Advisors may have to try some new approaches to create the cash flow their clients want.
 
It’s no mystery as to why: Advisors are struggling to find income sources for clients in the still-ongoing low-rate environment. A show of hands by advisors during a session at the 6th Annual Inside Alternatives Conference in Denver proved the obvious: Nearly all had clients wanting more income from their investments.
 
The event is sponsored by Financial Advisor and Private Wealth magazines.
 
With little or no upside left in fixed income, and the Federal Reserve set to raise rates sometime this year, alternative approaches are in order, said panelists at the session.
 
Specifically, consider hedged approaches, said Jack Rivkin, chief investment officer at Altegris.
 
Rivkin highlighted his firm’s Fixed Income Long Short Fund and the Altegris/AACA Real Estate Long Short Fund for investors wanting exposure to what may be fully valued asset classes.
 
His favorite Altegris offering might be the Futures Evolution Strategy Fund, whose multiple-commodity trading advisors use a trend-following approach, going long or short in financial and commodity futures. 
 
Cash pledged against the futures (typically three-quarters of the fund’s assets) is sub-advised by DoubleLine Capital. That active fixed-income allocation to DoubleLine is designed to produce additional interest income compared to parking cash in riskless instruments.
 
“Thank you, Doubleline,” Rivkin said.
 
Another panelist, portfolio manager Derek Devens at the Horizon Kinetics Alternative Income Fund, augments his short-duration, investment-grade bond fund with option-writing, selling out-of-the money puts on conservative stocks or equity ETFs.
 
The combination produces a distribution of returns that is closer to an intermediate bond index compared to riskier bond portfolios or equity indexes, Devens said.
 
The fund targets an income yield of from 4 percent to 6 percent.
 
Devens expects to see higher volatility in the markets going forward, which should boost option premiums. 
 
Gloria Nelund, chief executive of Trilinc Global, seeks out credit-worthy borrowers in developing countries who take loans from her TriLinc Global Impact Fund.
 
The fund, a private offering, makes loans to private small businesses in foreign countries where access to capital is limited. Borrowers pay relatively high rates, allowing the fund to offer double-digit yields to investors.
 
Nelund said defaults are almost unheard of among the firms the fund deals with, because defaulting on debt is still seen as shameful in developing nations, more so than in the U.S., where debts are more easily forgiven. 
 
Republican presidential candidate “Donald Trump has declared bankruptcy like, how many times?” Nelund asked.