Some analysts speculate that the corporate bond market is a bubble that’s about to burst. John Radtke, president of Chicago-based Incapital, which distributes fixed income securities and structured notes through more than 900 broker-dealers, banks, RIAs, and institutions, argues that using a laddered bond portfolio is a good strategy for fixed-income investors to use whether we’re headed for a corporate bond bubble or not.
“A laddered bond portfolio consisting of individual municipal and corporate bonds is always a good strategy, but particularly at this time by allowing financial professionals and investors to address both inflation and deflation concerns,” Radtke says. “Advantages of this strategy include defined maturity and interest payment schedules, control over exactly which bonds are held, and tax efficiency.” Radtke goes on to explain that “intermediate and longer-dated municipal and corporate bonds typically perform well in a slow growth and mild deflation environment.” If there is a bond bubble, and should inflation pressures return, Radtke argues that “short-dated bonds will roll off to enable reinvestment at higher rates.”
Radtke has been president of Incapital for several years now, taking over the reins from Tom Ricketts, who still serves as chairman and CEO, but has increasingly focused more of his time in managing the Chicago Cubs. The Ricketts family—Tom’s father Joe Ricketts founded TD Ameritrade Holding Corp.—bought the Cubs last year for $845 million.
Bond Business Is Booming
As of September, Incapital’s business by asset class comprised 43% in corporate notes; 24% in U.S. agency debt; 12% in CDs; 11% in structured products; 5% in municipals; and 5% in mortgage-backed securities (MBS).
Investment sales at Incapital have nearly quadrupled from 2007 to 2010, Radtke says. The amount of securities that have flowed through the Incapital system has gone from about $15 billion in 2007, he says, to, he estimates, somewhere between $65 billion and $70 billion this year.
Incapital is also focused on expanding its reach to RIAs and broker-dealers. The firm now does business with about 400 fee-based advisors and about 700 BDs.
“We recognize the growth in the RIA space,” Radtke says, adding that the firm has plans to expand Incapital’s platform to better reach the RIA market, noting that Incapital now has six salespeople “calling on RIAs.”
[Read about the SEC's switch from federal to state oversight of advisors.]
I talked with Radtke in early October about the fixed income market and Incapital’s strategy to reach advisors going forward.