2021 has posed its fair share of risks to the average portfolio: emerging market disruption, Covid-19 resurgence, slowing economic growth, and rising inflation. However, model portfolios are the solution advisors can utilize to mitigate this risk. Often sought after for their ability for advisors to utilize in order to spend time deepening relationships with clients, a suite of model portfolios have popped up targeted to mitigate risks. For example, EQM Capital launched a variety of modular model portfolios that are risk-based ETFs to better suit clients’ portfolio objectives and preferences.

FINSUM: Model portfolios are expanding and changing in a variety of ways, and this means they can better suit their clients whether that's for their risk level or ESG expansion.

Moody’s Analytics launched a new platform called PortfolioStudio which is a cloud-based portfolio management tool with risk analysis built in. Moody’s staff say the tool will improve efficiently and allow managers to assess risks in their investments. PortfolioStudio will be a part of the Moody’s ‘ecosystem’ meaning it will share data, models, and assumptions across their applications, and will provide insights to their clients. They view their risk expertise as a natural fit for portfolio management and that the technology will benefit their clients.

FINSUM: Integrating credit and ratings features is a boost that Moody’s can add for their clients and gives them an edge over similar portfolio management platforms.

The bond market boom has been bad for many fixed income investors, and debt is coming to term in a higher inflationary environment which is eating up all the return. However, bond market investors are turning to factor based investing to earn excess returns. Factor investing is a $700 billion market in equities, and it dwarfs the $25 billion dollar fixed income factor market. Factor investing modifies indices based on factors they think can give an edge over traditional indices. Active bond factor investing can outperform traditional indices in rising yield environments, but factor investing is looking to rival these active funds with systemic decisions. A ‘smart beta’ approach will look to outperform in high yield and emerging market debt.

FINSUM: The extensive literature on systemic fixed income is relatively small, and that's why smart beta strategies have failed to take off in the bond market like they have in equities.

Over a hundred and thirty nations have already consented to the global minimum corporate tax, and that number just got a little larger as all G20 came forward to endorse a 15% global minimum tax rate. This was a huge win for the Biden administration and secretary Yellen who have been strong advocates, but they still face hurdles with the domestic tax code in the Build Back Better bill. The administration said that the other G20 understand the minimum could take time with Republican opposition and Democratic infighting dominating congress, and the official timeline for the G20 will roll out at the end of the week. The other topic that is driving the G20 are the world's energy shortage which is on the forefront of everyone's minds, and how the world can come together to spur production.

FINSUM:The current form of the Build Back Better legislation aligns the U.S. with the global minimum and extends tax credits for millions of low-income Americans, but we’ll see if that makes it through the Congress at the end of the week.

The fixed income (FI) portfolios of institutional investors are evolving rapidly. Investment strategists around the globe are noting that, in the search for yield, many investors are...see more on our partner's site

JPMorgan Chase & Co. is the latest financial firm to sell debt in the U.S. Bond Market, joining the likes of Goldman Sachs, Bank of America and Citigroup Inc.. JPMorgan is selling over $3 billion in bonds with a yield of .97 percentage points over the U.S. Treasuries and 11 year maturity. The flood in financial bonds is a result of the strong earnings posted by the financial industry in the last quarter. Goldman leads the pack with over $9 Billion in new debt issuance. However, some say JPMorgan is the most susceptible to issuance pressure from regulators with debt issuance driving leverage.

FINSUM: Don’t let balance sheet risk get anyone worried, because post 2008 leverage ratios are closely monitored and almost ensure fiscal support pending financial risk.

Goldman Sachs has a new financial product that is giving its investors a chance to bet on special purpose acquisition vehicle performance. The new product acts as a two-year bond that plays out according to SPAC performance, and gives institutional investors an income option with SPAC exposure. Goldman will take a portion of the SPAC stock itself as opposed to a fee, and will offer the option for investors to lever-up on the SPAC as well. Some are concerned about Goldman’s relationship because they are also financers and advisors of SPACs themselves, potentially posing a conflict of interest.

FiNSUM: This is one of many new products that can replace income investors’ missing-link in their portfolio, and with rates at ultra lows it’s a nice alternative to dividend stocks.

Credit rating agency Moody’s Investor Service, has issued a warning to investors that the debt poses ‘systematic risk’. The factors that Moody’s sees sourcing that risk is an opaque market, eroding lending standards and liquidity concerns. Private credit has seen a flood of inflows this year to venture capital, private equity, real estate and infrastructure as the industry is more robust to the pressures from the mainstream economy on traditional bonds and equity. However, the risks in the medium sized boutique bond market are hard to capture because they fall in regulatory limbo and could cause broader economic disruption. Finally private equity relies heavily on leverage and while that's fine for the time being, it may pose serious structural issues for the illiquid market as interest rates begin to normalize.

FINSUM: The 2008 financial crisis was primarily driven by the rise of the lesser regulated shadow banking industry. Private credit’s swell is very reminiscent of the housing bubble creation.

Headline inflation, which includes food and energy prices, rose at a staggering 4.4% annual growth at the end of September, which is the highest number posted since 1991. This isn’t necessarily the Fed’s preferred inflation metric because food and energy prices are more volatile than other areas, but even excluding those categories core inflation was at 3.1%. On top of that, personal income is down almost 1%, which makes that inflation gain even more painful. Policy makers are worried about overall economic health as stagflation becomes a real possibility with GDP coming in at just 2%, the weakest quarter since the recovery started. Treasury Secretary Yellen says that yearly inflation will remain high but she expects monthly inflation to come down as the year closes, with headline figures coming down towards the target of 2%. On the positive side, wages and salaries kept up this month, hitting 4.6% but that still poses challenges for the labor market in its own way.

FINSUM: Inflation is still posting strong gains but keep your eyes on the monthly annualized numbers to gauge if what Yellen says is accurate.

It was fun and games when GSA Capital’s Chris Taylor was investing in the crypto craze and run up in ‘doge coin’, but now GSA is all-in in strategic crypto trading. The $2.6 billion hedge fund sees profits in the early development of crypto as swelling hype and volatility will generate inefficiencies. Taylor is Cambridge-trained mathematician and will be part of the crypto research team. GSA was launched at the trading desk in Deutsche Bank, and they will continue arbitrage strategies with crypto. By shorting derivatives and going long on the spot they will continue their history of arbitrage, and further capitalize on crypto’s 40% swell already in 2021.

FINSUM: Quantitative strategies are ripe for exploiting less liquid, less developed markets like crypto.