Money manager and income specialist Dave Fabian discusses four important current trends that income-oriented ETF investors need to consider; he also highlights the top funds to take advantage of these opportunities.
Steve Halpern: We're here with Dave Fabian. How are you doing Dave?
Dave Fabian: I'm doing very well, Steve, thanks so much for having me back.
Steve Halpern: Since the last time we spoke, you changed the name of your money management company from Fabian Capital to FMD Capital. Could you update us on the change?
Dave Fabian: Absolutely, we're actually really excited about it. The name change really came about because we're expanding our brand more on a national stage.
We're starting to do quite a bit more institutional research and the like, and we thought it would be better for a lot of our followers and clients to have a little bit of a different name change out there in the marketplace, and of course, along with that we also introduced a new portfolio that we're really excited about for our money management clients.
I focus exclusively on high-yield closed-in funds that's picking up a lot of interest as well. We're really excited about the changes, and at the end of 2013 and 2014 are going to be some really exciting times for both equity and income investors.
Steve Halpern: Congratulations.
Dave Fabian: Thank you so much.
Steve Halpern: You note that you don't subscribe to the theory that all bonds are bad, even in the face of rising interest rates. In fact, you suggest there are always opportunities out there for income investors. Could you expand on that?
Dave Fabian: Absolutely. Well, 2013, you know, has really seen probably the most volatility in the interest rate space since the mid-90s. Really, we've seen a huge spike in interest rates from a low in the 10-year of about 1.65% to over 3% in a period of about four or five months.
Since, though September, the Federal Reserve came out and said that they are not going to taper their asset purchase programs, and so, we saw a big fall in interest rates, which, of course, translates into a rise in bond prices. Really, now what we're seeing is some additional interest starting to come back into the bond market.
There were huge outflows in the early part of the month, of course, funds like PIMCO, and the like, garnered all of these headlines about how they are losing billions of dollars in assets, but really what we're starting to see is money come back into certain areas of the bond market, and there's some really excellent opportunities out there for income investors.
Of course, we don't subscribe to the theory that all bonds are bad, even in the face of some of these rising interest rates, there have been some areas of the bond market that have performed extremely well, so it's really about positioning your portfolio into the areas that are doing well, and letting go of some of the losers and the like.
Steve Halpern: In your latest research report, you outline four high-yield ETF trends that investors need to focus on today, so let's go through them. First, you look at short duration, high-yield bonds, and in particular, you recommend them because of low volatility. Can you tell us a little about that?
Dave Fabian: Absolutely. High-yield has been excellent space for income investors over the last several years. They've put up fantastic returns.
High-yield bonds have had very low default rate, they're a great income stream and of course, what we've been recommending over the last several years is for people to start transitioning their portfolios, specifically in high-yield, from longer duration to shorter duration.
The shorter average duration in an ETF or a mutual fund means that you're going to have less sensitivity to interest rates.
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