The Dangerous Game Big Investors Are Playing

Pension funds and other institutional investors have struggled to produce the returns they need to satisfy their obligations. To boost returns, they've turned to a new, risky strategy involving leverage that could eventually backfire, leaving pension funds facing shortfalls in meeting their obligations to pensioners.

In the following video, Fool markets analyst Mike Klesta talks with longtime Fool contributor and financial planner Dan Caplinger about this strategy and what it means to you and your money.

Annaly Capital has used a similarly leveraged strategy to produce huge dividends, but can investors count on that payout sticking around? With the Federal Reserve's recent moves, Annaly has had to scramble to defend its bottom line. In The Motley Fool's premium research report on Annaly, senior analysts Ilan Moscovitz and Matt Koppenheffer uncover the key challenges the company faces and divulge three reasons investors may consider buying it. Simply click here now to claim your copy today!


Read/Post Comments (3) | Recommend This Article (1)

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  • Report this Comment On April 28, 2013, at 3:33 PM, Gabefabe wrote:

    The principal danger identified is that of rising interest rates, the risk of which Mr Caplinger says "we've seen some signs of happening potentially in the near-future" - surely, there is either a risk of rates rising, or there is not: to say there is a risk of rates potentially rising is oxymoronic tautology, hehe!

  • Report this Comment On April 29, 2013, at 9:38 PM, lbjack wrote:

    Ridiculous. This guy makes the common mistake of assuming rising rates hurt mortgage REITs. if he knew what he was talking about, then he'd know it's not about rates but spread. In fact, many mREITs have taken an income hit as the Fed's QE has LOWERED mortgage rates. When the Fed lifts QE, mortgage rates will rise even as the Fed keeps cost of funds near zero, thus widening the spread and boosting mREIT income. Rising rates will lower portfolio values, but mEITS will not be sitting on their hands and will rebalance their portfolios. What may hurt is rate spikes, for which good mREITs like NLY and AGNC are well-hedged. Anyway, given a sluggish economy for the foreseeable future, where exactly would a rate spike come from?

  • Report this Comment On May 03, 2013, at 10:22 PM, jimpaulsen wrote:

    You guys really need to explain what risk parity is, and not dwell on the leverage aspect. It basically maps economic environments (inflation, growth, ect.) and matches assets that do well in each and uses the leverage to balance the risks and target a volatility. This video is idiotic and serves no purpose but to scare people away from a strategy that could help limit this portfolio risk. I really hope you guys don't manage money for a living.

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