Smart-Stock.net

Earlier this summer, TheStreet.com Financial Advisor Richard Widows offered some good advice for those interested in distressed asset investment. He addresses two basic points: when to invest and what to invest in.

Widows admits the obvious, which is that there’s no universally known “best time” to invest in distressed securities. He does state that markets have a tendency to anticipate early recovery (although admittedly, this was published in June, before the $#@! hit the fan in the U.S. economy).

As to the question of what to invest in, Widows has a bit more to say. In a word, diversification. Diversifying one’s holdings is a wise plan, and one way of achieving this is to purchase shares in mutual funds that invest in distressed assets. Many such funds offer “dollar cost averaging,” which spreads out investments over time. This helps address the question of when to buy, since the fund will best decide that.

Widows suggests four different that specialize in distressed asset investments. The Franklin Mutual Recovery Fund invests in distressed companies, risk arbitrage, and securities special situations/undervalued securities. The Masters Select Focused Opportunity Fund specializes in distressed companies, including high yield bonds, bank debt, and other indebted company purchases. The Highland Credit Strategies Fund invests domestically and internationally in a variety of different areas: fixed rate loans, bonds, debt obligations, and mortgage and asset-backed securities. Finally, the Pioneer High Income Trust invests 80% of its assets in high yield debt, distressed, and convertible securities, loans, and preferred stocks.

It’s likely that there are other funds out there focused on distressed asset investments, as well as companies that can offer helpful distressed asset investment advice. If you want to learn more, do yourself a favor and read some of the other Smart-Stock blogs on the subject.