Tag Archives: management

The Trans-Pacific Partnership – Biggest Winners

By Carl Delfeld On Friday, I gave an overview of the Trans-Pacific Partnership (TPP) deals and how the proposed changes will affect the United States. I also revealed one American company poised to benefit from those changes: Hormel (NYSE: HRL ). Today, I’m back to finish this thread by identifying two Pacific Rim countries that are poised to be the biggest winners. In trade pacts, it’s not difficult to figure out who the big winners will be. They’re usually the least-developed countries in the grouping because they have less to lose and the most to gain. For certain sectors, however, more-developed countries can hold a winning hand. Ahead of the Pack New Zealand, for example, is poised to come out ahead. New Zealand represents 35% of world dairy exports, so it’s basically the “Saudi Arabia of dairy.” Fully 37% of its land mass is devoted to agriculture with 48% contributing to total exports. Ninety percent of farm production is exported. Clearly, I’m not the only one who thinks New Zealand is an exceptional place from a risk-reward perspective. Many of the wealthiest people in the world, who have the resources to go anywhere and buy anything, have been quietly establishing escape hatches there. Two of the TPPs others winners hail from Southeast Asia – Malaysia and Vietnam, which still lack bilateral trade agreements with four countries in the pact, including the United States. Both count on TPP members for roughly one-third of their trade, and Bank of America Merrill Lynch estimates that the TPP would push Malaysia’s exports up roughly 10% and Vietnam’s up 30%. And the Winner Is… While Japan and America will get a modest boost of economic growth as this agreement takes effect, the big winner will be Vietnam. According to UBS report, the TPP could potentially boost Vietnam’s economy by 14% over the next five years. This country of 93 million is bursting with youthful energy, with 50% of its tech-savvy citizens under the age of 30. Its manufacturing wages are 60% of China’s, which is why Samsung ( OTC:SSNLF ) makes half of its cell phones here. About 20% of Vietnam’s GDP is attributed to foreign investment, and that will likely surge even higher. So far in 2015, foreign direct investment is up a stunning 53%; most of it headed to the manufacturing sector. A consumer boom is already underway. To put the potential in perspective, right now only 1.7% of Vietnamese own a car; in Thailand, that figure is 40%. Vietnam also has the lowest GDP per capita among TPP member states: $1,900. Peru is the next lowest at $6,800. Vietnam will become a manufacturing destination for industries that require low-wage labor to remain competitive. Sectors that need cheap wages, such as apparel, footwear, and textiles, should greatly benefit. Eurasia Group estimates that footwear and apparel exports will see a 50% boost over the next 10 years due to the trade pact. “Vietnam has already made huge gains in garment and footwear production, and these deals will help boost its comparative advantage as factories look to relocate from China, promoting more job creation and technology transfer,” said Johanna Chua, an economist at Citigroup. This explains why Vietnam’s exports have tripled in U.S. dollar terms since 2007 and its exports to North American markets are up an amazing 30-fold since 2000. The TPP should lessen the country’s reliance on the Chinese market and widen its appeal to markets such as Canada and Mexico. Meanwhile, the country’s macro situation has markedly improved. A few years ago, inflation was running at 20%, but it’s now down to 2%. Interest rates have fallen from 15% to 6%, property markets have stabilized, and credit growth is up. Despite this progress, Vietnam’s stock market is still well off its high and trading at just eight times earnings. In addition, the current market value of all publicly traded companies in Vietnam is 30% of its GDP, while Thailand and the Philippines are trading at 95% and 115%, respectively. These gaps won’t last forever, so I encourage you to take action by blending the Market Vectors Vietnam ETF (NYSEARCA: VNM ) into your global portfolio. The ETF is a bit top heavy with its top 10 holdings representing 60% of total holdings. Don’t wait too long. This ETF has surged in the wake of the TPP negotiations, but has plenty of room to grow. Original Post

In Search Of The Rate-Proof Portfolio

After October’s better-than-expected employment report , a December Federal Reserve (Fed) liftoff is looking more likely than it was earlier this fall. In response, U.S. interest rates have been on the rise in recent weeks, with Treasury yields reaching their highest levels since July earlier this month, according to Bloomberg data as of November 13. Remember that bond prices fall as yields rise. While the long-term rise in rates is likely to be contained due to numerous factors, I expect rates will continue drifting higher even if the Fed doesn’t hike its fed funds rate next month. The central bank has made it clear that its first rate hiking cycle in nearly a decade is coming sometime soon , whether that’s December or next year. So, it may be a good idea to start preparing your portfolio for the upcoming rate regime change , one where rates are expected to moderately increase and remain below historical averages. While there’s no such thing as a fully rate-proof portfolio, there are some simple moves you can make now to help better insulate your investments from rising rates. Here are a few ideas to consider: Focus on U.S. stock market sectors that appear well-positioned for a rising rate cycle. Two sectors worth considering: U.S. technology and U.S. financials (excluding rate-sensitive REITs). First, they’re cyclical sectors which tend to outperform when the economy is strong, as is typical in a rising rate environment. In addition, technology companies may be poised to outperform other sectors amid higher rates, in large part due to their large cash reserves and strong balance sheets. With limited debt financing, they may be less vulnerable than debt-laden firms due to the higher borrowing costs that result when rates rise. As such, this sector has the potential for sustainable growth and continued shareholder friendly policies even as rates increase. Meanwhile, for some financial institutions, such as banks, higher rates could mean higher profits. In a rising rate environment, banks can potentially improve their net interest margins, as the difference between what they make from lending (their revenue) and what they pay for deposits (their costs) may increase. It’s no surprise, then, that according to Bloomberg data as of November 13, the performance of U.S. bank stocks has closely tracked the two-year U.S. Treasury yield, a proxy for investors’ expectations of short-term interest rates. Currently, as the data show, both measures are trending higher. You can read more about the case for these two sectors in my recent post, ” 2 Sectors to Exposure When Rates Rise .” Consider new sources of income . One such income source to consider: exposure to companies that have the potential to sustainably grow and increase dividends over time. So-called “dividend growers 1 look more reasonably priced than their high-dividend paying counterparts , according to Bloomberg data, and thus, could potentially outperform high dividend stocks in a rising-rate environment. A dividend growth strategy may also offer more exposure to cyclical sectors that have the potential to grow alongside the economy. Seek a better balance of risk and return . In other words, when it comes to preparing your bond portfolio for rising rates, consider reducing interest rate exposure while focusing on credit exposure. Shortening the duration of your bond portfolio can potentially help manage losses due to rising interest rates; low duration can potentially mean less volatility or price risk. At the same time, corporate bonds typically provide the potential for additional yield over Treasuries, so exposure to this asset class can be a way to generate income to help offset some of the impact of rising Treasury yields. For more on these two fixed income strategies, check out my recent post on ” Ideas for Your Bond Portfolio When Rates Rise .” I can’t guarantee that the above investing ideas will make your portfolio rate-proof ; however, these strategies can potentially help you reduce the negative impact of rising rates as well as help capture the opportunities presented by the new rate regime. Learn more about these strategies for rising rates, and the exchange-traded funds (ETFs) that can help you put them into action, at iShares.com. Funds that can provide access to these strategies include the iShares U.S. Technology ETF (NYSEARCA: IYW ) and the iShares U.S. Financial Services ETF (NYSEARCA: IYG ), which can provide exposure to the U.S. Tech and U.S. Financials ex-REITs sectors, respectively. Meanwhile, the iShares Core Dividend Growth ETF (NYSEARCA: DGRO ) is one way to access dividend growers, and ETFs, such as the iShares Floating Rate Bond ETF (NYSEARCA: FLOT ) and the iShares Ultrashort Duration Bond ETF (BATS: NEAR ), can help you shorten your duration, while the iShares 1-3 Year Credit Bond ETF (NYSEARCA: CSJ ) is among the funds that can aid you in gaining credit exposure. [1] a subset of dividend-paying stocks with the S&P 500 Index that increased their dividends anytime in the last 12 months. This post originally appeared on the BlackRock Blog.

The V20 Portfolio Week #8: Relative Calm

Summary The V20 Portfolio declined by 0.51%, less than S&P 500’s gain of 0.04%. The share repurchase program will continue to support Conn’s. I wouldn’t worry too much about MagicJack. Despite lower activation, the company continued to produce good cash flow. The V20 portfolio is an actively managed portfolio that seeks to achieve annualized return of 20% over the long term. If you are a long-term investor, then this portfolio may be for you. You can read more about how the portfolio works and the associated risks here . Always do your own research before making an investment. Read last week’s update here ! The S&P 500 was essentially flat this week, rising only 0.04%, beating the V20 Portfolio’s performance of -0.51%. While the V20 Portfolio didn’t beat the index, considering its historical volatility, the “decline” was inconsequential. Portfolio Update Our biggest position, Conn’s (NASDAQ: CONN ), continued to rally, rising 5% from $25.72 to $27.02. This echoes my sentiment in my previous update, that the company’s share repurchasing activity will continue to buoy the share price. As the company inches closer to its Q3 earnings in December, it would appear that investors are quite optimistic (or at least more optimistic than before). Month to date, shares have risen by 42% from its low in October. Last week I also mentioned that we should pay attention to the consumer sentiment index, which could impact investor expectations, especially for the retail sector. Recently we’ve seen several retail stocks fall (e.g. Walmart, Best Buy). The final consumer sentiment index for November was 91.3, which was higher than October’s reading of 90.0. This hasn’t stopped investors from dumping retail stocks however. Fortunately for us, Conn’s buyback program will offset this near-term downward pressure. MagicJack (NASDAQ: CALL ), previously our largest position, continues to account for a substantial portion of the entire portfolio (~20%). It was quite surprising when I heard of news of a short attack on the stock. MagicJack can possibly take the title for the worst short candidate in the world with its high cash balance and high cash flow generation. These are the reasons why I still want the V20 Portfolio to get some exposure to the stock in the first place. I haven’t bothered to write a piece rebuking the short pitch, since it doesn’t reveal anything that we don’t all know already. The facts are right, but everyone is entitled to their own interpretation. Ever since day one, I believed that MagicJack’s value is derived from a core group of customers that will renew year after year. Now that shares have appreciated from a few months ago, more value has to come from growth. But this doesn’t change the fact that the company still has a good business (albeit declining) that is generating cash flow year after year. Furthermore, growth opportunities come at almost no cost to MagicJack. There aren’t expensive projects that would require a truckload of cash or any upfront commitments that would put a drag on the company’s current operation if things don’t go their way. In other words, the company can’t really lose with these expansions Looking Ahead Conn’s will report Q3 earnings next month. From a sales perspective, we know that Q3 numbers will experience a boost from new stores. The company releases monthly sales data, so the revenue increase should be expected. The determining factor will be the company’s bad debt expense, which forecasts future delinquency rates. The company has made significant improvements in its credit policy, so I believe that the number could improve. After all, the company is now lending to more credit-worthy customers. Dex Media (NASDAQ: DXM ) is still undergoing restructuring negotiations. The forbearance period was supposed to expire on Monday, but it was extended since the negotiation is still ongoing. It would seem that the forbearance period is really just a legal nuisance, and could be dragged on while negotiations take place. Nevertheless, I do believe that Dex Media is very close to its end-game, and shareholders will soon know the results of the restructuring. The amended forbearance period expires on December 14th, so keep your eyes peeled for any new developments. Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.