Wealth Management

Within asset management, active fixed income is in a growth boom based on a surge of inflows and new issuances to meet this demand. There are two secular components as ETFs continue to displace mutual funds as preferred vehicles for fixed income investing, and institutions and advisors become more aware and comfortable with the category. 

And, a cyclical factor is the current market environment given the combination of attractive yields and uncertainty about the trajectory of monetary policy. These environments tend to favor active over passive strategies since active managers have more latitude in terms of credit quality and duration.

In recent months, we’ve seen a frenzy in terms of new issues with Vanguard and Blackrock introducing active ETFs that mirror their own active fixed income mutual funds. Now, Capital Group is joining the fray with the launches of the Capital Group Core Bond ETF (CGCB) and the Capital Group Short Duration Municipal Income ETF (CGSM). Asset managers are responding to demand for these products, or otherwise would lose market share to firms who provide ETF versions of popular mutual funds. 

CGCB invests across the entire fixed income spectrum with a focus on capital preservation and generating income. CGSM invests in municipal debt that is exempt from federal taxes and typically short-duration. 


Finsum: Capital Group is launching two new active fixed income ETFs which is a major trend in the asset management world. 

 

Despite a down Q3, retail investors continue piling into fixed income ETFs, both long and short-duration. They don’t seem too fazed by the recent hawkishness from the Fed or recent calls for continued strength in yields. 

Last week, inflows into the most popular Treasury ETF - the iShares 20+ Year Treasury Bond ETF (TLT) reached its highest levels since March 2020. In Q3, TLT was down 13%. This turned a small yearly gain into a more than 10% decline. Despite this performance, TLT has had $4 billion of inflows in Q3 and has seen short interest decline as well. 

Clearly, retail investors have a contrarian bent as many strategists are calling for further weakness in bonds, and Fed fund futures markets increased their odds of further hikes while decreasing odds of cuts in 2024. 

Some of the inflows into fixed income may be due to concerns about equities and economic growth given recent soft labor and consumption data over the last few weeks. THerefore, they may be looking to take advantage of the highest yields in decades and the potential for price appreciation in the event of a recession or further cooling of inflation. 


Finsum: Fixed income ETFs are seeing continued inflows despite poor performance in Q3. Here are why retail investors may be buying the dip.

 

Eric Henderson, the president of Nationwide Financial’s annuity division, recently shared some thoughts on annuities and how it can help reduce financial stress for retirees. Henderson has been with the company for nearly 40 years and been instrumental in helping Nationwide’s annuity business grow to over $100 billion in assets. 

He believes that this is a great time for annuities given that short-term rates are above 5% in many instances. It’s been benefiting from volatility in fixed income and equities in addition to a cascade of uncertainties including inflation, monetary policy, recession risk, geopolitics, etc. 

Annuities can help investors side-step these risks while also taking advantage of historically high rates. So far, fixed annuities have seen the biggest increase in sales, but there has been strength in other types of annuities as interest and awareness grows.  

In terms of trends, Feldman sees more shorter-term, annuity products being introduced given the combination of uncertainty and increasing demand. Additionally, he sees the potential for ‘customized’ annuities that are created to fit an individual’s specific needs.   

Overall, he believes that at some point investors evolve from a ‘wealth accumulation mindset’ to focusing more on maximizing income. He believes this is the best time in decades for investors to build healthy income streams, and it also provides needed diversification given a shaky economic outlook. 


Finsum: Nationwide’s head of annuities, Eric Henderson, shared his thoughts on the category’s increase in popularity and some interesting trends. 

 

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