Avoid Treasuries, Advisors Told As Envestnet Conference Wraps Up

Charles Paikert

8 May 2012

Take on credit risk but not interest rate risk, Lord Abbett fixed income strategist Zane Brown told financial advisors in the closing address of Envestnet’s 2012 Advisor Summit in Chicago on Friday.

“Stay away from Treasury securities,” Brown said. “They don’t offer either safety or income!”

High-yield securities, which are yielding 7 per cent or more, “really look pretty good” and are “historically attractive,” according to Brown, who is also a partner at Lord Abbett. Because high-yield securities such as floating-rate funds are more credit sensitive, he explained, they should benefit from what he predicted would be a stable, albeit low growth US economy.

Although US growth appears limited to 2 per cent or 2.5 per cent, Brown said, it is still “headed in the right direction” and “won’t go back to recession.”

What’s more, the US economy looks even more attractive compared to slowing emerging markets. And Europe, which is headed for a “guaranteed recession,” according to Brown.

The eurozone’s likely shift from its austerity policies after recent national elections highlights the fact that the continent “is not moving in a cohesive direction,” he said. “I think will get worse before it gets better,” Brown added.

“Who knows how bad the banks are in Spain?” he asked. One or more bank failures “could be ugly,” he declared, and result in a Lehman Brothers-type crisis in Spain and other European countries with significant exposure to Spanish loans.

Impact investing hailed

On a brighter note, panelists on a subsequent breakout session urged advisors to utilize “impact” or socially responsible investing to attract clients.

Clients are increasingly attracted to investments that meet environmental, social and corporate governance (ESG) criteria, said Patricia Farrar-Rivas, president of Veris Wealth Partners. Sustainable investing is Veris’ core competency and chief calling card, Farrar-Rivas said, and in the five years since it was founded, the firm has attracted $500 million in assets under management, she pointed out. (To view a recent Family Wealth Report feature on this click here.)

The emphasis of impact investing on direct client involvement – and profits – also appeals to the wealthy families who are clients of Philadelphia-based multi-family office The Berringer Group, said Linda Postorivo, the firm’s chief investment officer.

In the past wealthy families were content to put money aside for charitable contributions and not care if they lost money, Postorivo said. “Now, families want to make money as well as do good,” she noted.