The top conversations on APViewpoint last week were started by Wade Pfau, Theodore Wong and Nick Niziolek. They generated thoughtful discussion with wide ranging opinions on: how to use reverse mortgages to secure your retirement; methods used to detect secular cycles in the equity markets; and opportunities in emerging markets.
Wade Pfau’s How to Use Reverse Mortgages to Secure Your Retirement generated 28 comments as it continued into its second week of activity. Advisors agreed that “a reverse mortgage has a lot of theoretical appeal because it involves the conversion of a low-yield asset with high idiosyncratic risk” into a product that can generate retirement income and hedge against mortality risk. They discussed the benefits and risks of investment strategies that use reverse mortgages, and suggested that a reverse mortgage line of credit (LOC) could be “a terrific ‘asset’ growing at an attractive rate” if it is set up early in retirement but only used once other funds are depleted. In response, some suggested that tenure approaches will be more effective because, if a client depletes their savings before using the LOC, they will no longer have any high-earning investments left. Advisors also cautioned that with any reverse mortgage strategy, borrowers are at risk of being unable repay the loan (and to continue to live in the home) because they could encounter spending shocks or adverse life events. Members widely agreed that there are a lot of complexities associated with reverse mortgages, and that determining the optimal combination of all the strategies available while considering risks that are difficult to quantify is a daunting challenge.
Theodore Wong’s Secular Market Cycles – Fact or Illusion? received 21 comments from advisors discussing which methods (if any) should be used to detect and define secular cycles in the equity markets. Advisors generally agreed with Wong’s argument that whether analysts discuss secular cycles using visual patterns, times series or other methodologies, they must support their argument with a large enough sample size for statistical validation. Members discussed different strategies they’ve used to analyze equity markets, and they noted that even methodologies that are theoretically sound are often of little use in real-world practices. They added that some models, such as discounted cash flow valuation analyses, provide good information but that they have limitations and can be misinterpreted. Advisors also discussed the assumptions made by equity market analysts, and argued “that underlying much of the discussion of market cycles is an unproven notion that there exists a set point in markets [when a cycle begins or ends], whether defined by PE or one of several other metrics.” Some members suggested that the stock market is driven by a long-term secular cycle driven by fundamentals and a shorter-term cyclical cycle, but that a turning point can not be accurately estimated.
APViewpoint hosted another well-attended webinar on October 18, Broadening the Opportunity Set in Emerging Markets, presented by Calamos Co-Chief Investment Officer Nick Niziolek. In this presentation, Niziolek introduced strategies that capture the growth potential of emerging market equities while managing volatility. He discussed techniques advisors can use to identify trends that support growth and provide resilience in volatile economic environments. He also explained how convertible securities can be used to achieve upside equity exposure with potential downside protection. Niziolek will be answering questions in this follow up conversation, and a replay of the webinar can be viewed here.
APViewpoint will be hosting its next CE-eligible webinar, The Impact of Changes to Carried Interest on Wealthy Clients, on Tuesday November 1, at 4:15 pm ET. In this presentation, international tax and immigration lawyer David Lesperance will explain how advisors can help HNW clients if the next U.S. president gets rid of the “carried interest” taxation that benefits many wealthy individuals.
Marianne Brunet is a financial markets analyst with Advisor Perspectives.
