According to a new report from LIMRA, the demand for annuities within employer-sponsored retirement plans will “grow exponentially” over the next two years. The insurance trade association noted in a press release that it anticipates “greater adoption of in-plan guarantees in late 2023 and 2024.” LIMRA noted that just 14% of defined-contribution plans currently offer annuities with income guarantees even though 70% of workers say they want some sort of guarantees that only annuities can offer in their retirement plans. The topic of annuities as an option in 401(k)s has been discussed for years. Supporters say that annuities offer benefits that workers want including guaranteed income. But detractors contend that annuities are too complicated for plan sponsors and employees to understand. In addition, if an annuity provider becomes bankrupt, employers could fear being liable under their fiduciary duty. So why does LIMRA anticipate the market exploding? Their press release mentions the SECURE Act 2.0, which President Biden signed into law at the end of last year as the reason. However, the first SECURE Act signed by President Trump in December 2019 may be the true driver of demand as it expanded safe harbor protections so that retirement plan sponsors could offer annuities without fear of being held legally responsible as part of their fiduciary obligations. It also allowed workers who change jobs to keep their annuity guarantees without incurring early surrender penalties.

Finsum:Insurance trade association LIMRA expects the demand for annuities in employer-sponsored retirement plans to grow exponentially due to the passage of the SECURE Act.

Fidelity Investments recently announced it was adding to its active fixed-income strategies lineup with the launch of the Fidelity Municipal Core Plus Bond Fund (FMBAX). According to Fidelity, FMBAX is available commission-free and with no investment minimum to individual investors and financial advisors through Fidelity’s online brokerage platforms. The fund has a 0.37% net expense ratio and a 1.28% gross expense ratio. FMBAX is measured against the Bloomberg Municipal Bond Index and the Fidelity Municipal Core Plus Bond Composite Index, and aims to provide a high current yield exempt from federal income taxes, and may also consider capital growth. Co-managers Cormac Cullen, Michael Maka, and Elizah McLaughlin will analyze the credit quality of the issuer, security-specific features, current and potential future valuation, and trading opportunities to select investments. The fund launch comes at a time when the retail and institutional demand for higher-yielding municipal bond funds is growing. According to the fund giant, this new product seeks to offer a strong yield and total return profile, with potentially lower volatility than pure high-yield funds. Jamie Pagliocco, Fidelity’s fixed income head has this to say about the fund launch, “Fidelity’s growing suite of active fixed income investment products leverage Fidelity’s breadth and depth of resources and expertise as an active manager to identify investment opportunities across the credit spectrum.”

Finsum:Fidelity Investments launched an active municipal bond mutual fund amid increased retail and institutional demand for higher-yielding municipal bond funds.

While fixed-income ETFs are seeing strong inflows this year, academics from a trio of U.S. business schools suggest fixed-income ETFs can suck the liquidity out of corporate bonds during times of market stress. According to them, the potential problem stems from the creation and redemption baskets that ETF issuers trade with market makers, known as authorized participants (APs), to handle inflows or outflows from their ETFs. Unlike equity ETFs, bond funds’ creation and redemption baskets typically do not include every bond in the index they are tracking as this could include hundreds or even thousands of separate issues. In their paper, Steering a Ship in Illiquid Waters: Active Management of Passive Funds, the academics argue that in normal times a bond’s inclusion in an ETF basket makes the bond more liquid. This is due to a random mix of creations and redemptions increasing trading activity. But, during a crisis, when many investors are running for the exits, redemptions hugely outweigh creations. When that happens, if a bond is included in the basket, the APs “may then become reluctant to purchase more of the same bonds, reducing their liquidity,” according to the paper. However, other bond strategists disagree, including Dan Izzo, chief executive of GHCO, an ETF market maker. Izzo, who argues that the rise of ETFs had actually increased liquidity during periods of market stress, stated that “The causality ran in the opposite direction — it is because some bonds are illiquid that they increasingly feature in redemption baskets as sell-offs intensify, not vice versa.”

Finsum:While fixed-income ETFs continue to see strong inflows, a trio of academics argues that bond funds make the market less liquid during periods of stress.

Natixis Investment Management Solutions and German index provider Solactive announced that they have partnered to offer direct indexing separately managed accounts (SMAs). The partnership will see Natixis offer its managed account clients exposure to 31 Solactive indices, including 11 of its global benchmark and 16 of its factor series. Solactive’s global benchmark suite covers 24 developed and 24 emerging markets, while its factor range covers value, quality, momentum, low volatility, growth, and small caps. Natixis’s direct indexing business has grown from $4 million in assets under management in 2002 to $8 billion today. The firm attributes this success to evolutions in the business such as falling trading fees and fractionalization that have increased retail investors’ ability to benefit from customized asset allocation. Timo Pfeiffer, chief markets officer at Solactive, had this to say about the collaboration, “Direct indexing has been progressively gaining popularity to a larger group of investors, particularly in the U.S. With this tool, investors can allocate their assets to a tailored portfolio with a Solactive benchmark as a starting point, applying numerous kinds of filters according to their needs and world views.” Curt Overway, co-head of Natixis Investment Management, added, “We are excited to begin working with Solactive and their comprehensive suite of indices, which will allow us to extend the range of capabilities and strategies we offer as part of our Active Index Advisors (AIA) offering.”

Finsum:Natixis Investment Management Solutions is extending its range of capabilities and strategies by partnering with German index provider Solactive to offer directing indexing SMAs.

White-label exchange-traded fund provider HANetf recently launched a range of model portfolios allocating to both in-house and third-party products. The portfolios were launched in collaboration with London-based financial technology firm Algo-Chain. The six portfolios are targeted at financial advisors, wealth managers, private banks, execution-only brokers, robo-advisors, and other money managers who offer ETF portfolios to their clients. HANetf’s balanced, growth, and adventurous model portfolios use ETFs to provide exposure to equities, fixed income, commodities, and alternative assets. Each portfolio provides a different asset allocation, different risk levels, target volatility, and target maximum drawdown. The firm’s ESG growth portfolio is a multi-asset portfolio that invests in impact investing and ESG-themed ETFs. According to HANetf, third-party ETFs are used where appropriate for the first four portfolios. The Future Trends Themed Equity and Digital Assets and Crypto ETP portfolios, on the other hand, allocate exclusively to HANetf funds. The Future Trends Themed Equity portfolio seeks to invest in ETFs that have exposure to the latest megatrends and themes, while the Digital Assets and Crypto model invests in exchange-traded products that give exposure to some of the largest cryptocurrencies, and an ETF with exposure to the blockchain and digital assets sector.

Finsum:White-label ETF provider HANetf launched six model portfolios, including balanced, growth, adventurous, ESG, future trends, and crypto portfolios.