By Peter McDougall
Many advisers don’t-or can’t-offer portfolios of individual bonds to their clients. For adviser Richard Alt, that spells opportunity. Alt, a principal at Beechwood, Ohio’s Carnegie Investment Counsel, has turned individual bond portfolios into a tenth of his practice.
It all started a couple of years ago when a friend of the firm, an adviser who was only set up to buy bond funds or ETFs, sent Alt a client who wanted to buy individual bonds. She wanted more income than her diversified portfolio was providing. So Alt selected $250,000 worth of individual bonds for her IRA. The bonds were all of short duration, less than five years, to protect her from rising interest rates. “The portfolio was yielding 2.5% when we took it over,” he says. “When we were done it was producing 5%.”
The client was so happy with the results, she moved another $250,000 into the account. “It’s like the light went on for us,” recalls Alt. “We realized that there really aren’t that many other firms doing this.”
Alt’s firm, which serves clients with assets between $1 million and $5 million and charges a percentage, had already developed expertise picking bonds for its own clients. “We scan through hundreds of bonds and cherry-pick the best ones,” he says. It can take Alt and his team up to six months to construct a fixed-income portfolio. He aims for an average return of 4.5% to 5%, which takes patience in a period of low rates. “If you limit yourself to only buying the best bond in a week, you get a really good bond,” he says. “If you try to pull the whole thing together in a single week, the portfolio is going to be less attractive.”
Since that first referral two years ago, Carnegie’s individual bond-only portfolios have reached $30 million in assets invested–10% of the company’s total. Generally Alt works directly with the client, but sometimes he acts as a subadviser, handling the individual bond portfolios for another adviser or another firm at a slightly reduced fee.
The rest of this column and other columns on advisers and their practices are available to Dow Jones subscribers at DJ NewsPlus.