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(New York)

The muni market is in a very interesting place. Despite the overall erosion of credit quality for municipalities since the pandemic began, demand for munis is at an all-time high and returns have been great. Yields are very low, but until very recently, they still offered a substantial benefit over Treasuries. All of this has coincided with a major change to the space: the infusion of institutional investors. For decades, the muni space has been dominated by HNW individuals and their advisors, but over the last couple years, institutional buying has been rising strongly. According to a study by an industry body “Over the last decade, customer purchases of fixed-rate, tax-exempt municipal securities of $100,000 or less decreased by 46%, the MSRB found. Meanwhile, institutional-sized purchases of over $1 million increased 46% in the same time period”. “Most of the large retail managers have moved clients from traditional, transactional, retail accounts into discretionary platforms like SMAs … The firm itself then makes the allocation decisions and is, therefore, less responsible for making sure that the client understands their investment decision”, said Matt Fabian, partner at Municipal Market Analytics.

FINSUM: This is actually good news for all involved—retail investors and advisors included (in a broad sense)—as it improves liquidity and tightens spreads.

(New York)

If there were ever a product built for steady retirement income, it is fixed annuities. With the big decline in fixed pensions, fixed annuities have become a must-have option for many retirees who need guaranteed income. They are the simplest annuity—principal and income are guaranteed, but rates are fixed. In other words, the insurance company is bearing the risk, so they get the upside, but the customer gets peace of mind. Therefore, the basic utility of annuities is to support everyday income in retirement. There are other uses too, especially in the current market environment. For example, “Right now, some fixed annuities make an attractive alternative to both bonds and CDs in a portfolio, due to the principal guarantees and interest rates offered”, says one financial advisor at Stack Financial Services.

FINSUM: The most important thing to remember is that annuities have utility in most portfolios, but they should only ever be just a portion of a portfolio. They suffer from illiquidity and are very susceptible to inflation, but they also have guarantees that no other asset class can offer.