Financial advisors looking to boost returns and reduce investment risks for clients got some interesting recommendations on the first day of Envestnet’s 2015 Advisor Summit in Chicago.
At the morning market outlook panel, Zachary Karabell, head of global strategy at Envestnet, said there was “more risk in safety” and “more safety in risk,” contrary to conventional wisdom. He later explained that supposedly safe investments like utility stocks and government bonds in developed markets pose more risk for investors than high-yield bonds or emerging market equities.
The Utilities Select Sector SPDR (XLU) is down 11% from its late January high, and 30-year German government bonds, known as “bunds,” lost 12% of their value over the past two weeks, according to Bloomberg, supporting Bill Gross’ description of them as “the short of a lifetime.” Unfortunately Gross suggested investors wait until the ECB ends its quantitative easing bond buying program before shorting the bund, missing the boat if he followed that advice.
“One of the biggest unseen risks is how quickly you can lose money in the bond market,” said Larry Adam, chief investment strategist at Deutsche Asset Management.
That depends, of course, on which bond market and which bonds. Heidi Richardson, global investment strategist at BlackRock, noted that even investment-grade corporate bonds issued by Nestle (VX), the Swiss chocolate company, have a negative yield now, as do government bonds in Switzerland, Germany, Denmark and some other European countries. Investors in these bonds are actually paying their issuers to own them, rather than the reverse, and when their yields eventually turn positive those same investments will be worth less.
Richardson sees opportunities in U.S. large tech stocks and foreign equity markets including China, Japan and emerging markets. She also sees more risk in the U.K. leaving the European Union than Greece leaving the eurozone.
In an afternoon breakout investing session on bonds, several fund managers discussed the opportunities rather than risks in various fixed income sectors.