Blackrock's Michael Fredericks on his Investing Approach

All right you're listening to the financial exchange Barry Armstrong June night altogether junior a lot of text messages on this retirement income question -- I'm wondering how many of them are you think that this is the real deal -- just like be -- -- -- the -- -- -- -- that they can -- tell -- your -- -- do you put -- out there -- -- like some -- -- auction. A person female you can auction off to wipe out somebody that's a neat yeah 66 year old he's got a heart condition a perfect every three and thirty million in the bank. Honestly -- I surprises a lot of people weighing in on this with some good numbers out you know what I like is there's some young people. Dead -- in their twenties that have you know anywhere from 4200000. Dollars -- saved for retirement that's a good number that's a really good number. We're joined now by Michael. -- he's a portfolio manager at black rock. And he specializes in income producing portfolio as a matter of fact -- he manages a one of their funds -- the multi asset. Income producing -- Michael are you doing today welcomed the show. Thanks everybody doing doing well. Good -- hey Tom what sectors where you finding buying opportunities now he you you manage a big fund over there. Add to at black rock and I know you're kind of -- mean come special -- that's that's you're your Bailiwick where you. Where you live every day new help. By investments that are gonna produce income for your our shareholders. Yet but that's right so we we we manage really go anywhere fun that it can -- any income producing asset class and and I think there's. The challenges to put together all the different opportunities. In a way that doesn't introduce too much risk so we really managed this particular fund with. In an investor minds he's probably matter and retirement or near retirement and indefinitely as a big need for income. Okay now are you would you that includes something like preferred stocks. Exactly -- this so the -- we we'd like preferred we don't preferred stocks we we look at things like high dividend yielding equities. We look look at high yield bonds. Floating rate bank loans master limited partnerships. Real estate investment trust. I think you have to look a little bit off Iran and others are a bit unusual -- their classes for a lot of investors but. The reality is that he did dividend yield on the S&P is very low it's about 2% and the yield on the work we've aggregate bond index of the -- bond market. Is 2% as well so there there's just not much income available in the in the the usual suspects. -- you stayed away from long term bonds Mike. You know you you looked at you look at the ten year treasury which is yielding one point 9:4% this morning and it's it's hard to get. Real excited about the income opportunities therein and we have similar to the thinking around. Investment grade bonds it's just it did so it's a real problem for for that investors that but hopefully interviewer -- factor earlier the 28000. 20000 dollars an average savings for retirement at 2% that would produce. I do the math 500 and and sixty dollars a year and become tough to live off. Yeah yeah I hear you're not gonna retire that's which is -- -- how do you buy in the if you mentioned MLPs and there's just so many of them now and I think for the average investor it's awfully tough to. Pick a good one -- as compared to a bad one would what are you using to screen out -- the bad MLPs you don't wanna acquire. It is -- it is that a big very diverse universe with a lot of a lot of subplots. In unfortunately a lot of those names if you by the of those individual MLPs. You have to contend with key ones. Which is there's I think there's an advantage to to owning them owning a fund that owns them because in many cases that mutual fund. Whether to charge or someone else's fund can contend with a K ones and just give that an investor at 1099 but I think active. And an active security selection process surrounding MLPs -- is very important and we we happen to be blessed with a a team of six people but based in Boston actually you specialize and energy companies. Energy equities fixed income and in MLP market so. When when we make an allocation within our fun Q to that segment of the market were really relying on. There experience with those individual names to do securities election for us. What about on the utility side I mean utilities have been a bad performer thus far in 2012. Which leads me to believe there might be some bargains to be had in the utility sector. So our our view on utility they certainly have lagged. When when we look for. Well when we're looking at equities. For our strategy is a big part of the equation is not just the the overall yield on the in the -- compelling on on utilities -- give you that. But would be the added component that we think is very important for the an investor is to get to get income growth. -- to keep pace with inflation. And that's really our our beef with utilities these utilities. You when you look at the growth trajectory in -- beat expectations for dividend growth. There there are downright anemic you know we we'd rather own things like really high quality consumer staples companies where. As -- if you if you if you look globally for very high quality companies global franchises you can get a 4% yield risk. Eight or nine or 10% dividend growth and and we think that's that's attractive. What about -- that you buy and any re reits or real estate with senior portfolio. You know I -- over over the long run do we we would definitely like to own atone reits are are. We're very cautious on them at the moment actually they've had a very good run. Yields have come down to the a lot of money chasing those -- It's that we think valuations are on are expensive and -- the yields which are really in the low fours on the US REIT index. Compared to what you can find from the broader equity markets. Are aren't so attractive in and finally allowed it historically if you look at. We're sure perturbed periods of time there's been a lot of volatility. In region particularly in risk off type climates and that and that has this cautious. Would stay you know the last couple years Mike it's been tough for investors you know you made some money in the spring and and he gave it all back in the summer. Last year 2011 was a flat year for stocks had best take a most most funds that I look at word were down in the year 2011. Are you concerned we're gonna have another correction and and I guess what I'm asking -- Well it's been me historically speaking it's it's been a a pretty good -- com. If you can you look -- -- where we are and on the S&P were up over 10% year to date so we've gotten out of the gates. Very quickly and and it -- we are cautious where not to we're we're not expecting to see to see you crash. The economic data has has been by and large. Very good and in the US. A little softer in Europe and still. So quite positive and emerging markets although they've they've they've had a bit of a slowdown as well so. You know the good news is that corporate earnings have been downright terrific. The earning seasons so far has been. Has been in my my opinion nothing short of amazing it's in terms of the the number of companies that are beating their earnings estimates it's just an unprecedented levels so there's. There's a lot of good news there's also a lot of uncertainty around elections around that does slowdown in China to further their reasons to be to be cautious and I think this -- particular I think elections -- -- -- drive quite a bit of volatility in markets here and in other countries where there where their facing elections themselves. All right well you know idea sure appreciate your time Michael thanks for joining us and earlier how busy guy and you got a busy day -- thank you. I'm very that's -- -- sees a portfolio manager over black rock mutual funds they do a great job good company and certainly glad to have him join us today.