This summer’s BBQ “Stock Talk” centers around FANG stocks (Facebook, Amazon, Netflix, and Google’s parent, Alphabet). In the press, some of the most respected economic minds are debating whether bubbles have formed in both the equities and fixed income markets.

Nobel laureate and an Annexus index partner, Robert Shiller, has highlighted that equity valuations are at the third-highest level behind valuations witnessed in 1929 and in 2000. Alan Greenspan recently highlighted in a Bloomberg interview that the bond market is experiencing a bubble due to the risk that inflation will increase, and that bond valuations are near a 200-year high. Others in the market such as Jeremy Siegel are more bullish, but he based his view on the hope that deregulation and improved potential tax reform will fuel additional earnings growth to justify current equity levels. Besides these uncertainties, equity volatility remains at the lowest levels in decades, which Robert Shiller warns could be the calm before the Perfect Storm.

In striving to achieve consistent returns, Annexus along with our insurance partners have embedded index solutions into our annuities that are designed to diversify away from overweighting in a specific stock or sector exposure – unlike other strategies that are increasing their exposure to FANG stocks.

These market perspectives, along with current market levels, must be considered when reviewing your clients’ portfolios. Fixed indexed annuities should be considered as an alternative to fixed income allocations as they aim to provide returns between 4-7% per year while offering capital protection. In striving to achieve these consistent returns, Annexus along with our insurance partners have embedded index solutions into our annuities that are designed to diversify away from overweighting in a specific stock or sector exposure – unlike other strategies that are increasing their exposure to FANG stocks.

Further, indices featured in Annexus annuities that focus on U.S. equity exposure have been designed by industry thought leaders and allocate away from overvalued stocks. This is the case with the Shiller Barclays CAPE® US Sector Risk Controlled 10% USD Total Return Index. Others allocate away from the “hot popular” stocks, as is the case with the NYSE® Zebra Edge® Index, which was designed in part based on the research of Prof. Roger Ibbotson and his team at Zebra Capital. Also, many of the multi-asset indices in the Annexus suite of annuities have been designed to mitigate fixed income exposure in a rising rate market, as is the case with the JP Morgan Mozaic IISM Index.

Enjoy the rest of the summer, but take the time to review your clients’ portfolios in case the Perfect Storm materializes, or the FANG allocations bleed returns out of your clients’ accounts.

Referenced Links:

Shiller: http://www.cnbc.com/2017/07/26/the-market-risk-that-makes-nobel-laureate-robert-shiller-lie-awake.html

Seigel: https://www.cnbc.com/2017/07/26/jeremy-siegel-says-market-will-surge-another-10-percent-this-year.html

Greenspan: https://www.cnbc.com/2017/08/01/alan-greenspan-the-bubble-is-in-bonds-not-stocks.html

This is a general communication for informational and educational purposes. The materials and the information are not designed, or intended, to be applicable to any person’s individual circumstances. It should not be considered investment advice, nor does it constitute a recommendation that anyone engage in (or refrain from) a particular course of action. If you are seeking investment advice or recommendations, please contact your financial professional.

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Tom Haines

Tom Haines

Senior Vice President of Capital Markets and Index Solutions at Annexus
Tom Haines is the Senior Vice President of Capital Markets and Index Solutions for Annexus. Previously, he led the Equities Solutions Structuring initiative for UBS Investment Bank and helped Annexus launch the award-winning NYSE Zebra Edge Index.
Tom Haines

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