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Jyske Bank Advisory Extra: Investment Strategy 2015 Eric N Roseman & Thomas Fischer ENR Asset Management, Inc. Montréal, Canada January 13, 2015.

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Presentation on theme: "Jyske Bank Advisory Extra: Investment Strategy 2015 Eric N Roseman & Thomas Fischer ENR Asset Management, Inc. Montréal, Canada January 13, 2015."— Presentation transcript:

1 Jyske Bank Advisory Extra: Investment Strategy 2015 Eric N Roseman & Thomas Fischer ENR Asset Management, Inc. Montréal, Canada January 13, 2015

2 Jyske Bank Advisory Extra Portfolio Advised by ENR in Montréal Seeks capital growth from a diversified portfolio of global common stocks, including large-cap, mid-cap and small-cap equities; also includes ETFs & Funds Mostly dividend-paying equities No borders, no restrictions on stocks Stocks are typically contrarian and value-based; seeks growth catalyst (macro change, tax reform, FX trends, event-driven change) Strategy is bottom-up (individual securities) worldwide Major focus on non-US companies and foreign currencies High volatility is a prevalent theme

3 Macro Review 2014 Worst year since 2011 for overseas markets; soaring USD strips away most foreign stock market returns when converted to USD Global currencies plunge vs. USD; EUR and ¥en correct sharply S&P 500 Index dominates since 2009 low Global GDP slows on weak Europe, China and Emerging Markets; Russian Crisis; Commodities fall again Commodities decline for 4 th straight year; Brent Oil plunges 50% since June, Gold holds the line amid USD surge U.S. T-bonds lure foreign investors; higher relative rates German bund yields turn negative, joined by Swiss, Dutch, Austrians, Danes; Commerzbank first German large-cap bank to impose fees on certain client deposits MSCI World Index +2.9%, MSCI EAFE -7.3%, S&P %

4 S&P 500 Dominates since 2009

5 US Dollar at 12-Year High

6 CRB Peaked in July 2008

7 Secular Stagnation? Massive debt overhang and poor demographics challenge Western & Japanese economies Non-financial debt in major economies surged from 212% of GDP in 1999 to 279% of GDP in 2014 – half of that increase post-2008 Failure to post strong recovery post-2009; Japan and Europe China’s Debt Hangover and New Normal Why Bonds keep rallying Chronic weakness in most commodities Central banks as conduits for growth Inflation jolt coming but not in 2015 Deflation or accelerated disinflation to persist Low interest rates in OECD, weak demand Depositors and ‘yield starvation’ spreading

8 Avoid Most Emerging Markets Strong dollar will trigger balance-of-payments crisis in weakest emerging markets Budget deficits will get worse Commodities bear markets and correlation to emerging markets; Russia, Brazil, S Africa Russia factor and contagion? Asian corporate credit growth exceeds 1997 peak Some currencies in region will be devalued Our favorites: China & South Korea

9 Emerging Danger?

10 Bonds: Focus on Short-Term High Quality Corporates Secular bull market in bonds almost over Inflation-adjusted rates are ‘bread crumbs’ or negative in several countries Investors paying Germans, Swiss, Danes, Dutch and others to own short-term government bonds Bearish on most sovereign bonds and high-yield Biggest accident in financial markets likely tied to leveraged credit and hedge fund borrowing Investors advised to stay short-term

11 Still Cautiously Bullish on Equities Global tumult and weak growth will deter Fed from hiking interest rates in 2015 U.S. economy not in consistent uptrend; services, manufacturing and housing remain soft Possible EMU crisis again; Greece debates exit Russian contagion, Asian debt binge and high USD Plunging commodities, crashing oil prices, soaring USD, TIPS surpass 2008 break-evens and T-bonds yielding below 2% are NOT symptomatic of a bullish global growth trend Base case supports more global QE, not less High quality stocks provide best relative and absolute values compared to other assets, especially overseas

12 Investment Strategy 2015 U.S. profits recession unlikely in 2015; but S&P 500 Index multinationals to suffer currency losses on strong USD; Advisory Extra Under-weighted USA USD to remain strongest currency this year; best ‘drunk’ at the bar, again S&P 500 Index will lag in 2015; USD strength, weaker exports Higher volatility to ensue; Compared to other assets, stocks still offer greater yields provided the interest rate backdrop remains bullish International equities (excluding USA) offer good value; Europe trading 48% less than S&P 500 Index based on Shiller P/E; Shiller Euro-zone P/E at 14x earnings Seasonal trends bullish; 3 rd year Presidential cycle ECB and BoJ to offset Fed’s QE; Follow the QE Trail in 2015 Bonds very expensive, heavily overbought; high-yield exposure to shale Stocks to outpace Bonds and Commodities in 2015 Focus on Euro-zone as ECB Starts QE; Select US Large-Caps Earnings boost from sharply weaker EUR Consumption boost from crashing oil prices

13 Overweight Europe in 2015 Bearish investor sentiment prevails; Greek elections, deflation squeeze; very negative environment for investors What is catalyst for bullish case? Company values are inexpensive compared to other regions, including big FX push for Euro-zone earnings from plunging EUR; 50% greater dividends; EPS declined 3.8% for Euro Stoxx 50 in 2014 Not vital to hedge USD exposure; valuation discount assures big stock gains Crashing commodities & oil = bullish boost for global exporters; Japan and Euro-zone highly dependent on oil pricing; Japan biggest beneficiary Volkswagen and China Sales, Audi Division Booming Knight Therapeutics joint-ventures and patent purchases Easyjet plc and struggling legacy carriers Turnaround at Wendy’s as McDonald’s struggles Adidas: Buybacks, selling Reebock, Restructuring Samsung: Where Apple was in 2012? Royal Philips: Spinning-off lights division; focus on health & wellness

14 ENR 2015 Investment Summary Global risk assets will grow more volatile as earnings shift lower in the US but accelerate overseas. Both Europe and Japan are primed for sizable gains at a time when US profits will slow, mainly due to a strong dollar; In the four times since 1970 when the S&P 500 Index ran away from international stocks (as is the case currently since 2009), the MSCI EAFE Index (ex. USA) climbed the following year, outpacing the S&P 500 Index by 14%, according to Bloomberg. EAFE includes Europe, Australia, New Zealand and the Far East We still think most emerging markets should be avoided; previous USD surges (e.g. late 1990s) resulted in severe economic dislocations overseas; commodities are suffocating larger emerging markets Stocks should remain an overweight in 2015 with an increasing emphasis on foreign markets and select dividend-paying U.S. large-caps; Gold to benefit greatly, if US growth momentum stumbles; interest rate advantage still points to high quality common stocks

15 Thank you! Eric’s Thomas’s Toll-free:


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