What are Investors’ Biggest Fears?
Principal Funds CIO Mike Finnegan on the benefits of investing in corporate bonds.
- Duration 7:08
- Date Feb 20, 2012
Principal Funds CIO Mike Finnegan on the benefits of investing in corporate bonds.
Also in this playlist...
This transcript is automatically generated
Principal fund's chief investment officer Mike Finnegan -- and then you might not know but maybe you should he says his clients.
Are facing three very specific worries but thanks to the way he -- that.
They're up 24%.
Over the past three years he's trying to make those worries disappear with -- three billion dollar principal global diversified income fund.
As I mentioned a nice return over three years Mike joins us now from Des Moines, Iowa in a Fox Business exclusive and like you know what.
Sometimes you can see investment trends simply by looking at people's fears and you can then.
Participate in making money off those spears but what are the fears that you see right now.
Well loses you mention there's really three things that we focus a lot off on the last couple years around not product development -- mutual fund and it really is.
And our mind the three things that the people really are concerned about.
They're concerned abiding come to for those folks who were about two and -- retirement -- retirement they're concerned about inflation.
In the last wrestle -- the probably most concerned about is the risk of capital loss in other -- the downside risk you know.
It ended the day those are really the three things that people are most concerned about.
Well capital loss of fact it's put in simple terms -- you've lost the money that you invested and nobody wants to do that right now let's break down -- your portfolio right now to show people first how you're investing and really it's a -- -- -- -- a huge part of this fund is in bonds all -- not just treasuries but.
Corporate bonds in fact I believe that's the biggest part about 75%.
And -- the next 9% government bonds.
Here is the sector waiting right now of the kinds of sponsor -- Tell -- why they're so much yellow here for corporate bonds what is so attractive to you about that.
Well the largest category in this fund and again this fund is a little bit different as multi strategy.
Across both fixed income equities and even preferred so we're looking at sort of the whole universe of high income kinds of securities.
And when you think about accessing high income but also with an eye towards risk one of the best asset -- the stand out.
The terms having high risk adjusted yield is high yield bonds which are just the non investment grade bonds issued by primarily by US corporation -- -- -- yields today.
Relative to the volatility of the principal what you find is that.
You know investors are more than being compensated we think for the downside risk so because of that we have about a 38% -- just to high yield corporates today.
And yet you know it just shows you still betting on the United States when you look at the country breakdown of these bonds in fact a -- portion here about 67%.
In US bonds what is it you see I would imagine that makes you bullish pretty much on the US economy US equities.
Yeah I I would say that we are you know -- cautiously optimistic up on the US we think about the news we've seen in the last.
Thirty days you know earnings have been good not great.
Growth appears to be gaining some momentum inflation is still low sounds like the Fed's gonna sort of keep sitting on the front end of the yield curve for a couple more years we think that.
There were starting to see the early gather early stages of but since the sustainability.
And in the positive -- so I would say.
We're not outrageous abolished but but clearly we are accomplished cautiously optimistic that this might be a good year for the equity market -- one.
A letter viewers know that you do have equities -- here we're gonna get to a couple of names in just a minute but there's some breaking news on Mexico.
The president of Mexico is pushing for tougher rules for banks globally and again you've got about 4% in Mexico what is it about Mexico -- -- if you could tell me what is it that you like about that region which.
Look a lot of people I know say why would ever go down the right now you've got massive problems with drug runners and all kinds of violence it's it's kind of fearful at the moment there.
Well only you know like like any of our investments -- we decide to invest and it and it in a country.
You know we're gonna look at the yield profile.
Relative to what sort of the downside is and I think when you look at some of the Mexican bonds that we -- you find deals are still quite attractive and again if you think.
A lot of the next economy were revolves around oil today.
And if you see what's going on in the oil markets particularly with the news last night about a ramp -- pulling back on supplies to hear the price of oil going up.
You know you can see you can be fairly bullish on on.
That the Mexican government's ability to to repay -- debt which is ultimately what -- -- Mike I promised our viewers like gives them the name of the company that you feel is really poised to make a nice run that not only is it up more than 20% over the past year but it's got a 5% dividend yield.
What is that.
Would that be that plains all American MF ETA is the ticker symbol.
Yeah we've got about we've had anywhere for modified to a 10% weight in this fund and MLPs and we like.
The MLP asset class a -- master limited partnership Brian correcting me if you just think about and it's been in the news.
A lot the last couple years and we've now figured out were sitting on about a hundred years of natural gas with hydraulic fracturing we now have a very efficient way to get it out of the ground.
And it's just a matter of time before the infrastructure that we're gonna need to transport and store all -- gas.
Will be built and sold to build identify companies like plains all America who we think his health and in a very very good spot to exploit the -- the -- gas play.
And -- -- -- -- a 5% dividend and eight to 9% dividend growth -- that's a low teens kind of total return that's fantastic.
Let me get to your next pick D.
Energy this serves mobile's huge amount of Michigan including all of Detroit it's also got a decent dividend yield.
It does this is one of our favorites infrastructure stocks again in this fund we're looking at infrastructure stocks with nice.
Income profiles -- DTE serves Detroit about two thirds of Michigan.
When you think about that the rebound is going on the auto industry you know volumes erupting gas electricity in Detroit.
Are also in very close proximity to the Marcellus Shale only do won't pipelines.
I think just the management in -- management team although -- -- -- has done a really nice job of of allocating capital so again.
Back to a 5% dividend yield the sort of afford a 5% yield growth rate that's that's a nice sort of 910% kind of yield.
-- -- cut guys this is what we like talking to people like Mike because he comes up with the thought that if the auto industry is coming back then people are getting more jobs in the Detroit Michigan area.
Very then turning their heat back on -- -- interesting to see how the mind really works when it comes to chief investment officer like this.
Let me get your final -- it's a home called -- champion.
Yet to champion is -- Hong Kong REIT that owns a couple of sort of a a -- property couple income properties.
In Hong Kong to peg into trophy properties about three million square foot.
What what happened about a year ago is there are a lot of concerns about the slowdown in China particular there are going to be broad financial sector job cuts in Hong Kong in the office market.
The stocks sold off about thirty or 40% well our our folks believe that's way over done.
There's still a limited supply of of sort of -- equality space in Hong Kong so.
We think is good opportunity to buy the stock cheap and then it in -- ride -- -- the rents out the back up so.
Hey it's great to have you we come back again Mike.
Absolutely Mike Finnegan principal fund's chief investment officer out there and to more in Iowa it's not just on Wall Street in New York that you get great returns here nice to see you thank you for coming on.