Structured CDs Are ‘Compelling’ Investment, Byelich Says
Mark Byelich, who helps manage about $100 million at M.J. Byelich & Associates, comments on how he uses structured products in clients’ portfolios.
Byelich, based in Trevose, Pennsylvania, founded his firm this year after leaving Wachovia Corp., the brokerage acquired by San Francisco-based Wells Fargo & Co. in 2008. He buys structured notes through LPL Financial Corp., which works with more than 12,000 independent financial advisers.
Byelich recommends to clients both structured notes, which are bank bonds packaged with derivatives, and structured certificates of deposit, which offer similar bets in a package that’s insured by the Federal Deposit Insurance Corp.
Structured products can be tied to interest rates or stock benchmarks, such as the Standard & Poor’s 500 Index.
On the relative appeal of notes and CDs:
“Since the CDs have come into play, I really haven’t used the structured notes as much. I use structured CDs where you can have exposure to the S&P 500 or various industries with principal protection and FDIC insurance.
“It’s pretty compelling to have exposure to the market with FDIC coverage. You can go with four different issuers and cover up to $1 million, or if you’ve got a husband and wife, up to $2 million.”
On why he hasn’t bought notes lately:
“They’ve either been a little too complex or don’t have the principal-protection component. What I’m looking for, for most of the clients, is principal protection.
“I think it can be a little too manifold and a little too interlaced for your average client.”
On how much of a portfolio he’d allocate to structured products:
“I don’t think you should draw a line in the sand and say, ‘Well, I only want to put 5 percent in structured products.’ If 20 percent of a client’s growth portion of a portfolio should be in equities and you can hedge that with a structured product, I don’t think there’s anything wrong with that entire portion being in that.
“I think that avoiding these types of products because they’re a little complex or because you’ve got to read the prospectus or because you have to go through extra steps is irresponsible.”
On explaining structured products to clients:
“You have some clients who understand it right away. And then you have some clients with whom you go through the process several times. If the client understands you’re trying to mitigate the risk that they have, they’re much more open to it.
“Unless you’re dealing with someone that’s a trader or who’s a very sophisticated investor, I think you’ve got to stay simple and look at protecting a portion of their portfolio.”
On how he evaluates deals:
“I go back to the issuer and I ask how they formulate it, how they put it together. These are small teams within each firm that put these together and you can get very good access to their folks. They’ll even put together a specific structure for a client if you have a large enough position.”
To contact the reporter on this story: Zeke Faux in New York at zfaux@bloomberg.net.
To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net.
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