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: