Issue 49 • OCTOBER 23, 2009

Earning Higher Income in a Low Yield Market: Webinar Transcript Part II

In Wednesday’s issue of Weiss Advice (Issue #48), we brought you Part I of the edited transcript from our recent investment Webinar:

Earning Higher Income in a Low Yield Market.

Now, in this special issue of Weiss Advice, we’re offering you Part II of the transcript, as promised.

Incidentally, if you missed Part I on Wednesday ... or would like to re-read that issue, just go here now. If you haven’t seen this 45-minute Web event yet, go here to view it in its entirety.

That’s because many investors we talk with today are looking for ways to potentially boost their yields in the current low-interest rate climate. Of the many investment challenges investors face today, none may be more crucial than earning adequate income in this low yield climate — especially if you’re in retirement or soon approaching it.

If you want to learn about an investment strategy that can potentially deliver higher income than current short-term yields, to help you meet your financial needs, be sure to read this second part of our edited transcript carefully ... OR, if you prefer, you can still watch an on-demand replay of the entire Webinar, while it’s still available, by going here now. Enjoy!

Earning Higher Income in a Low Yield
Market: Transcript Part II

Sharon Daniels, President, Steve Chapman Vice President and Portfolio Manager, and Mike Burnick, Director of Research and Client Communications; Weiss Capital Management, Inc.

Sherri: During the worst of the credit crisis, many investors flocked to safer U.S. Treasury securities, what do you see now?

Steve: Well … now that the economic outlook is improving, this may be the BEST time to get a professional check-up on your investments … see if you should restructure your portfolio to earn higher current income and reduce risk. This is part of the portfolio review service we offer to you at no charge when you contact us at Weiss Capital Management. We’ll review your stocks AND your bonds.

Sherri: Most have rallied nicely in recent months.

Steve: Which is all the more reason you should ask us for a complete portfolio check-up. To make sure you’re not overextended, and you’re not overexposed to sharp corrections.

Sherri: What else do you recommend?

Steve: Well, I recommend diversifying over several fixed income sectors. My current combination of holdings includes funds invested in …

Emerging market bonds
Domestic and global high-yield bonds
Global sovereign bonds
Treasury inflation protected securities (TIPS)
High-quality U.S. corporate bonds

Editor’s Note: Go Here Now to View the Webinar in its Entirety!

Collectively, the maturities are in the shorter to intermediate range — RIGHT NOW in the 2-10 year range.

Of course, these holdings are subject to change, especially when our inflation/deflation indicators signal a change, or when sentiment regarding investor risk appetites shift.

Mike: That’s a very broad mix ...

Steve: There are at least two reasons for this: the more diversified your fixed-income portfolio, the better it can help offset price volatility and the more it spreads credit risk across a vast number of holdings.

Mike: Very true ... many categories of fixed-income funds have very LOW or even NEGATIVE correlation with stocks, as the chart (above) indicates. This means that when one zigs, the other zags. So, proper diversification should give you a smoother ride for your overall portfolio.

Sherri: Okay, here’s a question that our financial advisors at Weiss Capital field daily from callers: Why do you buy bond mutual funds instead of individual bonds in the Weiss Diversified Income Builder program?

Steve: That’s because of credit risk. When YOU buy an individual bond, you’re basically underwriting the bond’s risk. We call this “concentration risk,” meaning that if something were to happen to that one single bond issuer, YOU would bear all the direct risk of that bond either declining in value or outright defaulting on your interest payments AND the payback of your principal. It happens too …Lehman Brothers is an example.

Sherri: But if Lehman bonds had been in a bond fund, they’d most likely only represent a fraction of that fund’s overall holdings ...

Steve: Exactly, so a diversified mutual fund is in a much better position to spread risk out over potentially HUNDREDS OF HOLDINGS — especially in this market, where corporations are going belly up every day.

Sherri: So, the failure of one issuer to pay interest or principal has only a slight affect on your total principal.

Steve: Yes. Plus, there’s another reason mutual funds are important: Most investors don’t have the capital to diversify broadly across many different, individual bonds. Fund structures spread out risk in ways that individuals could not achieve on their own. Even better, you can invest in most bond funds with a relatively small amount of money. As a manager, that gives me plenty of latitude.

Mike: As an alternative to bonds or bond funds, investors can still earn income from stocks too. Johnson & Johnson or Coke each pay attractive dividends in today’s low rate environment. Why can’t fixed income investors just stick with dividend-paying stocks?

Steve: Well, here’s my view: If you like J&J’s stock and its dividend, then you’ll probably love their bonds. You can get paid more, enjoy lower relative price volatility, plus enjoy the senior credit status the bonds are entitled to should something go wrong with the company.

The difference is this: Stock dividends are a promise to pay if circumstances allow; bond coupons are a contractually-bound PROMISE to pay. Companies can and DO change their dividend payouts all the time, but interest payments on bonds are set.

Editor’s Note: Go Here Now to View the Webinar in its Entirety!

Sherri: This year alone, 72 companies in the S&P 500 CUT their dividends and many of them are ... or were … considered safe, blue chips. The table above shows just a few of them.

Allstate... reduced its dividend 50% ...

General Electric slashed its payout almost 70% ...

Kodak and Motorola both SLASHED their dividends to ZERO — totally suspending payments.¹

If you were counting on these payouts for regular income, you’re out of luck. On top of that, the price of your stock may have cratered when those dividend cuts were announced! Talk about adding insult to injury.

Mike: Here’s another question investors ask us about the Weiss Diversified Income Builder strategy: Is it only for people that need current income?

Steve: No. Weiss Diversified Income Builder is for ANY investor at the moderate risk tolerance level who wants a more favorable risk/reward relationship — even if you’re a growth investor looking for higher total returns. For my money, I’d rather earn a reasonable yield while reducing my risk as much as possible. If I can do it in bonds with less risk than stocks, then why would I want to expose my capital to higher risk?

Sherri: Many investors today ask us about the falling dollar Steve. Earlier you mentioned foreign bonds and foreign bond funds, which can provide natural protection against the falling dollar. Can you elaborate on this please?

Steve: That’s precisely what makes our program unique. While many other income programs ignore the risk of a falling dollar, the Weiss Diversified Income Builder program is DESIGNED to help protect you from — and even possibly BENEFIT from — the falling dollar. The foreign income funds we invest in not only give us better potential yields than those available in the U.S. ... they are also denominated in local currencies that typically rise when the dollar falls.

Sherri: Since the dollar decline is such a key aspect of everything happening in the world today, can you tell us specifically which countries and which bonds you favor?

Steve: Each country has the equivalent of our “Treasury Department.” They each sell their own country bonds; the governments of Canada, Switzerland, Australia, Brazil, Japan, etc. These are referred to as SOVEREIGN BONDS. Also, each country also has corporate bonds from companies domiciled in their country — companies like Nestle, BP, Toyota and Daimler Chrysler.

Editor’s Note: Go Here Now to View the Webinar in its Entirety!

The key is that many countries and global companies pay HIGHER interest rates than those available in the U.S. today. PLUS, the credit quality for many is just as good, and in some cases, even BETTER. So, in many instances, there is little to NO tradeoff in terms of credit risk. In my opinion, it can be the best of BOTH worlds.

Sherri: So, are you buying bonds in Brazil, Japan, Canada and Australia?

Steve: No. We are buying select bond funds that have holdings in those countries’ government debts ... as well as corporate debts.

Sherri: But that adds another level of risk, called “currency risk.” Tell me, do you hedge against the possibility that foreign currencies might go down in value?

Steve: No. We generally do NOT choose to hedge against currency risk. Most of the time, we want to have local currency exposure to hedge against a drop in the U.S. dollar, which we believe — from a fundamental viewpoint — will continue to suffer weakness over time. However, if we believed a particular currency was weakening, we could eliminate or reduce our exposure, just as we’ve done with the U.S. dollar.

Sherri: What other risks might “do-it-yourself” investors face with international bonds?

Steve: There are differences in accounting standards, political risks, and less corporate transparency in some countries outside the U.S. that you need to be aware of, but we aim to minimize those risks as much as we can through broad diversification.

There are a number of other good reasons to invest abroad. First, we DON’T want our clients to have all their investment money denominated in the U.S. dollar. That’s why we have exposure to NON-DOLLAR securities in countries that we believe will have stronger currencies than ours.

Second, we find value in certain countries that have a trade or budget surplus.

Third, we like countries with natural resource- or commodity-based economies, such as Canada, Australia and New Zealand.

And finally, we enjoy exposure in emerging markets like Brazil, which offer future strong hedge potential against our greenback.

Sherri: Gentlemen, this has been a great discussion and in this limited time, we have only scratched the surface. But, I trust our viewers will appreciate the efforts we put into our income strategies at Weiss and realize there ARE several alternatives to ZERO percent yields.

Thanks, Mike. Thanks, Steve.

Editor’s Note: If you have questions about investing for income or growth, we’ll be glad to discuss them with you in a way that’s tailored to meet your personal income needs. Just contact a Weiss Financial Advisor today at: 800.814.3045.

We understand the dilemma that many investors face searching for alternatives to your low-yielding money market funds and bank CDs, which may be coming due now.

The Weiss Diversified Income Builder program is an alternative you may want to consider for your portfolio. The primary goal of this professionally managed account strategy is to provide you with a diversified mix of both domestic and international income-producing securities that we feel offer the greatest value today. Please keep in mind, however, that unlike bank CDs, this strategy is not FDIC insured, and you can lose money in this program, as with any investment program.

But in today’s low-yield environment, we believe you can benefit by exploring other options, like the Weiss Diversified Income Builder to learn how you can possibly increase your income to meet your needs. Indeed, many of our clients faced similar challenges before coming to us for advice and management and we know there are many others who may find our programs suitable.

Through the end of this year, we want to make it more beneficial for you to join our other clients in this program.

We’ve lowered our standard NEW client household minimum from $250,000 to $100,000. BUT, it’s only until the end of the year, and ONLY if you join the Weiss Diversified Income Builder program.*

Remember, this window closes on December 31, 2009. In the meanwhile, for even more income investing details, you can download a copy of our new special report:

Good investing!

Mike Burnick
Director of Research & Client Communications
Weiss Capital Management, Inc.

¹ Standard & Poor’s Index Services, 9/9/09

The Weiss Diversified Income Builder program is suitable for investors with a MODERATE risk tolerance. Any comparison to money market funds and CDs is made only in reference to yields and not level of safety. Unlike bank CDs, the Weiss Diversified Income Builder program is not FDIC insured, nor guaranteed and may be higher risk than some money market funds.

Forward-Looking Statements: This Webinar and edited transcript contain forward-looking statements regarding intent and belief with regard to the program and the market in general. Viewers are cautioned that such statements are not a guarantee of future performance and actual results may differ materially from those statements.

Risk: PAST PERFORMANCE is not indicative of future returns and as with any investment program, it is possible to lose money by investing in the Diversified Income Builder program. There are no guarantees that the program will be able to achieve its stated objectives. Before investing, please read the Firm’s ADV Part II and all program materials for important disclosure information.

INTERNATIONAL INVESTING presents certain risks not associated with investing solely in the United States. These include, for instance, risks related to fluctuations in the value of the US dollar relative to the values of other currencies, custody arrangements made for foreign securities, political risks, differences in accounting procedures and the lesser degree of public information required to be provided by non-US companies.

Complete Performance:

RETURNS — Returns are based on a composite of actual client accounts. Individual client returns may vary. See program materials for details. Net returns cited include actual management fees, commissions and other similar fees charged on transactions and reinvestment of dividends, income and capital gains. Gross returns cited exclude management fees are net of actual commissions and other similar fees charged on transactions and include dividends, income and capital gains.

BENCHMARK — The Barclays Capital Bond Index (formerly Lehman Aggregate Bond Index) is a market-value weighted index of taxable investment-grade, fixed-rate debt issues, including government, corporate, asset-backed and mortgage-backed securities. It assumes reinvestment of dividends and capital gains and excludes management fees, transaction costs and expenses. It is not possible to invest in an index. Index return data source: Bloomberg

The Weiss Diversified Income Builder program may invest in securities that are not included in the benchmark index including inverse-index funds. See program materials for more details.

Securities: Johnson & Johnson and Coca-Cola stock, mentioned as examples in the edited transcript are holdings in one or more Weiss Capital Management investment strategies as of 10/9/2009 and are subject to change at any time.

Mention of specific securities is for illustration purposes only and should not be construed by readers as a specific recommendation to buy or sell any security. Information given regarding these securities was based on information available at the time of the Webinar’s initial broadcast and actual results may differ materially from those statements.