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January 27, 2015 at 08:20 PM
Jerry Verseput believes in structure. The former engineer, now head of Veripax Financial Management, the RIA he founded in 2006, looks on the way investments are structured as opportunities, and among those opportunities are the risks in global diversification.
Verseput’s firm definitely favors a hands-on approach, and its website advises visitors that “Changing conditions must be analyzed and understood for their effect on investments and strategies, which lends itself well to an engineering-influenced style (some would call this being a ‘financial geek’).” And among the factors Verseput’s firm considers in its hands-on management of clients’ assets is increasing globalization. That has led to opportunities that take advantage not only of different countries’ economic cycles, but also the volatility that pays off in more complex investments.
“With Europe threatening recession and China’s economy slowing down, the international picture has a lot of uncertainty,” he said. While volatility has been “next to nothing in the U.S. the last couple of years” but in Europe has “kicked up,” leading some to avoid the region, Verseput said that very volatility has led to more opportunities.
Describing current market conditions as in the midst of a “long-term demographic shift, where the U.S. is not going to be the only economic hub in the world, particularly with some of the emerging markets,” Verseput said, “we’re going to have to move more and more to … a global focus as opposed to staying in the U.S.”
And in the last year, the volatility in Europe that has frightened off some investors has presented opportunities through what he said are “the right type of investments.” For Verseput, that’s been “structured notes—and specifically absolute return barrier (ARB) notes.”
Verseput’s view of investing and asset classes is definitely a more technical approach than one finds every day. He looks at equities as basically “one asset class, whether the stock is in the U.S. or Europe or in emerging markets,” because international companies play such a large role in both the S&P 500 and, say, the Euro Stoxx 50. “If you look at the Euro Stoxx 50, you’ve got Siemens, Bayer, Daimler—international companies just like the international [companies] in the S&P. They’re not all that different; having developed country foreign exposures is not all that different than having U.S. exposures. There’s no reason just to focus on the U.S.”
Instead, Verseput focuses on the aforementioned ARB notes, “senior debt obligations of global banks.” He said, “Right now, when you look at Europe facing recession, a lot of times stock drops when it faces recession and when [an economy] declares recession you’ve already hit the bottom.” ARB notes “provide leveraged upside, which will be great if the ECB follows through on some form of quantitative easing, and they provide positive returns at expiration on the downside up to a ‘barrier’ limit, which these days is typically around -40%. To me, it’s a great way to have exposure while hedging away a significant amount of downside risk, although if the market is down more than 40% in five or six years I’ll be sad.”
