I like them also, but I’ll wait until the FED is done raising rates. Since many

do not have a maturity date, they are most sensitive to higher rates. Also,

remember where they fall in cpaital structures…behind bonds and before

stocks.

Don't like 'em in a rising rate environment.  Maybe we'll see rising rates for long-term stuff, maybe not, but eventually, I think yes, and when that happens, these things suck unless there is a good conversion to common strike price (most have no conversion feature).

BTW, two R's in preferred.

[quote=ezmoney]What do you guys think about prefered stock ($25 par) for fixed income solution? I tend to like them. Good rates.[/quote]

I wouldn't use the word solution, but clients love these things. A rookie in our office has opened 10 new accounts this month cold calling with new issue pfd. Keeping mind that they may go down in value IF rates increase go for it.

I think for long term money they offer very competitive rates. Beats the 30 year long term Gov average.

OK, so this might be a good time to share my current dilemma.

I am constantly being asked for "a good rate."  A consistent, stated rate. 

I am tired of doing brokered CD's that pay next to nothing, plus explaining how they can fluctaute in price until maturity as they are on the secondary market (a painful and annoying discussion).

So...I am left with individual bonds, which, in a rising interest environment, will potentially lose principle, or

fixed annuities, which are becoming more attractive, yet tie up folks money for 5,6, or 7 years.

VA's with GMIB's are OK for MINORITY (such as AXA's product) but if you are really going to tell the whole story aren't suitable for most fixed income folks IMHO.

SO...where do we get income!?!  Right now I am looking at First Trust UIT's, specifically Income Opportunity and Balanced Income...

I've also considered using Franklin Income in a C share...

What preferreds are you guys using??  Is the principle value inversely related to interest rates like bonds?

I appreciate the help!

Don’t use Franklin if you don’t want principal loss. I have and it’s sunk like  rock lately.

[quote=BankFC]

What preferreds are you guys using??  Is the principle value inversely related to interest rates like bonds?

I appreciate the help!

[/quote]

We are using new issue preferreds. If you don't have access to the new issue market look for secondaries trading on the NYSE. Try to find issues trading under par value, if possible, and watch out for call provisions. Buying a high coupon preferred at a premium and then getting called out of it in short order is a big no no. You don't want your clients to get wacked by the educational learning curved. Some premuims with short call dates can be excellent alternatives to other fixed income investments. It takes work, and market conditions to find them.

Yes, preferreds do move inverse to rates, long term rates. However they may not move in lockstep with LT bonds.

This is a dilemma I am sure we are all facing. How do we generate income in a rising rate environment, while trying to reduce the potnetial for principal loss… An option other than the Franklin Income is the Delaware Diversified Income fund. Its a diversified bond fund that has had a great track record. This year, it hasnt fared well ( to put it mildly) due to the fact that its exposure to international bonds was below that of its peer group, but its performed well on a risk adjusted basis. Just a thought.

Ther’es always floating-rate (senior/bank-loan) funds.  Use a C share, the yield goes up as rates rise, low NAV risk if I understand correctly.  Decent credit-risk.

Unfortunately, if the prospect’s criteria is absolutely no risk to principal and needs income, I think a CD is the only option.  I wouldn’t be selling fixed annuities in this low interest rate environment due to mva and the fixed annuity rates pay less than the CDs now.<?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

You may want to take a look at SPIAs if they are comfortable with annuitization.

Last thought, I wouldn't waste my time on rate shoppers.  These people are typically only comfortable with CDs.  I would rather spend my time marketing to those who want to invest for total return.

"Last thought, I wouldn't waste my time on rate shoppers.  These people are typically only comfortable with CDs.  I would rather spend my time marketing to those who want to invest for total return."

I agree, those people will transfer their assets to the next firm that has a rate 5 BPS higher. After s[pending the time to get them as clients, you dont want to see that effort wasted when they pull the account after 6 months...

[quote=blarmston]This is a dilemma I am sure we are all facing. How do we generate income in a rising rate environment, while trying to reduce the potnetial for principal loss..... [/quote]

Not for the faint of heart, two year GMAC paper is yielding about 7%. Three year is at about 7.5%. Even with all the BS this morning, these bonds are yielding less than they were two weeks ago. Yields are up today in a sloppy market. GMAC has 24 billion in cash, is earning money and may be on the auction block. All positives. They are seriously tatooed with GM's problems. Opportunity or trap? Just a thought for aggressive investors.

Another suggestion is to not worry about rates. If you're a fund buyer, look at a fund's history through interest rate cycles and pick one with a positive track record whose current management owns that record. As long as management shows a history of regaining value when rates move lower, no worries.

uh...don't worry about rates?  yeah, if your income was based on what rate you were getting...you'd probably notice rates.

I think I might really start promoting UITs for income clients...no stigma like fixed annuities, less hold time too. 

They have high yields (6% to 7% for the debt portfolios, around 5.5% to 6% for the debt/preferred/high div common).

Also...any good senior floating rate funds out there?

I like the short-term GMAC paper better than perpetual preferred stocks.  You all put those preferreds in a bunch of portfolios and watch what happens when long-term rates start up again...it's a good test of client loyalty.

...and loan funds have their own issues...the one I was familiar with (Franklin) could only be redeemed four times a year...

If your client is only a principal guarantee-type client, another income alternative would be to ladder CD's and/or high quality corp's and/or high quality muni's.

Personally, I wouldn't recommend any income investment starting with the letters "GM". It remains to be seen if GMAC will indeed be separated from GM, when the next "chapter" of GM's life occurs - "Chapter 11" that is.

Better to be thought of as a broker offering high quality invesments, than speculative, low quality investments.

[quote=doberman]

If your client is only a principal guarantee-type client, another income alternative would be to ladder CD's and/or high quality corp's and/or high quality muni's.

Personally, I wouldn't recommend any income investment starting with the letters "GM". It remains to be seen if GMAC will indeed be separated from GM, when the next "chapter" of GM's life occurs - "Chapter 11" that is.

Better to be thought of as a broker offering high quality invesments, than speculative, low quality investments.

[/quote]

One investor's speculative investment is anothers opportunity.

That many agree with you creates the opportunity for those who don't.

Better to be thought of as an advisor who can think beyond the cookie cutter as well as the talking head mentality of the 24 hour news cycle. 

Clients don't like making and losing money proportionately!

Typically, if I make my retiree 6% on his money...he is fairly pleased.

Typically, if I were to LOSE him 6% on his money...he would be livid and ready to go through the roof.

I'd rather swing for base hits than home runs...far fewer strike outs that way!

A previous poster mentioned that GM has $29 billion in cash and that fact was a major reason for their liking GM. However, that's only half the story. Because Delphi is in bankruptcy and because GM is obligated to Delphi for almost half of that $29 billion (for retirement and health benefits), GM stands to lose a good chunk of that "green cushion". (For those who don't know, Delphi used to be part of GM.)The bankruptcy court is to rule on the exact amount GM is obligated to provide Delphi. 

Earning an extra 3-4% in annual income, with a strong possibility of losing the entire investment, is not a risk myself or my clients are willing to take.

Let's face it, GM is on life support and is getting worse. I know it and you know it. It's one thing for a blue chip to tank overnight, but it's quite another thing to knowingly bet on a dying company that is losing market share, has an underfunded pension, has a cash cushion that will likely be cut in half, and is also burdened with increasing health care costs for employees and retirees.

When you present your clients or prospects with these facts, I will assure you that 90% of them will not want to risk their entire investment on an extra 3-4% per year.

However, let's assume I'm wrong and the government steps in to bail out GM just before they are forced into bankruptcy. All's well, right? Not exactly. A government plan to bail out GM could involve wiping out shareholders and giving unsecured creditors pennies on the dollar for their holdings and/or an equity stake in the "new" GM. (In either case, the income your client enjoyed would be severely reduced or wiped out. This result would only occur after a couple of years of negotiations, during which time your client would get zilch.)

Still want to bet your client's money and, most importantly, your reputation on a dying company? Do you want another broker presenting everything I've mentioned, to your client, after you've invested their money in GM?

[quote=doberman]

A previous poster mentioned that GM has $29 billion in cash and that fact was a major reason for their liking GM. However, that's only half the story. Because Delphi is in bankruptcy and because GM is obligated to Delphi for almost half of that $29 billion (for retirement and health benefits), GM stands to lose a good chunk of that "green cushion". (For those who don't know, Delphi used to be part of GM.)The bankruptcy court is to rule on the exact amount GM is obligated to provide Delphi. 

Earning an extra 3-4% in annual income, with a strong possibility of losing the entire investment, is not a risk myself or my clients are willing to take.

Let's face it, GM is on life support and is getting worse. I know it and you know it. It's one thing for a blue chip to tank overnight, but it's quite another thing to knowingly bet on a dying company that is losing market share, has an underfunded pension, has a cash cushion that will likely be cut in half, and is also burdened with increasing health care costs for employees and retirees.

When you present your clients or prospects with these facts, I will assure you that 90% of them will not want to risk their entire investment on an extra 3-4% per year.

However, let's assume I'm wrong and the government steps in to bail out GM just before they are forced into bankruptcy. All's well, right? Not exactly. A government plan to bail out GM could involve wiping out shareholders and giving unsecured creditors pennies on the dollar for their holdings and/or an equity stake in the "new" GM. (In either case, the income your client enjoyed would be severely reduced or wiped out. This result would only occur after a couple of years of negotiations, during which time your client would get zilch.)

Still want to bet your client's money and, most importantly, your reputation on a dying company? Do you want another broker presenting everything I've mentioned, to your client, after you've invested their money in GM? [/quote]

The way you put it I wouldn't want to put any clients into GM. However,  several of your bullet points need tweeking. GM/GMAC has over 40 billion in cash, not 29 billion. Additionally, they have borrowing covenents in place, in the current market that exceed 100 billion. Their pension liability IS fully funded. We're talking about a company that will lose about 2 billion here. That's not something that will sink them. GM is far from a dying company. It's just at a low end of a very cyclical business cycle. One thing about cycles is that they cycle.  GMAC has liquidity through out its maturity range. That is offsetting income that pays off it's liabilies for each year bonds are coming due. GMAC is on the block, it's just a matter of when and where.

GM's problems are considerable, no doubt. Not as bad as 1990/1992 when they were down to less than 360 days of cash, but bad enough. Like I said it's the law of cycles. In 13 years they've come full circle.

My yard stick doesn't go far enough out to want to think beyond two years. Only for aggresive investors, not the faint of heart or the widows and orphans fund. Just an idea.