(New York)

There might be a great migration in the cards for bonds. While many have spoken of a broad migration into equities that occurred over the last year, a smaller scale change might be about to occur within bonds. Treasuries have been getting hammered, and corporate bonds are appearing increasingly attractive to investors for a number of reasons. Firstly, their durations tend to be much shorter, meaning they have significantly lower interest rate risk—crucial right now. And secondly, with the economy picking up, earnings and business health are looking brighter and brighter.

FINSUM: Aviva Investors thinks corporate bonds have a nice pathway to gain. While rates are working against corporate bonds, the fundamentals are strong. If yields finally stabilize under 2%, it is easy to imagine investors piling into corporate bonds as the recovery strengthens.

(New York)

Commodities have been doing great this year. The big rise in demand coupled with weak supplies because of COVID have led to a surge in prices. However, one bright spot—metals—might have some trouble looming on the horizon. There is increasing speculation that the US may scrap pennies. If that happens, it could put a dent in the copper and zinc markets. This dent would not only come from a lack of new demand, but the fact that pennies would be taken out of circulation and recycled. This would amplify the effect by boosting supply to the system and lowering demand for newly-mined metal.

FINSUM: This might have a strong psychological effect even though the total quantity of zinc from pennies accounts for less than 4% of total annual output.

(New York)

In an eye-opening “expose” type article, for CIO of Blackrock’s ESG division went on the record saying that ESG was largely just hype and had little substance behind it. According to former CIO Tariq Fancy, “In truth, sustainable investing boils down to little more than marketing hype, PR spin and disingenuous promises from the investment community”. The comments ran in USA Today on March 16th.

FINSUM: The reality is a little more complicated. ESG does suffer from a great deal of greenwashing, and firms—at first—did little to genuinely integrate ESG into their decision-making. Over time, they have taken greater account of real ESG factors in investment selection, but at the same time much of what constitutes “ESG” and “green investment” is muddled and unclear. There is a reporting issue that the whole industry suffers from—there is not enough data to separate good from bad companies—and thus much of the investment selection gets generalized according to industries (e.g. tech is good, energy is bad), which is so broad as to be almost useless.

(New York)

Are annuities a good deal? This is a seemingly simple question with an incredible range of answers. The reality is that the answer depends on who you ask. If your main consideration is stable income in retirement with little risk to principal, then the answer is a resounding yes. If you are looking for great upside great and are not concerned with losses of principal, then the answer is no. And therein lays the most important part of annuities—they need to fit client goals. Studies show that despite the lack of “fit” for some clients, annuities do add value to almost all portfolios, even if clients are often reluctant to buy them.

FINSUM: Annuities are about to be allowed into 401(k)s, which is a big growth opportunity for the space. Insurers are going to have to keep honing their positioning and messaging to appeal to retail buyers directly.

(New York)

The prospect for rising inflation has been terrifying the market, and investors need a way to play it. April gold futures peaked at $1750 on intraday trading after the recent Federal Reserve decision to leave the federal funds rate unchanged, and that tells investors something important: gold may be the way to go. Moreover, Powell said the fed funds rate would remain unchanged until 2023, even if economic news improved. The Fed even plans to tolerate higher than 2% inflation given inflation has averaged well below the Fed’s Target the past year. This was enough to spike gold prices as investors are now as concerned about future inflation as many investors see the commodity as a hedge. Treasury yield rises had many investors worried the Fed would preemptively tighten, and Gold was down before investors realized how committed the Fed was.

FINSUM: Spreads between inflation-indexed and nominal bonds (TIPS spreads) indicate that rising yields are driven by inflation risk. Gold is one of the most assured hedges against future Inflation.