• Eiger

Pandemic Provides Opportunities

Disasters breed opportunities for those willing to take some risk. The current pandemic is no different. Many investment assets are currently selling at cheap prices. If the asset recovers its value, it can be a lucrative investment. But can you find an opportunity with little risk?

Among the victims of COVID-19 is public transportation. With reduced numbers of passengers, revenue has plummeted. New York’s public transportation system has been hit especially hard. Here is why, according to a recent New York Times article, several investors, including our very own Len Templeton, believe a bond investment in New York’s Metropolitan Transportation Authority (“MTA”) can be a lucrative move:

  • Prices are currently cheap

  • Yields are comparatively high (about 4 percent)

  • Yields are federal and New York state tax exempt

  • There is a high chance of government bailout

To match MTA’s yield with a non-tax-exempt investment would require a yield of approximately 9 percent. But despite the attractive yield, there are serious concerns. In March and April, MTA bond prices dropped over 20 percent. Subway usage dropped by over 90 percent. Usage has since improved but is still about 70 percent below last year’s passenger count. Chances of recovery without a bailout are slim.

Another concern of investing in municipal bonds like MTA is that trading can be thin, and prices are not as efficiently updated as they are for other public securities. This can further increase volatility.

In the end, it comes down to whether you believe the federal government or the state of New York will allow the New York transit system to fail. Either way, we expect to see increased volatility.

This is just one example of the opportunities we are exploring with our investment partners on behalf of our clients. We expect more opportunities to present themselves in other asset classes as the markets remain volatile waiting for a clear outcome to the election, more stimulus from the U.S. Treasury and Federal Reserve, and more positive trends among economic indicators. In the meantime, we remain patient and confident in our diversified portfolios which are designed to dampen volatility while maintaining steady income and solid returns among such uncertainty and unpredictability.