Tag Archives: management

Altria’s Perverse Regulation

Altria and investing in regulated industries. How tobacco regulation protects big tobacco. CrossFit vs. Washington DC. Rangeley Capital’s portfolio managers host a fifteen-minute podcast. If you missed the previous episode, then please check out A 105% Dividend? . We discussed Winthrop Realty (NYSE: FUR ). The end of Winthrop is near, but not before you could get a safe, quick return of your capital with a healthy return. We also talk about the article Sen. Bob Corker Profits on Quick Stock Trades . In this episode we talk about the challenges of investing in companies such as Altria (NYSE: MO ) that compete in highly regulated industries. We also discuss Anti-Licensing Movement Scores a Victory . Crossfit is joining Uber, Airbnb, and the other disruptive entrants that are fighting back against entrenched incumbents and their regulatory henchmen. The podcast is hosted by Andrew Walker and Chris DeMuth Jr, two Rangeley Capital portfolio managers. You can follow us on Twitter (NYSE: TWTR ) ( Andrew and Chris ). You can subscribe to the podcast on iTunes here or on Soundcloud here .

DHS: Strong Dividend, Intelligent Holdings, Solid Sector Allocations

Summary The dividend yield is a strong 3.41%. The holdings include several established dividend champions which gives the portfolio a more durable feel. The sector allocations look respectably defensive which is a positive when I would consider the market to still be moderately expensive. The Federal Reserve pushing short rates higher could help the financial sector generate more interest income. The WisdomTree Equity Income ETF (NYSEARCA: DHS ) hits very well on 3 of 4 categories. The only weakness in this fund is the expense ratio. The dividend yield, holdings, and sector allocations create a very compelling trio of factors in favor of the ETF. Expenses The expense ratio is a .38%, which is fairly standard for several of the WisdomTree (NASDAQ: WETF ) funds I’ve looked into. Dividend Yield The dividend yield is currently running 3.41%. This is simply excellent, no complaints there. Holdings I grabbed the following chart to demonstrate the weight of the top 18 holdings: (click to enlarge) General Electric (NYSE: GE ) has had a disappointing several years as their strong dividend has not been matched with solid share price growth. However the company has been very active in looking for solutions and even took measures as extreme as turning one of their departments into Synchrony Financial (NYSE: SYF ). To be fair, it is unclear to me why the finance division that turned into Synchrony Financial was supposed to fit with the rest of the company at GE. Exxon Mobil (NYSE: XOM ) and Chevron Corp (NYSE: CVX ) both get heavy allocations and have huge dividends. Oil is extremely “out of favor” right now, but I expect an eventual comeback. If it never comes, at least the oil for my truck will be fairly cheap. Two of the highest holdings go to the telecommunications sector with AT&T (NYSE: T ) and Verizon (NYSE: VZ ). I’ve found those allocations to be fairly risky given the aggressive competition in the telecommunications industry, but there are some positive aspects to doing a heavy allocation here as it aligns part of the risk with the investor’s expenses. If T and VZ are having a hard time covering their dividend, it would indicate that the profits within the telecommunications industry had dried up and would suggest that the investor is probably saving a chunk of money on their cell phone bill each month. McDonald’s (NYSE: MCD ) is another holding that I think should be represented in most dividend growth portfolios in one way or another. While their burgers have left a great deal to be desired over the last few years, they have still been able to remain relevant because they collected a large amount of high quality real estate. Over the last earnings report things began to look materially better for this real estate giant disguised as a seller of cheap burgers. Phillip Morris (NYSE: PM ), Altria Group (NYSE: MO ), and Coke (NYSE: KO ) all sell products that kill people, but they continue to deliver sales and earnings and the earnings are used to pay some fairly attractive dividends. I know some investors might think I’m crazy for tossing Coke in there with the tobacco companies, but high fructose corn syrup has quite a few very damaging health effects and heart failure is a major source of death in the United States. You won’t see me protesting the stable dividend though. Sectors Financials get a heavy weight which might be a good thing with the Federal Reserve working so hard to raise rates and justify paying interest on excess reserves when the rest of the world is shifting towards further rounds of quantitative easing or NIRP (negative interest rate policy). We have learned over the last few years that negative nominal returns and negative real returns are very possible because simply holding onto cash creates other problems. It turns out that protecting cash is not free and that banks can be pushed to accept negative interest rate policies. That’s interesting and it suggests there will be quite a few books on macroeconomics that need to have chapters replaced. The heavy allocations to consumer staples and energy look good in my opinion since I like the defensive nature of the consumer staples sector and appreciate the energy exposure as demonstrated in my comments on XOM and CVX. The three defensive sectors are consumer staples, utilities, and health care. Those three are all present in the top 6 allocations, so this looks like a respectably defensive fund. Since P/E ratios are fairly across most of the market, I prefer a defensive portfolio to an aggressive portfolio. Conclusion Great dividend, mediocre expense ratio, great holdings, and great sector weightings make a fairly attractive portfolio. If the expense ratio were lower it would get some very serious consideration from me. This fund simply performs great on several metrics.

Invest In The Philippines – Buy The IShares MSCI Philippines ETF

Summary High growth English speaking economy entering the demographic window and with great jobs growth. Very low household debt at 6% of GDP and a strong property market. The PSEi has moved sideways in 2015 providing a nice entry point now. The Philippines has been undergoing rapid change in the past decade and is set to continue as they enter the “demographic window.” It is one of very few countries in the world that speaks perfect English and still has cheap labor. But first some key reasons to invest in the Philippines stock market; GDP growth at 5.6% pa – the third fastest in Asia. Strong domestic driven economy not very affected by the China slowdown, with resilient overseas remittances. Rising middle class, and very strong demographics. The stock market has recently retreated and valuations are now better or fair. The Philippines GDP growth target set by the Government is for 7-8%pa growth. Other countries once they have entered the demographic window have posted an average growth of 7.3% during the first 10 years. According to the IMF the Philippines is currently growing at 6.0% in 2015, and forecast for 6.3% in 2016. The two main drivers of the Philippines economy are Overseas Foreign Workers (OFWs) remittances, and Business Process Outsourcing (BPO), which mostly covers call and data/back office processing centers. OFW remittances are growing around 6%pa , contributing $25b in 2014. The BPO sector is growing rapidly around 15%pa, contributing $18.9b in 2014, and employing over 1m people. It is expected that BPO revenues will overtake OFW remittances by around 2017 . Add to this a growing tourism and manufacturing sector (mostly electronics) and some agricultural exports and the economy is very resilient. With strong money inflows into the Philippines and rising jobs the property sector is also booming. There is a massive pent up demand for housing, and household debt is extremely low at a mere 6% to GDP. As a result the property developers (Ayala ( OTC:AYAAY ), Robinsons, SM) and the major banks (BPI, BDO, and Metrobank) are also booming. The banks are making good net interest margins around 3.02% , and growing their loan books 20% pa, with non-performing loans at a very low 1.8% and double digit profits. Total Philippines debt is relatively good. According to McKinsey research : The Philippines is one of the few countries in the world that has seen deleveraging. The ratio of total debt-to-GDP has been flat since 2008. In fact, it has declined if we look as far back as 2000. Corporates have the highest share of debt as a percentage of the economy at 71%, followed by the government at 40% and households at 6%. The current Government seems to have reduced corruption, and has brought the Government debt down and increased infrastructure spending. Source The Demographic Window In 2015, the median age in the Philippines is only 23.4 yo. The “demographic window”, is loosely defined as a period when a great majority of the population are of working age. The Philippines working-age population (between 15 and 64 years old) this year (2015) accounts for 66.6 percent of the total population of 101.6 million. By 2020 this will have reached 68% and by 2030 70.6%. Source Living here in metro Manila, I can certainly testify that the growth is real. Everyday I see Filipinos rising into new employment (maybe a call centre, or property agent), buying a smartphone, and buying condos. Jobs ads are often for 500 workers at a time. Manila skyline is changing rapidly under a construction boom. New cities within Manila have been growing and continue to be planned such as the Mall of Asia Entertainment (Casino) City , the Las Vegas of Philippines. Currently being built it will provide 4 new casinos, 6,000 hotel rooms, and 1.8m new jobs for the whole of Entertainment City. Global City (within Manila) is a whole new international business district that has grown from nothing in a mere decade. Global City Skyline Source The Philippines Stock Exchange (PSE) Index (PSEi) The best way, in my opinion, to invest in the Philippines stock market is to buy the index. The PSEi is currently at 6,932 down 2.93% for the past year, and the index has a year low of 6,603 and a high of 8,136 (see graph below). (click to enlarge) Source The PSEi trades on a current PE of 19.88. iShares MSCI Philippines My recommendation for Americans and most international investors would be to simply buy the index using the iShares MSCI Philippines ETF (NYSEARCA: EPHE ). The index is well diversified with the largest sectors being property developers and banks. The top 5 holdings are Ayala Land, Philippines Long Distance Telecommunications (NYSE: PHI ), Universal Robina Corp. ( OTCPK:UVRBY ), JG Summit ( OTCPK:JGSMY ), and SM Prime ( OTC:SPHXY ). If you want exposure to one of the fastest growing economies in Asia and the World, with brilliant demographics and a rising middle class, with strong jobs growth, at a reasonable valuation then EPHE is a great long term investment. Risks The usual risks apply to emerging markets. Currency risk would be the main one to consider. Also there will be an election in 2016 and a new Government. Geo-political risk is another with recent South China Sea issues with China.