Trends Watch: Market Dislocation

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 with Michael Sonenshine, CEO, Symfonie Capital.

What is your outlook for alternatives?

My outlook for alternatives during times like these when market volatility rises is mixed. Hedge funds are particularly vulnerable to outflows, especially those funds that prove to be more volatile than they had indicated to investors.  At the same time, private equity and especially income-producing private equity (e.g., real estate) can see inflows. Times like these produce dislocation and deleveraging, creating opportunities for investors.

Where do you see the greatest opportunities and why?

I look for opportunities in markets like these, especially in income instruments. I look at the U.S. real estate investment trusts (REITs) and Master Limited Partnerships (MLPs) and see the number of stocks trading with double-digit yields. I also look at dividend stocks of solid blue-chip companies. These companies have long histories of earnings, cash flows and dividends rising over time. They have balance sheets that enable them to survive recessions and often come back stronger.  

Where do you see the greatest challenges and why?

Beware of the high price-to-earnings growth stocks. Especially in relation to blue chips, the valuations look stretched. I believe real estate offers very interesting opportunities, but projects that are near to completion are likely to come under pressure mainly because their ability to repay debt depends on selling the project. Hotel properties are likely to face significant pressure, yet many of these properties can do well in the medium term or can be converted to residential. Rents in commercial and retail are likely to come under pressure as well, so the opportunistic investor is likely to find times like these to be quite interesting.

What keeps you up at night?

What keeps me up at night is the possibility of a credit crisis. We already are seeing high-yield bonds in retail go into restructuring. In the U.S., 25% of the workforce is now unemployed. If that doesn’t change or the government doesn’t pick up the slack, we are looking at a mortgage crisis that can be as bad as 2007. For this reason, I think investors must not be complacent. They must reduce leverage and buy assets that over time generate cash.

The views and opinions expressed above are of the interviewee only, and do not/are not intended to reflect the views of EisnerAmper.