gravitating towards SMAs instead.