Fixed-Income Investing
December 06, 2022
In this episode of Engaging Alternatives Spotlight, Elana Margulies-Snyderman, Director, Publications, EisnerAmper, speaks with Steve Kaczmarek, CEO, East End Wealth Management, an investment manager focused on fixed-income. He shares his outlook for investing in fixed-income including the greatest opportunities and challenges, his views on the SEC pushing for increased transparency, and more.
Transcript
EMS:
Absolutely. So Steve, to kick off this conversation, tell us a little about East End Wealth Management and how you got to where you are today.
SK:Well, thank you for inviting me to tell our story. I founded East End Wealth Management in 2008, a year of major market stress, kind of like today. We executed our first strategy in fall 2008, and we were focused on income. We wound up buying investment grade corporate bonds after the United States Treasury gave those companies tarp money. The selling pressure was pretty indiscriminate, and we were able to collect coupon interest for our clients in the teens, while being senior in the structure to the United States Treasury. Overall, it was a pretty auspicious start.
EMS:Absolutely, Steve. So given the current market environment we're in, I wanted to ask you, what is your overall outlook for investing in fixed income?
SK:Sure. Overall, we see the 2022 fixed income landscape as manmade. Central bank driven adjustments to both domestic and international financial markets. The Federal Reserve has reversed course and the system is shuttering after decades of easy money and excessive borrowing. We think that this year's Fed tightening provides a lot of good opportunities for investors to capture yield. Volatility is very high, and we have been discussing this with clients for the last 18 months, but if you're holding bonds to maturity, there are more good opportunities today than we have seen in years.
EMS:So Steve, I wanted to ask you specifically what are some of those really good opportunities you see and why?
SK:I think this is a great time to be an income investor. We all know that the Federal Reserve is raising rates into a slowing economy. Q3 GDP now from the Atlanta Fed is projecting slower growth, as is the IMF globally. The retiring public is in need of income, and that is the market we're designed to serve. There are really only two models for a retirement plan, and America is way too heavily invested in the asset appreciation model. Even after Federal Reserve tightening is done, there will be a period of transition. It could come in the form of a recession. On a day to day basis, rates may be unpredictable that, but that plays to our clients who are selective buyers.
EMS:Steve, on the other hand, I wanted you to address some of the greatest challenges you faced and why.
SK:Happy to. Scaling up is very difficult. We have brought in some new talent to assist in that. Our greatest challenge is to get the saving public to understand at this moment in time, and perhaps for the next 18 months, investment grade corporate bonds can provide a safer, simpler growth and yield than the equity market. With bonds paying five and a half percent and more, you can build a self-healing portfolio for the long run.
EMS:Steve, to shift gears a little bit, I wanted you to address your thoughts on the SEC's push for more transparency and what that would mean for a firm like yours.
SK:Sure. We always applaud transparency. We are fiduciaries and are organized to be the advocate for our clients. The challenges for us come in the form of compliance. Communicating with the public is governed by a new advertising rule that is 400 pages long. That is a heavy lift for a boutique like East End. We need to satisfy government guidelines and clearly communicate to clients. We manage assets for families, not some big corporations.
EMS:Steve, we've covered a lot of ground today, so I wanted to see if you have any final thoughts you would like to share with us.
SK:I'll be happy to, Elana. After 10 or 12 years of incredibly low interest rates, we see a long runway for income investing. When bond prices are down, yields are up, and bond prices are down similarly to the Covid scare of 2020. At current rates, we could be looking at almost 10% forward yields. The pundits talk about this or that market getting killed or any of a thousand other superlatives, but when bonds get killed, they pay the client more money. No one ever mentions that every investment that our clients have is paying on time, and as expected. Quality is a major waiting in our process.
EMS:Steve, I wanted to thank you so much for sharing your perspective with our listeners, and thank you for listening to the EisnerAmper podcast series. Visit is eisenamper.com for more information on this and a host of other topics. And join us for our next EisnerAmper podcast when we get down to business.
Transcribed by Rev.com
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