What's in the news:
Market indices are hitting all-time highs in the euphoria of a post-election Trump victory. However, talk of infrastructure spending, tax cuts and other fiscal stimulus plans, like deregulation, have also caused a sell-off in the bond market as concerns over inflation and interest rate hikes have mimicked the same euphoria. Recently Bill Gross warned investors that they should pay attention to the negatives of the President-elect’s policies. Whether or not Trump’s policies succeed in making “America Great Again”, we are still faced with potential interest rate hikes.
As bonds continue to sell off, rising crude oil prices are adding to inflationary concerns and some investors are struggling to figure out what to do with their bond holdings, especially intermediate term bonds.
What are we thinking?
Imagine that you own a large apartment complex. The value of the complex may go up or down on any given day, but either way the apartment complex provides a rental income stream which is what makes owning such an operation potentially lucrative. And a high quality apartment complex will provide different rental income than a lower quality apartment complex.
As an income investor your primary concerns are different than those of an investor looking for growth. More likely you may be wondering if you will have enough money each month for your mortgage and other bills? Will you have a steady source of cash during retirement? Will you be able to pay for unexpected healthcare costs as you get older? These are very different concerns than “will the apartment complex increase in value?” The income investor measures success by how much income they can expect, opposed to how much an investment appreciates in principal.
As interest rates are expected to continue increasing over time, we prefer shorter duration, intermediate term bonds of higher quality. About 30% of our investment grade corporate bond allocation is due to mature in 1-3 years, which may enable reinvestment at higher rates when those appear, and we use fixed to floating rate and pure floating rate preferred securities, which provide coupon payments that increase with rates. We believe this approach paired with the recent bond market selloff provides opportunities for the income investor.
This information is intended solely to report on investment strategies and opportunities identified by Roosevelt. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. This material is not intended as an offer or solicitation to buy, hold or sell any financial instrument. References to specific securities and their issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Please contact us at 646-452-6700 if there is any change in your financial situation, needs, goals or objectives, or if you wish to initiate any restrictions on the management of the account or modify existing restrictions, or if you would like to request a copy of our Code of Ethics. Our current disclosure statement is set forth on our Form ADV Part II, available for your review upon request, and on our website, www.rooseveltinvestments.com.
Past performance is not a guarantee of future results. Indices are unmanaged and cannot accommodate direct investment. Themes assigned as per Roosevelt Investments’ evaluation. Risk tools may include cash or other securities that we believe possess a low or inverse correlation to the overall market.
INVESTMENT PRODUCTS: NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE