Contacted recently for his views on the growing catastrophe (cat) bond market, Jeff Sica, founder and chief investment officer of Sica Wealth Management, professed his lack of knowledge about these ABS. In effect, they insure state and private entities against risks stemming from hurricanes and other natural disasters. A few days later, however, after researching cat bonds' risk characteristics and performance, Sica was a fan.
"As long as the underwriting stays the way it is, and the current risk/reward is still there, I will almost certainly put cat bonds in my portfolios," Sica said. "They definitely look like investments that create a level of non-correlation, diversification and potential return that we're just not getting anywhere else."