Bonds and equities have stood tall in the face of the many windfalls that have faced financial markets in the last month. However, even the bulls are getting worried and alternatives could provide relief and earn higher yield. Real estate via REITs are in a great position as an asset class and could perform well in the upcoming years with higher interest rates. Art is an overlooked alternative which has had high appreciation, outpacing 10 major classes since Covid according to CITI. Finally private equity has been a go to for many investors, and has seen record inflows post-covid while remaining less correlated with equities.

Finsum: The biggest draw to private equity is that fixed income is more correlated than ever with stocks and so alternatives provide a better hedge.

The boom in credit inflows to ESG might be an obvious sign environmental risk isn’t actually priced in. Coal companies have got credit ratings boosts, mortgage increases in flood zones, and a myriad of other issues. These are all signals that risks aren’t properly priced into fixed income markets according to Tom Graff of Brown Advisory. Natural disasters are becoming more frequent yet greenwashing keeps this from accurately being a factor in ESG. However, there is an advantage for investors to take advantage of mispricing, if disasters isolate countries energy independence could be underpriced in many countries around the world, the anti-Russia position.

Finsum: Fixed income regulators are could be turning a blind eye to sources of credit risk which investors might be able to exploit in the early days of greenwashing.

Most think of millennials and they compartmentalize them into 3 categories: fee minimizers, crypto /alternative investors, or meme traders. However, a recent poll shows they have a strong desire for traditional income products. Over 82% of more affluent millennials are concerned with finding income products for retirement, which is almost 30 percentage points higher than Gen X. Additionally, almost a quarter of the poll were willing to purchase an annuity in the next quarter, and half of those were millennials. Many of these affluent millennials are looking to income products because they are skeptical that social security will be there for them in retirement.

Finsum: Millennials are bucking conventions and looking early to secure income products like annuities.

A small but substantial change may be shaking the bond ETF infrastructure to its core. The New York State Department Financial services is allowing insurers to label bond ETFs as individual bonds rather than as equity risk. Companies have issued lots of new debt setting records as record low interest rates have made it appealing. This regulation could change the way the Fed and other regulators interact with bond markets, and could lead to the sort of efforts that saved the bond market in 2020. These will allow more bond products and increase inflows, but for insurers bond ETFs have more complications than a traditional single fixed income security and could provide difficulties in the future.

Finsum: Small changes to regulator practices like this can lead to massive swings in credit creation, keep an eye on bond ETFs.

Most fixed income ETFs used to be linked to passive tracking products in the bond market, that is until more recently. Rules Adopted by the US SEC have steered many investors to active fixed income by making it easier to launch new active ETFs. Active funds are attractive for ETF producers because they draw higher fees (about .2 percent) than active funds. This has led to an explosion in active fixed income. Active bond fund creation is growing at nearly double the rate of the rest of the ETF market, and investors are ready as well as 2021 saw a record pace of inflows. One big factor in shifting more investors into active fixed income is aging global demographics which are still searching for yield and income.

Finsum: The world’s aging population is creating a safe asset shortage and pushing bond prices higher.