From the May 2008 issue of Boomer Market Advisor • Subscribe!

May 1, 2008

Raymond James's Andrew Gotfried -- Sage advice on portfolio protection

Are we or aren't we (in a recession, that is)? With 81 percent of Americans believing the country's on the wrong track, according to CBS and the New York Times, it really doesn't matter. The perception's there. Boomers are delaying retirement and investors in general are positioning themselves defensively. So what now? Is international investing the way to go? What about hedging strategies to mitigate potential loss? What can be done to protect the portfolio? We ask Andrew Gotfried, Raymond James's director of mutual fund research and marketing, to help us sort it all out.

Boomer Market Advisor: At this time last year we heard a lot about the dominance of small cap value. Everyone was wondering when the return of large cap growth was going to happen. Large cap growth did return, but then the housing and credit crisis hit. So where are we now? Is everybody going international?

Andrew Gotfried: Not really. It's not actually a domestic or global thing. What we're seeing is more unconstrained-type of portfolios, where the portfolio managers have the flexibility to decide where to go more tactically. We're also seeing more flight to safety. Investors and advisors are looking to funds that can protect them better on the downside. Lastly, we're seeing more income-oriented products begin to be used. Not necessarily high yield, but more dividend yielding-type instruments. Our firm's chief investment strategist has been talking quite a bit recently about dividends and yields as a way to go.

BMA: Do you see more style drift in down-markets on the part of portfolio managers?

AG: You could see more style drift in an economic downturn, but I think my point about these unconstrained funds is that they're ... not concerned that it's not fitting into the style box ...maybe that's a good way to put it. They like the flexibility that the managers have in getting to the right place. So it's not that they're drifting to chase returns. It's that when they're building a portfolio they want the core holding to be able to go anywhere and then the financial advisors can fill it in with very sector-specific or strategy-specific funds. So as a core holding they're looking at these "I'll go anywhere" type of portfolios.

BMA: Expand a bit on where the dividends you mentioned are coming from.

AG: More of the utilities funds, the type of funds that are more dividend-yielding and more stable in terms of NAV. So it could be fixed-income type investments, but in today's market with the credit issues we're having, I think people are skittish of even using fixed income type products. Honestly, I think there is a lot of confusion on the part of our financial advisors as to where to put the clients' money.

BMA: What are you counseling them to do?

AG: Asset allocation. Spread it out; diversification.

BMA: Are you seeing a lot of movement in the 130/30 funds?

AG: We see a lot of supply in the 130/30 funds.

BMA: (Laughs) Okay. Sure. Fund companies are coming out with them but are advisors and clients biting?

AG: Not a whole lot. We have some financial advisors that are interested but we actually haven't seen a whole lot of use. We actually don't have many available at Raymond James yet. And a lot of it has to do with manager tenure. There's not a whole of tenure in this; no real track records.

BMA: You're out there talking to a lot of advisors and branch managers. What are you seeing from the advisors at this point?

AG: Definitely no panic. I think our advisors are very aware of what's happening and they're very knowledgeable in how they need to communicate with their client -- which is say frequently.

BMA: You mentioned income generating funds. There are a number of mutual fund companies that are really getting into the income generating space, almost like variable annuity riders that generate income on the back-end. Fidelity, with their retirement income funds, comes to mind. What is Raymond James doing in that space? Are you taking a hard look at that?

AG: We are. We've taken a very hard look at the retirement income phase, particularly with the baby boomer generation that's now entering retirement. It's consistent with the overall theme -- if you want to call it a theme -- overall message of Raymond James about asset allocation diversification. I would say we've looked at the products and we're still continuing to look at the products being delivered by the Fidelity's and other asset managers. But what we really believe is that it's not necessarily one product that's creating the portfolio that will generate the right kind of income for the client. It could be a combination of products that they use to do that.

BMA: So it's really more of a strategy than a product?

AG: Exactly.

BMA: From an educational standpoint then, what are you doing to get the word out to advisors and clients about the importance of properly diversifying portfolios, especially at a time like this?

AG: We do a lot. The simple example is the education and information we provide through our national conferences. The majority of the content is designed to educate financial advisors about the various tools that exist that they can use -- asset allocation and diversification tools, utilizing CFP and CFA- type material. But just informing them isn't enough, we have to get out their and show them how these tools can be effectively used. Deploying resources from the home office and getting out to the branches and in front of our financial advisors on how to use them is just as important. We partner closely with a lot of the asset management companies. We particularly find asset management companies that have good content that we can leverage off of and use on a more regional basis. We can go to a region of the country and invite certain financial advisors. So we're doing it in several different ways.

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