Environmental, Social, and Governance standards have, up until this point, been an opt-in style strategy to give an edge in debt and equity markets, but that could all be changing. The CEO of Norges Bank Investment, the world's largest stock owner, says that corporate life is only going to be more difficult for firms that don’t meet ESG standards. Market pressures are going to rapidly change and firms will have a difficult time raising finances, maintaining employees, and retaining customers if they aren’t part of a green future. Norges plans to utilize its market power to apply a lot of pressure, one such way is by giving companies expectation documents. They believe companies won’t be profitable in the long run if they don’t commit to ESG.

FINSUM: This strategy of pressuring companies through divestment has been shown to not necessarily be effective in holding them accountable and transitioning them into a greener world.

The low yields in the bond market have made it relatively uninteresting to the average investor, but there is a revolution underway. The bond market has been dominated by traditional techniques and old school investors, but many of the quants and hedge funds that overturned the equity market are eyeing the bond market. Systematic corporate bond investing is expanding and firms are taking advantage of trends in government debt or pricing anomalies in bond derivatives. Driving this trend in the bond market is swaths of data that are a part of how trades are now realized. Companies like Blackstone Credit are prepared for the shift into a more systematic trading environment in bonds, and other companies are ramping up their tools to accommodate this shift. FINSUM: Hard to acquire data, and a less liquid market have made bonds less desirable for quants, but the information age is rapidly changing that standard. 

There is a growing sentiment to regulate the technology sector, and that push isn’t isolated to just the U.S., the rest of Europe is planning on changing regulations as well. However, despite this potential crackdown on the fastest growing sector for over two decades, Morgan Stanley remains bullish on many digital advertising companies like Alphabet, Meta Platforms, Snap, and Pinterest. While Morgan Stanley says there is a bear case, the base case is quite positive for tech companies and the odds of extremely tight regulation cracking down are long. The worst case scenario would be if the U.S. adopted some Euro area approaches to regulation, and whistleblowers would become commonplace in tech.

FINSUM: The moderate regulation scenario is already priced into tech stocks in the U.S. so unless Congress fully revamps its regulation tech stock looks to be bullish.

Sweeping changes to the financial regulatory landscape are coming quickly. Stemming from changes to the interpretation of a Trump-age exemption are widening the regulatory umbrella. The U.S. The Labor Department is pushing a variety of accounts including annuities to be included in this expansion. Hidden and/or lofty fees in these areas are the source of the concern and lawmakers want the ‘best interests’ of investors in mind. Many companies are sprinting to align themselves with the regulation. Complying will include recordkeeping requirements, new policies and procedures, and new disclosures.

FINSUM: The drastic changes to regulation will really start to come in at the start of the year, and could monumentally alter the annuities market.

Model portfolios are being adopted by advisors at lightening speed, and that is turning itself into one of the fastest growing asset classes. This year model portfolios upped their holdings to $4.9 trillion, almost a 29% increase from the prior year. Companies like BlackRock have really leveraged model portfolios to fight inflation and changes to their portfolios yielded billions in inflows earlier this year. They aren’t just used to hedge against inflation they are being used to pick out ‘fallen angel’ corporate bonds which have a chance to ditch their junk bond status. Model portfolios allow for these tweaks which can more rapidly adjust to the macro changes in the economy.

FINSUM: Model portfolios give investors wider access to more quantitative methods which can outperform in the more volatile times like we are in now.