Last week, the International Energy Agency declared that the world will reach peak oil demand by the end of the decade. It attributes this to an increasing share of energy produced by renewables, the explosion in EV adoption, and continued increases in efficiency. 

Due to these factors, it sees growth in oil demand growing marginally over the next few years before peaking in 2030. This year, the agency sees $2.8 trillion invested in the energy sector with $1.7 trillion going into non-fossil fuel sources like nuclear energy, renewables, and EVs. 

Out of this group, solar is the leader with nearly $700 billion in investments which is nearly equivalent to all of the capital spending on oil. In total, fossil fuel investments which include coal, oil, and natural gas are expected to total $1 trillion. 

In terms of EVs, the agency forecasts that 14 million will be sold this year. It also sees continued adoption with electric buses and trucks gaining market share. 

Overall, the IEA believes that investors and fossil fuel companies need to make appropriate adjustments to account for these shifts in behavior and consumption. 

Finsum: The IEA recently declared that oil demand will peak in 2030 due to increasing EV adoption, growth in renewables, and increasing efficiencies. 

For VettaFi’s ETFTrends Channel, Nick Peters-Golden discusses why active fixed income is the best way for investors to take advantage of higher yields. Investors should be discriminating when it comes to selecting fixed income instruments due to challenges like the inverted yield curve and the lack of real yields in many areas.

The overall climate is becoming more favorable to fixed income with the Fed finished or in the final innings of its hiking cycle, while inflation continues to moderate. However, investors should favor certain categories.

The best opportunities from a risk and reward perspective are in corporate credit and global, high-yield. Active fixed income funds offer investors the opportunity to increase exposure to these parts of the market, while avoiding less attractive parts.

According to Peters-Golden, active fixed income allows a bottom-up approach to investing which will outperform index-based funds. And, this judiciousness is more necessary in the current environment given the wide dispersion in quality and yields. 

For instance, active corporate credit funds are able to outperform, because they are allocating to firms with strong balance sheets, while corporate credit index funds are taking a one size fits all approach. 

Finsum: Trends are improving for bonds, but investors need to remain selective given the unique nature of the cycle. Active fixed income allows increased allocation to areas with better fundamentals and avoids ones where the risk-reward is not attractive.

One of the surprising developmentds of 2023 has been the strength in equity markets and subsequent decline in volatility. Currently, the VIX is trading at its lowest levels in the last couple of years despite many headwinds such as a slowing economy and a hawkish Fed.

In Barron’s, Nicholas Jasinski discusses whether the decline in volatility is temporary or will it be sustained for the rest of the year. He notes that many of the market’s worries have eased such as Republicans and Democrats coming together to raise the debt ceiling, the regional banking crisis has seemingly passed, and economic data continues to come in better than expected.

On top of this, investors have been on the sidelines with most inflows into fixed income or defensive strategies, while short interest also remaisn elevated. The net result is that the S&P 500 is up more than 20% from its October lows, and many believe a new bull market has started. 

Whether these gains will sustain and volatility will continue trend lower will depend on factors like inflation, the Fed’s rate path, and credit conditions. However, it’s clear that the market has climbed the bulk of its ‘wall of worry’.

Finsum: Volatility is at its lowest levels since before the bear market began. How it will fare in the coming months will depend on inflation, the Fed, and whether credit conditions continue to tighten.

In a CNBC interview with Sara Eisen, Goldman Sachs CEO David Solomon warned that there was more pain ahead for commercial real estate. The bank is marking down its holdings as the sector faces a torrent of headwinds. 

The most notable include the rise of remote and hybrid work which is structurally reducing demand for office space. E-commerce continues to take a greater share of spending which is affecting retailers with physical locations. Finally, higher rates have also added to the industry’s woes as many owners are defaulting on properties rather than refinancing loans. 

Due to this, the bank is posting impairments on its loan book and equity holdings which will impact its upcoming results. In the first quarter, the bank wrote off nearly $400 million in real estate loans. Solomon believes that other banks will also be making similar moves.

However, Solomon sees the challenge as being manageable and not significant enough to thwart Goldman’s overall business. But for smaller banks, it could be a bigger problem since they tend to be more heavily exposed to commercial real estate. 

Finsum: Commercial real estate is facing a tough time due to higher rates and reduced demand for office space. In an interview, Goldman Sachs CEO David Solomon shared how the bank is dealing with the challenge. 

In a recent Bloomberg article, Katherine Greenfield covered strength in high-yield fixed income ETFs on the back of the equity rally and growing optimism that the US will evade a recession, while inflation gradually decelerates. Initially, strength in equities was confined to the tech sector but has now broadened out to the rest of the market.

Another indication that the odds of a soft landing continue to move higher is that there was more than $2 billion of inflows, last week, into the iShares iBoxx High Yield Corporate Bond ETF which has $17 billion in assets. This was the largest inflow into any fixed income ETF over that period and the most since November 2020.

Strength in high-yield fixed income is counterintuitive due to several downgrades and stresses in areas like regional banks and commercial real estate. However, investors seem to be looking past these issues and focusing on improvements on the economic and inflation front. 

Overall, high-yield fixed income is up about 4% YTD, following a 11% drop in 2022. Investors also seem eager to lock in high rates as futures markets indicate that the Fed is going to pause it's hiking campaign, while many expect it to start cutting rates by the end of the year.

Finsum: High-yield fixed income ETFs are seeing major inflows despite an assortment of risks. Many investors believe these risks are priced in, while recent news on the economy and inflation have been bullish for the asset class.