Trends Watch: October 27, 2016

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies Snyderman.  

This week, Elana talks to Michael Kieffer, Founder, KIEFFER CAPITAL.

What is your outlook on the alternative investment industry?

The future for the alternative investment industry is bright and will play a pivotal role in portfolio construction going forward.  At KIEFFER CAPITAL, we believe a portfolio with a greater mix of stocks/bonds/alternatives will outperform a traditional 60/40 stock/bond portfolio asset allocation mix.   Our firm specializes in fully hedged option equity strategies that are designed to generate tax-advantaged income, without exposure to stock market declines.  If interest rates rise, bond investors may have to experience marked-to-market losses, and an allocation to alternatives may help soften overall portfolio volatility.

What is your outlook on the economy?

We are currently in the midst of the second longest bull market in history.  Over the past 7 years, the economy has been able to muddle along at an average of 2% growth rate. Most of the growth attributed to the economy has been fueled by large increases of both corporate and government debt.  At KIEFFER CAPITAL, we strongly believe in business cycles, and feel the current economy is inching closer and closer to the end of this current expansion.  Without CAPEX and organic growth, additional debt creation will not be enough to push off the next recession.   Our strategies are designed to do well in down markets, and we think the economy may be in a recession by summer of 2017.

What keeps you up at night?

The thought of investors being overly invested in bonds, using them as a tool for "safety."  If you analyze the bond market over the past 150 years, bonds experienced significant sell-offs very similar to the stock market.  It's been a long time since the last drawdown, and we are long overdue.  An allocation to alternatives is an effective tool to minimize the impact of a large correction in bonds.