Insurance companies are increasingly turning to asset-backed bonds to support annuity payouts amid surging demand for retirement income products. Securitized assets now make up a quarter of insurers’ bond holdings, with exposure growing by $365 billion since 2017, according to Morgan Stanley. 

Higher interest rates have fueled record annuity sales, reaching $432.4 billion in 2024, marking a 12% annual increase. This trend has intensified insurers’ appetite for asset-backed securities (ABS) and collateralized loan obligations (CLOs), which saw combined holdings rise to $312 billion last year. 

Esoteric ABS, including whole business and digital infrastructure securitizations, have become key components of insurers’ portfolios due to their yield and duration advantages. As demographic shifts drive continued demand for annuities, Morgan Stanley projects structured credit exposure to grow at a 6% annualized rate through 2027.

Finsum: It’s important to understand the underlying structure of annuities, because it tells a compelling story for their high demand. 

Value stocks are making a strong comeback in early 2025, with major names like JPMorgan Chase, IBM, and Ford surpassing earnings expectations. The Vanguard Value ETF, which has lagged behind the S&P 500 in recent years, is now up 4.8% year-to-date, outpacing the broader market’s 3.5% gain. 

A key driver has been robust earnings, as 72% of value companies have exceeded forecasts, well above the long-term median of 63%. Large banks have been standout performers, benefiting from improved investment banking revenue and lower interest rates compared to last year. 

IBM has also surged, riding the AI wave and streamlining operations, while Ford remains a deep-value play despite short-term headwinds. With a forward P/E of just 6.4 and a high dividend yield, Ford could reward investors willing to weather its challenges.

Finsum: Factor investing is very cyclical, and with interest rate uncertainty it might be time to consider value as a critical factor when making portfolio changes. 

Syntax Data has joined forces with FTSE Russell to bring its indices into the Syntax Direct platform, allowing financial advisors to build more customized investment strategies. This partnership enhances direct indexing, a fast-growing segment in wealth management, by giving advisors greater flexibility to tailor portfolios for clients. 

The demand for personalized investment solutions has surged, with assets in direct indexing swelling from $100 billion in 2015 to over $615 billion today, according to industry estimates. With the integration of FTSE Russell indices, advisors can refine portfolios based on specific factors such as market trends, risk preferences, and fundamental metrics.

 The platform also simplifies managing large, diversified benchmarks, making institutional-grade strategies more accessible in private wealth management. By combining customization with scalability, this collaboration enables advisors to deliver more precise and cost-effective investment solutions.

Finsum: Having access to Russell brings a lot of flexibility to investors when paired with direct indexing and particularly allow them to increase value exposure. 

A separately managed account (SMA) is a professionally managed investment portfolio tailored to an individual investor's needs rather than pooled with others. Unlike mutual funds or ETFs, SMAs provide direct ownership of securities, offering more control over investment decisions and tax strategies. 

Originally created for institutional investors, SMAs have grown in popularity, with assets under management reaching nearly $2.2 trillion by 2023. 

Their key advantages include flexibility in strategy, greater tax efficiency, real-time transparency, and typically lower fees compared to actively managed mutual funds. Investors can customize holdings and optimize tax implications through strategies like tax-loss harvesting. 

Finsum: While SMAs can be cost-effective, additional fees from financial advisors may apply, impacting overall expenses.

The municipal bond market experienced fluctuations in 2024, with tax-free yields rising in response to Treasury yield movements, particularly in the latter half of the year. Market uncertainty increased following the Federal Reserve’s December rate cut, which coincided with ongoing inflation concerns and economic crosscurrents. 

As 2025 begins, the potential extension of 2017 tax cuts under the new administration may impact demand for tax-free bonds, particularly if corporate tax rates are lowered. Climate-related risks, such as the LA fires and hurricanes, have drawn attention to municipal finance, with increased insurance costs and resilience measures potentially leading to more bond issuance. 

Despite these pressures, municipal credit quality remains stable, supported by strong reserves, prudent budget management, and infrastructure reinvestment. However, challenges persist in certain sectors, including healthcare, higher education, and public K-12 schools, due to shifting demographics, rising costs, and expiring pandemic aid.

Finsum: These are important things to monitor for municipal bonds, and the increasing role of DOGE, could drastically change this bond segment.