In today's interest rate climate, holding a significant cash reserve is a prudent strategy. While long-term investors may benefit from stock investments, individuals requiring immediate access to funds or building emergency savings find value in holding cash. With high-yield savings accounts offering rates of 5% or more, real returns on cash savings are attractive. However, for those seeking to optimize returns while maintaining liquidity, there are two fixed income ETFs that offer advantages. 

Two ETFs, iShares 0-3 Month Treasury Bond ETF (SGOV) and JPMorgan Ultra-Short Municipal Income ETF (JMST), offer different tax strategies to potentially enhance after-tax returns without significant additional risk.

Short-term Treasury bonds provide state tax exemption on interest earnings, making them appealing for residents of high-tax states, while municipal bonds offer federal tax exemption and may also be exempt from state and local taxes. Investors should assess the trade-offs between tax advantages and lower yields to determine the best fit for their financial situation.

Finsum; When accounting for tax advantages, fixed income ETFs could provide a more secure and efficient outlet for mitigating risk. 

Investors grappling with market uncertainty are exploring ways to manage risk effectively while staying invested; utilizing buffer strategies, which employ options to provide targeted downside protection, offers a solution by mitigating losses during market downturns while limiting upside potential.

 Accessing buffer strategies through ETFs simplifies the process, avoiding the complexities of managing options directly or the expense of structured notes. Buffer ETFs, managed by experienced professionals and offering intraday liquidity at a low expense ratio, present an accessible option for investors. 

Designed for long-term strategic allocation, these ETFs can be utilized by investors looking to reduce equity drawdown risk, seeking moderate growth, or exploring outcome-oriented strategies within their portfolios, thereby providing a flexible approach to risk management in uncertain markets.

Finsum: Buffer strategies seem to make the most sense when there is overall upside but potential for volatility, similar to our current macro landscape.

In the face of escalating inflation, Americans are increasingly longing for the retirement security once provided by pensions, a sentiment reflected in a survey revealing widespread concerns about the reliability of existing retirement plans such as 401(k)s.

 This shift away from traditional pensions stems from their expense and risk for companies, leading to the widespread adoption of defined contribution plans like 401(k)s, which place the onus of retirement planning on employees. However, the recent surge in inflation has exposed the vulnerabilities of 401(k)s, particularly for older adults nearing retirement. 

To address this, there's a growing interest in annuities, which offer a guaranteed income stream and can be seen as a modern iteration of traditional pensions. Annuities, available in various forms including fixed and variable, provide retirees with a way to insure their income stream, offering stability in an uncertain financial landscape and potentially bridging the gap left by the decline of pensions and shortcomings of 401(k)s.

Finsum: Annuities can offer a more secure return and replace the void left by pensions for many Americans.

Invesco recently completed its Q1 update on the landscape for alternative assets. In terms of private credit, the firm sees an improving environment due to a resilient economy, inflation trending lower, rate cuts later in the year, and expectations of liquidity events in private equity. Overall, it sees investors able to get attractive yields without compromising on credit quality. It expects overall yields to remain between 11 and 12% for the year for private credit investors. 

The firm sees opportunity in distressed debt and special situations to lend to ‘good companies’ with weakened balance sheets. It believes the higher rate environment has hurt smaller companies and that many of these companies are operationally sound but are ‘liquidity-constrained’, creating an opportunity to invest at attractive valuations. 

In terms of real assets, Invesco notes that fundamentals remain strong, for the most part, despite lower transaction volume and stresses created by the high-rate environment. It’s particularly bullish on real estate due to improving monetary conditions, which should support transaction volumes. Even during the downturn, income fundamentals remained robust across most categories. The firm sees sound fundamentals in most areas of real estate except for offices and overbuilding in some markets. Additionally, recent economic data has been supportive of a ‘soft landing’ for the economy, which is also bullish for real estate. 

Finsum: Invesco shared its thoughts on alternative assets. Overall, it’s bullish on the asset class and sees the most upside for real estate and private credit due to its positive forecast for the economy in 2024.

2024 has proven to be a much more challenging year for financial markets than 2023. Entering the year, the consensus was that the economy would continue to weaken, inflation would keep trending lower, and the Fed would be proactive and aggressive in cutting rates. 

Clearly, this has not happened. Amid this new paradigm, allocators are understandably looking to make appropriate adjustments to portfolios. Here’s why they should consider increasing exposure to active strategies.  

With fixed income, active investing can allow for precise exposure to a specific theme. For instance, those who don’t believe that inflation will keep trending lower may want to have higher exposure to short-duration debt. Another benefit is that active managers are able to quickly change strategies depending on how events develop, which makes them particularly useful in the current environment. This means that holdings can be optimized for the current environment of ‘higher for longer, but then managers can quickly pivot once the Fed actually starts cutting rates.

Active strategies can also be useful in other asset classes, such as international equities, which currently appeal to many investors due to favorable valuations relative to US equities. With active management, there is more focus on bottom-up, fundamental-focused analysis, which can result in more alpha in less efficient markets. Further, it can also lead to more diversification and risk management than is typically found with passive investing.

Finsum: The first quarter of 2024 has had several unexpected developments. Here’s why allocators should consider active management to navigate this tricky environment.