Even though retired clients have been hobbled by tanking investments, opportunities still await those who dare to try alternative investments, according to experts.
Even though retired clients have been hobbled by tanking investments, opportunities still await those who dare to try alternative investments, according to experts.
Strategies that use bonds, options and alternative investments can soften the blow for retirees, said Marilyn Cohen, president and chief executive of Envision Capital Management Inc. in Los Angeles.
“Many of you are getting a new inflow of clients, and they are damaged goods,” she said. “But for the fixed-income adviser, it’s a boon.”
Ms. Cohen addressed an audience of advisers and other investment professionals yesterday afternoon on an expert panel, “Generate Income for Your Retired Clients Now,” at InvestmentNews’ third annual Retirement Income Summit in New York.
The spreads for corporate bonds versus Treasuries are wide and generous, so they could provide decent return rates, but bond investors need to be vigilant, she said.
“Credit quality is deteriorating, and about 60% of all corporate bonds are below A-rated, so you have to be willing to go down in credit quality,” Ms. Cohen said.
Corporate bondholders are likely to benefit from the fact that company executives no longer are providing share repurchases, and they’re pulling back on dividends — both are signs that the company is conserving cash, she added.
Recommending that advisers keep their faith in the major ratings agencies when evaluating bonds, Ms. Cohen also recommended that they stay on top of material events that may come up with municipal bonds.
“You would be stunned if you looked at the material events of the swaps that school districts and other municipalities have gotten themselves into,” she added.
“Most swaps haven’t blown up yet, but the people who put them on didn’t know what they were doing. I get a bid immediately and ask questions later,” Ms. Cohen said.
On the alternative-investments side, the question is how one goes about looking for different asset classes, observed Christine Johnson, head of alternative strategy and platform development at DWS Investments in New York.
Enter a strategy such as the long-short portfolio to complement core allocation.
Ms. Johnson also pointed to infrastructure as a sector of potential investment through floating-rate notes and other different bond investments.
“The game is early, and people haven’t found this yet,” she said. However, with any real return or yield, there will be more risk, especially with non-traditional investment categories.
With options, advisers can create repair strategies or reduce the break-even point in the event that a stock is down in order to take advantage of a high-volatility environment.
“A lot of companies are using the current environment to short the balance sheet,” said Marshall V. Kearney, senior staff instructor at The Options Institute, the educational arm of the Chicago Board Options Exchange.
