Tag Archives: investing

‘Ride An Elephant’ In 2016

By Carl Delfeld In the 19th century, there was a common expression used to describe the early intrepid explorers of the American West. They were said to be “seeing the elephant” – that is, they were seeing “all that could be seen.” On Wall Street today, brokers looking for 10-bagger stocks, and portfolio managers seeking big gains, are similarly said to be “hunting for elephants.” In the 21st century, the best chance of finding these elephants is by looking for them in emerging and frontier markets. These markets have growth that may be up to three times that of America and Europe, which is fueled by a young, vibrant consumer class, as well as some of the world’s most fascinating cultures, nature, and landmarks. One great New Year’s resolution for you would be to see the elephants with your own eyes this year. I can assure you that you’ll learn a lot, have great fun, and uncover some big opportunities that you would otherwise miss sitting in your living room. Investing With the Big Shots I’ve been fortunate enough to have on-the-ground experience in many of these markets, particularly in Asia and Latin America. Last year I teamed up with Global Frontiers, which organizes and leads institutional research trips in these dynamic markets. On these trips we meet with the insiders and heavy hitters that help shape a country’s power structure, stock market, and foreign policy. I’ve also developed friendships with a small circle of tycoons – sometimes referred to as “Taipans ” – a term which roughly translates to “big shots.” If you meet and spend any time with such tycoons, a light bulb could go off in your head. You’re better educated and have much better circumstances compared to most new tycoons. So what gives them their edge? Why do they see opportunities that elude the rest of us? The answer is, they think big and are very attentive to what’s happening on the ground in other countries and markets. They have great personal and professional networks that feed them valuable intelligence. Add a pinch of imagination, and a shot of courage, and you have a potential tycoon. If you wish to become a Taipan, I suggest you look beyond China and India in the coming year to a story that’s being completely missed by even the most sophisticated investors. Ten Southeast Asian nations will move ahead in 2016 as part of an ambitious, America-backed initiative to join their economies in a common market. The goal is to increase their common influence, form a counterweight to China, and boost prosperity for the region’s 622 million citizens. These countries share more than geography. They have a young tech-savvy population with a rising middle class and booming consumer markets. For example, Indonesian consumer spending has more than doubled in the last decade as it nears a $1 trillion economy. Singapore is already the world’s richest nation on a per capita basis. And Vietnam has the fastest-growing economy in the world and is projected to do even better this year. There are country ETFs for almost all of these countries, but for one-stop shopping, consider the Global X Southeast Asia ETF (NYSEARCA: ASEA ). This basket of 40 stocks was off 20% in 2015, giving you a nice value entry point. If Asia is too far and too exotic for your tastes, visit Latin America. The Brazilian market has suffered both major losses and a plummeting currency, so your U.S. dollar will go far whether you spend it or invest it in Brazil. I visited Panama last year and was astonished at the progress it’s made as a regional trade and financial center. Getting to see the project aimed at doubling the size of the Panama Canal made the trip worth-while. Other ideas? The energy-driven iShares MSCI Colombia Capped ETF (NYSEARCA: ICOL ) was down over 40% last year, while the iShares MSCI Mexico Capped ETF (NYSEARCA: EWW ) held up extremely well on a relative basis, even as Mexico becomes a favorite base for global manufacturing. Mexican wages are now actually below those in China. I encourage you to get going and see these opportunities for yourself. Then consider investing in a blend of these markets that are trading at bargain basement prices, and offer some of the best hedges on the U.S. dollar. This is your opportunity – now go out and seize it. Link to the original post on Wall Street Daily

Klingenstein Fields Publishes Introduction To Alternatives

Klingenstein Fields, a New York based wealth advisory firm, defines alternative investments simply as any investment product other than so-called “traditional” investments – i.e., stocks, bonds, and cash in an unleveraged portfolio. Due to alternatives’ low or even inverse correlation to these traditional investments, adding “alts” to a typical portfolio can result in diversification benefits and dampened volatility. In a September 2015 white paper titled “Are You Ready for an Alternative?” Klingenstein divides alternatives into two broad categories – hedge-fund strategies and private strategies – each with several sub-categories. Hedge Fund Strategies Klingenstein divides hedge-fund strategies into three principal categories: Opportunistic equity strategies, enhanced fixed-income strategies, and absolute-return strategies. Opportunistic equity strategies include: Long/short equity Global macro Short equity Long/short specialty Long/short international Enhanced fixed-income strategies include: Distressed securities Global/ emerging market debt Structured credit Long/short credit Leveraged loans Loan origination And finally, absolute-return strategies include: Equity market neutral Convertible arbitrage Fixed-income arbitrage Statistical arbitrage Event driven Managed futures Private Strategies Although hedge funds are technically “private” investments, they are generally more liquid and under a bit more regulatory scrutiny than other ” more private” investments, which Klingenstein divides into three groups, each with their own sub-categories: Real estate, private equity, and energy and natural resources. Private real-estate strategies and assets include: Long/short REIT Real estate partnerships Infrastructure Private equity categories include: Early-stage venture Late-state venture Growth capital PIPEs Buyouts Distressed Secondaries And finally, private energy and natural resource investments include: Long/short energy Exploration and production Midstream energy Services and technology Commodities The Role and Benefits of Alts Klingenstein’s broad definition and intricate, systematic categorization of alternative investments illustrates the space’s diversity. “Alternatives” should not be considered a single asset class or a monolithic strategy – different strategies can serve different roles and provide different portfolio benefits. Since alternatives are not stocks, bonds, or cash, they typically exhibit low correlation to these traditional asset classes. This low correlation can result in diversification benefits when adding alts to an existing stock-and-bond portfolio. The chart below details the historical correlations, which in most cases are low and in some cases are negative, of traditional assets and alternatives from December 2005 to December 2014: Adding alts to a traditional portfolio can also result in lowered portfolio volatility. As a result, “the careful addition of an allocation of alternatives to a typical portfolio of traditional investments may substantially improve overall outcomes,” according to the paper’s authors. “There are many different types of alternative investments, each of which can serve different roles in a thoughtful asset allocation strategy,” said Klingenstein Fields President James Fields, in a statement announcing the white paper’s publication. “A primary reason for including alternatives in a portfolio is to try and improve the risk/return profile. Other goals include enhancing overall returns or providing additional sources of income.” Risks and Challenges Alternatives, including hedge funds, are under far less regulatory scrutiny than traditional investments. The comparative dearth of required disclosures also inhibits investors’ ability to conduct thorough due diligence, and of course, many alternative strategies are benchmark-agnostic. Since hedge funds and private investments are generally only accessible by accredited investors – currently defined as individuals with more than $200,000 in annual income in each of the past two years and net-worth excluding primary residence of at least $1 million – and since hedge funds and private investments don’t trade on exchanges, they are obviously less liquid, too. All of these factors should be taken into account before allocating to alts. The Rise of Liquid Alts Fortunately, some of these issues have been addressed with the rise of liquid alternatives. Liquid alts are regulated by the same Investment Act of 1940 (“the ’40 Act”) that regulates all mutual funds. As such, they are prohibited from taking on the enhanced leverage of some hedge funds and private investments, and they’re required to make regular disclosures of their holdings. Liquid alts can be purchased by any investor, and they have the same liquidity as mutual funds, too, which has helped lead to their massive growth since 2007: In conclusion, the white paper’s authors write: “Liquid alts have helped address issues of transparency, oversight, cost, valuation, and liquidity that have historically prevented investors from moving beyond traditional investments.” For more information, download a pdf copy of the white paper . Jason Seagraves contributed to this article.