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Transition Afoot From Bonds to Dividend Equities
Local wealth managers are not about to jump into high-risk, potentially high-yielding stocks just yet, but they appear much more comfortable making some strategic adjustments to their portfolios and steering away from lower-yield bonds.
Fixed-income investments such as bonds are typically billed as relatively safe, because payments are regular and the return of principal at maturity is set in place. The move back into equities first surfaced about a year or two ago, but wealth managers now are embracing the strategy broadly.
"We were fairly encouraged coming into this year," said Mark Binder, wealth adviser at the Newport Beach office of Merrill Lynch Wealth Management, part of Bank of America's financial advisory business. "Valuations coming into this year were very attractive. We raised equity allocations going into this year, which seems to have been the right thing to do."
Global Troubles
Binder cited Greece's debt crisis and other issues in Europe and the Middle East as factors that drove his team to react conservatively to the market last year.
"There was a tremendous amount of geopolitical risk, which manifested itself in the market," Binder said. "What you're finding this year is that ... the headline risk as it relates to Europe seems to have been mitigated somewhat."
Binder said his team still takes a conservative approach overall, but it is adding credit exposure at a gradual pace and staying relatively short in its fixed-income side in light of the expectation that interest rates will increase.
"That might happen sooner if we see inflation rising," Binder said.
Interest rates are also a concern for Marc Foster...