Workshop: Where to Invest for Fixed Income
09/06/2007 12:00 am EST
Not Your Granddad’s Fixed Income
Richard Lehmann gave attendees a comprehensive overview of income investments, their risks, growth drivers, and also shared his latest recommendations.
First, he said investors needed to be aware of the three most important risks when buying income: objective (market, inflation, flight to quality), subjective (quality of investment, volatility, maturity), and areas of uncertainty that cannot be quantified, such as the spillover into the income arena from the subprime problems in the financial sector.
He warned investors that big returns accompanied by no risk just don’t exist. Instead, he recommends diversifying over various types of risks and other elements.
Lehmann noted that there are five primary drivers growing the income investment market right now: volatility of interest rates; the proliferation of stocks with income; energy trusts; real estate; and special situations.
He devoted part of his workshop to discussing the changes in Canadian Energy Trusts, vehicles that pay out about 70% of their available cash flow to their securities’ holders. He stated that he continues to like Enerplus Resources (ERF), Provident Energy (PVX), Canetic (CNE), and Penn West (PWE).
Lehmann also discussed a couple of special situations he favors, General Motors and Ford bonds and preferreds, which he feels are now very underrated, due to adverse media attention, with defaults unlikely. Closed-end funds also capture his attention, with their high yields.
Lehmann recommended that investors allocate their portfolios as follows, equally divided into cash, interest rates, convertibles, energy trusts, and special situations.
He cautioned income investors to bypass Real Estate Investment Trusts and low-grade investment bonds, for now.