Presentation is loading. Please wait.

Presentation is loading. Please wait.

ENR Global Contrarian Income: Investment Strategy 2015

Similar presentations

Presentation on theme: "ENR Global Contrarian Income: Investment Strategy 2015"— Presentation transcript:

1 ENR Global Contrarian Income: Investment Strategy 2015
Eric N Roseman ENR Asset Management, Inc. Montréal, Canada January 13, 2015

2 ENR Global Contrarian Income
Contrarian Value Investing; Buys Distressed Assets near Lows; Global Dividend Equities Margin of Safety is Low Price, Low Debt, High Cash-Flow, Strong Global Brands and Strong Management Looks for ‘Event-Driven’ Change; Spinoffs; Macro catalyst for change and revaluation Only Buy Stocks that Pay Dividends Companies Grow Dividends Greater than Inflation Buy Near or at 52-week Low Diversify Currencies 2008 Financial Crisis: Contrarian Global -10.5% vs. -42% MSCI World, -44% MSCI EAFE Index and -40% S&P 500 Index

3 Matching the Index with less Risk

4 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 4th 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 %

5 S&P 500 Dominates since 2009

6 US Dollar at 12-Year High

7 CRB Peaked in July 2008

8 Secular Stagnation? Massive debt overhang and poor demographics challenge Western & Japanese economies Failure to post strong recovery post-2009 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

9 Avoid 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; Chinese credit overheating Some currencies in region will be devalued South Korea and India offer best macro

10 Avoid most Bonds 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 Only buy high quality corporate bonds with low duration (maximum 4-Year duration) Strip (zero coupon) bonds as deflation hedge only

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 trend Base case supports more global QE 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 Higher volatility to ensue in 2015; 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 ECB and BoJ to offset Fed’s QE 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 Shiller Euro-zone P/E at 14x earnings Current 20% portfolio weighting in Europe; Target 30% Global Contrarian now: U.S. (42%), Europe (20%), S Korea (3.5%), Canada (1%) Asset Allocation Now: Stocks 66%, Cash 34%

13 Defensive Portfolio Characteristics
Consumer 25% of portfolio Dominant global brands, yield 3% + Defensive attributes in weak global economy Buybacks, annual dividend hikes Dividends growing in excess of inflation Plunge in foodstuffs bullish for input costs Sector provides reliable free cash-flow Top Three Staples: Nestlé (5.4%), Kraft Foods (4%), Mondelez International (3.6%) Portfolio holding high cash balance (34%)

14 Major Themes in 2015 Crashing commodities = bullish boost for global food and beverage companies and other industries Positive for most corporate earnings (e.g. falling oil) Nestlé shifting impetus to nutrition & wellness Royal Dutch Shell and refining margins; safe dividend Samsung: Where Apple was in 2013? Divestments at Procter & Gamble Volkswagen in China, Audi Sales Dividends still Matter: Gabelli Dividend & Income Fund, iShares DJ Select Dividend

15 Targeted Themes Follow the QE Trail in Europe and Japan
Lessons of QE in USA ( ) Weak currencies bearish for unhedged bonds but very bullish for stocks (exporters) To hedge or not to hedge your FX exposure Wisdom Tree Europe Hedged Equity (HEDJ) and Wisdom Tree Japan Hedged (DXJ) Wisdom Tree Europe Small-Cap Dividend (DFE) International Blue-Chips and Existing Book Targeting Q1 purchases on weakness

16 Portfolio Insurance in 2015
Is it necessary to buy some portfolio insurance or tail-risk hedges to protect your investments? Not yet, but that time is approaching U.S. to lead global GDP in 2015, recession unlikely amid low rates, low inflation and ECB and BoJ Printing Valuations alone don’t trigger bear markets; monetary policy does Fed not eager to tighten; surging USD has tightened for the Fed; import prices declining; exports slowing ECB and BoJ printing money to offset Fed’s QE exit We see excesses, mostly in credit, investor sentiment, IPOs, social media, biotech, M&A activity, high US multiples Portfolio insurance hedging to remain minimal for now We remain cautious and defensive; still prefer global blue-chips to bonds or other assets; Hedging strategy is flexible and may change under deteriorating market circumstances (e.g. 2008)

17 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; 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

18 Thank you! Eric’s Toll-free:

Download ppt "ENR Global Contrarian Income: Investment Strategy 2015"

Similar presentations

Ads by Google