The Challenges of Finding Investment Income

I was fortunate to be in Boca Raton, Florida last week at the GAIM conference on hedge funds, enjoying a 50 degree temperature advantage over NY. I had the opportunity to meet with several retired people who live in Florida either part-time during the winter or all year. Chatting with them about investments really brought home to me the challenge many face of obtaining sufficient stable income on which to live. Bonds purchased years ago are maturing and the replacement opportunities are far less attractive. Equities remain a scary place although the strong start to the year is leading to modestly improved risk appetites. But for many retired baby boomers, they are having to confront significantly lower investment income than they imagined perhaps as recently as 6-7 years ago. There remains a great deal of cash on the sidelines.

Discussions of Master Limited Partnerships (MLPs) were well received. Indeed, MLPs have had a good year already less than a month into 2013, with returns year-to-date that are double all of 2012. Barring a disaster over the next couple of days, January will be one of the five strongest months since 1996 (as far back as the Alerian MLP Index goes). We continue to like MLPs as an investment, although distribution yields of 5-6% with growth rates of 4-6% suggest a long term annual total return of 10-12%. January has pretty much delivered that in one month, so some moderation shouldn’t be surprising.

Dividend yielding stocks have similarly bounced back, as the concerns about investment tax rates that were so pervasive in December turned out to be somewhat more negative than reality.

We have recently made a couple of small sales. Insurance companies have been seeing improved pricing and consequently their discounts to book value have been narrowing. We sold the last of Aspen Re (AHL) as it approached 80% of book value. We continue to own AIG which is still just a little over 50% of book value and looks set to continue shrinking its shares outstanding through buybacks, thus raising its book value. We also sold Republic Services Group (RSG) which we felt was fully valued. We remain constructive on equities overall though, so will be looking for opportunities to reinvest this cash.

At the GAIM hedge fund conference I gave my presentation about my book, The Hedge Fund Mirage. Hedge fund investors largely agreed with my findings (at least, the ones I spoke to) and my conclusions echoed many of their personal experiences. Most of the delegates with whom I chatted agreed that the hedge fund industry needs to make some changes if it is to thrive. My bet is that it will – there are far too many intelligent people with their careers in the business to assume that they’ll fail to adapt to the difficult return environment so many face.

George Soros, who knows a thing or two about hedge funds and how they operate, said in Davos last week that hedge funds couldn’t beat the market because of the fees they charge. He must have read my book.

Print Friendly, PDF & Email

Important Disclosures

The information provided is for informational purposes only and investors should determine for themselves whether a particular service, security or product is suitable for their investment needs. The information contained herein is not complete, may not be current, is subject to change, and is subject to, and qualified in its entirety by, the more complete disclosures, risk factors and other terms that are contained in the disclosure, prospectus, and offering. Certain information herein has been obtained from third party sources and, although believed to be reliable, has not been independently verified and its accuracy or completeness cannot be guaranteed. No representation is made with respect to the accuracy,  completeness or timeliness of this information. Nothing provided on this site constitutes tax advice. Individuals should seek the advice of their own tax advisor for specific information regarding tax consequences of investments.  Investments in securities entail risk and are not suitable for all investors. This site is not a recommendation nor an offer to sell (or solicitation of an offer to buy) securities in the United States or in any other jurisdiction.

References to indexes and benchmarks are hypothetical illustrations of aggregate returns and do not reflect the performance of any actual investment. Investors cannot invest in an index and do not reflect the deduction of the advisor’s fees or other trading expenses. There can be no assurance that current investments will be profitable. Actual realized returns will depend on, among other factors, the value of assets and market conditions at the time of disposition, any related transaction costs, and the timing of the purchase. Indexes and benchmarks may not directly correlate or only partially relate to portfolios managed by SL Advisors as they have different underlying investments and may use different strategies or have different objectives than portfolios managed by SL Advisors (e.g. The Alerian index is a group MLP securities in the oil and gas industries. Portfolios may not include the same investments that are included in the Alerian Index. The S & P Index does not directly relate to investment strategies managed by SL Advisers.)

This site may contain forward-looking statements relating to the objectives, opportunities, and the future performance of the U.S. market generally. Forward-looking statements may be identified by the use of such words as; “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of any particular investment strategy. All are subject to various factors, including, but not limited to general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting a portfolio’s operations that could cause actual results to differ materially from projected results. Such statements are forward-looking in nature and involves a number of known and unknown risks, uncertainties and other factors, and accordingly, actual results may differ materially from those reflected or contemplated in such forward-looking statements. Prospective investors are cautioned not to place undue reliance on any forward-looking statements or examples. None of SL Advisors LLC or any of its affiliates or principals nor any other individual or entity assumes any obligation to update any forward-looking statements as a result of new information, subsequent events or any other circumstances. All statements made herein speak only as of the date that they were made. r

Certain hyperlinks or referenced websites on the Site, if any, are for your convenience and forward you to third parties’ websites, which generally are recognized by their top level domain name. Any descriptions of, references to, or links to other products, publications or services does not constitute an endorsement, authorization, sponsorship by or affiliation with SL Advisors LLC with respect to any linked site or its sponsor, unless expressly stated by SL Advisors LLC. Any such information, products or sites have not necessarily been reviewed by SL Advisors LLC and are provided or maintained by third parties over whom SL Advisors LLC exercise no control. SL Advisors LLC expressly disclaim any responsibility for the content, the accuracy of the information, and/or quality of products or services provided by or advertised on these third-party sites.

All investment strategies have the potential for profit or loss. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be suitable or profitable for a client’s investment portfolio.

Past performance of the American Energy Independence Index is not indicative of future returns.

Print Friendly, PDF & Email
0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.