We recently sat down with Som Seif, Founder and CEO of Purpose Investments, to catch up with him on markets and strategy.

Skip to: 00:37 What does the Fed know… and how much farther…

In this episode, we discuss the Fed’s dovish about-face on policy interest rates, and what it may mean for investors.

But more relevant in this conversation was the angle of discussion on where and how investors/advisors may position fixed income in the context of total return, in the acutely uncertain period we find ourselves in.

About Q4 2018’s sharp pullback:

“Well, it’s a reminder, though, that it isn’t just a one way game, it’s a two way game and you’ve got to be willing to protect that capital…”

Skip to: 06:30 Protect what you’ve got, protect what you’ve made, it’s a really important principle that everyone needs to be thinking about. This is a time to be really strong in that opinion despite a strong January [and Q1] that has kind of gotten people back to ‘phew, okay, that’s over with.’

“No, it’s not over, none of the markets is ever over. it’s always got basis of risk…” says Seif.

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Conventional fixed income markets are will be a low return, high risk environment for most investors today.

Skip to: 08:16 Really, what I think the most unsettling part is that, yes, that conventional wisdom of “Oh well, when equity markets fall, my bonds will protect me – for eleven out of twelve months of 2018, bond markets actually were as bad, or difficult as equities were. And so, it was only in December… otherwise interest rates and bonds were unprotective, and hurt you just as much.

That’s the reality of where we are, and if we go into 2019, one thing that we can say for certain, is that the fixed income markets will be a low return, high risk environment for most investors, and an environment where most people will be really challenged to meet their long term liability from,” says Seif.

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Conventional bond investments as portfolio insurance?

Skip to: 10:06 The reality is the same thing – if I go and put 20-30 percent of my portfolio in a money-losing segment of the marketplace meaning I’ve got very bad return and risk/rewards, and I keep that there for that one moment when it’s going to protect me, it doesn’t make sense for the…, adds Seif.

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Skip to: 13:59 If you’re just passively buying fixed income today, I think that’s a fool’s game. It’s a loser’s game…, says Seif.

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Skip to: 15:03 You can’t just fix one side of the engine and not the other. Seif says, “Most people are trying to solve the fixed income side, getting rid of long duration bonds, going short duration, buying active money management, this and that, but they’re not solving the equity side. They’ve got to fix the equity side.”

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Skip to: 15:45 There’s too much hope in portfolio construction, and that’s what we need to get away from. Let’s be more precise…, says Seif.

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What’s the fixed income solution that works right now? What does the optimal equity investments sleeve look like to Seif right now. These are some of the points we chatted about.

Does it make sense to continue to hold large positions in investments that will potentially harm your portfolio 11 out 12 months of the year, just because they have been conventional portfolio holdings for 3 decades?

Back to: 00:06 Som, thank you so much for joining us today!

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