Retirees are having to 'take more risks than our parents' generation' in current investing climate: Neuberger Berman MD

Holly Newman Kroft, Neuberger Berman Managing Director joins the On the Move panel to discuss the markets response to COVID-19 and how investors should guide their clients through this volatile period.

Video Transcript

JULIE HYMAN: This news out of Russia, skepticism around it not withstanding, does seem to be spurring a little more risk appetite in the markets, at least if you look at the Dow and the S&P. We're seeing bank stocks higher. Also, travel stocks are getting a boost not just from that news, but also for some encouraging data from the TSA. Let's make sense of all of this. We're joined now by Holly Newman Kroft. She is Neuberger Berman managing director. She's joining us from New York.

So Holly, I know the market has been paying a lot of attention to any kind of vaccine headlines, but we are seeing some interesting divergences happen in the market. And I know you are an advocate of active over passive management here, that you shouldn't just put your money in a SPY, in the ETF and forget about it. Does today kind of help make your case for you?

HOLLY NEWMAN KROFT: Yeah, I think I'm not only an advocate of active management, but I'm also an advocate of asset allocation and how important that is, Julie, in a client's overall long-term investment goals. And we're seeing that from all the facts that you just raised. The NASDAQ is down today, when tech has been the driving force of growing markets not just during the COVID crisis, but also over-- gosh-- the last 10 years. But today, we're seeing travel stocks up, bank stocks up.

So I think it's really important to recognize that certain sectors, both within asset class and then sub-asset classes, change over time. And in times of volatility, which we're certainly in now, I'm a big proponent of active management over passive to protect against risk and to help clients get their long-term investment goals realized.

ADAM SHAPIRO: Holly, it's Adam. Good to have you here.

HOLLY NEWMAN KROFT: Hi, Adam.

ADAM SHAPIRO: I'm curious. You work a lot with ultra-high net worth individuals. I hope one day to be a client. What are the wealthy doing?

HOLLY NEWMAN KROFT: The wealthy are doing a whole bunch of different things, which is interesting. But what's been most interesting to me during this time is when the market fell off a cliff in the dark days of March-- the last two weeks, we all remember them-- people who had cash on the sidelines were opportunistically put it to-- putting it to work. I think that people-- my clients, for sure, stayed the course. I had very few who pulled out of the market.

And I think for all the clients, regardless of their level of wealth, what's most important is to work with someone who you trust, who you feel comfortable with, who you can call at-- or maybe not call, maybe email but at 11:00 o'clock at night when you're really scared that the world might be coming to an end, and make sure that the investment goals that you set out in a calm time, in a well-thought-out thought time properly reflect your risk appetite, your ability to digest volatility and be able to watch the market go down, and have a firm belief that you're positioned to live through that and come out the other side.

DAN ROBERTS: Holly, Dan Roberts here.

HOLLY NEWMAN KROFT: Hey, Dan.

DAN ROBERTS: You mentioned the tech names. And of course, the FANG trade was the hot trade, you know, well before the pandemic, and that has continued to be the case. It's interesting because there are the tech and tech-adjacent names that have benefited because of the pandemic-- you know, the stay-at-home names, so to speak. And then the FANG names have just soared. And in some ways, the pandemic helped, but also they were soaring beforehand.

I'm just wondering-- I mean, it was so telling, I guess, two weeks ago when they had their earnings the day after the tech hearings, and everything went nuts. And the hearings looks like they mattered very little to the shares of these companies. And I just wonder if you think anything in the near future can slow down those names.

HOLLY NEWMAN KROFT: Yeah, I mean, Dan, I think, like I said, tech has really driven the market-- we all know that-- since 2009, since the global financial crisis. But what might be interesting and what people don't recognize is that it's taken those stocks till about 2015 or 2016 to get back to the values that we saw in 2001.

So tech has driven the rally. It's driven the rally for the last 10, maybe a little bit longer. But the 10 years prior, tech was a huge disappointment and a huge detractor from performance. So as the markets-- as the world opens up, as different industries open up and come back, I think we will see the shift, again, from growth to value. It's all cyclical. It's just a question of timing.

DAN HOWLEY: Hey Holly, I want to ask about retirement savings and where you think, you know, people should be placing their bets at this point. I guess, you know, we saw people talking about moving out of stocks into bonds at one point then reverting back. I guess what's the safe play for someone who's looking to really grow their there 401(k) or other investment vehicle moving forward at this juncture?

HOLLY NEWMAN KROFT: Yeah, I mean, I think there's not an answer, a one-size-fits-all answer, because that's a question of your age and your needs on your retirement assets. So if you're very close to retirement or in retirement, you're going to have to position those assets a little bit more conservatively than you would if you are, you know, still working and contributing to your retirement assets and not intending to use those for the long term.

Fixed-income yields are at or close to zero. We expect they're going to stay that way for some time. So even retirees are having to stretch for yield and take more risk today than they would have in our parents' generation. The yield on the S&P is higher than the yield on safe fixed income.

So people are stretching for yield. But the overall allocation between stocks and bonds and how your retirement accounts are positioned should be a function of your time horizon and your risk profile. So for a younger person, it definitely should be tilted more aggressively to capture more growth until you are totally reliant on those funds for income.

JULIE HYMAN: Holly, good to see you again. Holly Newman Kroft is Neuberger Berman managing director. Thank you.