This page last revised: March 11, 2005
In our last Straight Talk, the outlook for 2002 from Stock Market pundits was that volatility will continue and a well diversified portfolio is once again en-vogue.
I recently attended a presentation by Joel Raby, Head of AGF’s private investment management offering. He sited two portfolio examples, one of a Turbo Charge Portfolio, designed to yield high results (25% - 40%) average annual return, versus a steady-as-she-goes 8% - 10%. At the end of a ten-year period, Steady won the race. The Turbo Charge suffered from major market ups and downs and wait periods, where funds were out of the market completely, wanting to “get back in the game”. Steady stayed the course in spite of a difficult market and negative performance. Year 2001 was by far, one of the most difficult stock market periods in close to twenty-five years. Markets around the world in 2001, on average, yielded a negative 20% return. The worst performer: Luxembourg with -46.04%. The best performer: New Zealand with + 5.63%. Canada was at -21.41%, UK at -16.07% and US at -13.23%.
The market recovery thus far this year, has been slow but positive especially for the well-diversified portfolio. If anything, the recent Enron fiasco has reminded investors everywhere of the importance of diversification and how quickly market opinions can change about who’s on top and who’s not.
As you may have heard, Charles Brandes who manages the AGF International Value, has decided to move on, within the coming year. The ten billion dollar fund is certainly attracting other renowned world class talent. I’ll keep you posted!
From the fall of 2001 to present, I have had the opportunity to meet with several CEOs of Canada’s leading companies to gain some insight into the year ahead and their company’s future prospects. Meetings were held with Charlie Baillie - Chairman & CEO of TD Bank, John Rogers-CEO of MDS Labs, John Lederer - President of Loblaws, Patrick Tierney-CEO Thomson Financial, David Colcleugh-Chairman & CEO of Dupont, Michel Lord-V.P of Investor Relations with Bombardier and to put some fun into the equation, Jay Switzer-head of CHUM.
Naturally, they are all optimistic about their company’s prospects for long-term growth. However, my observations were that the management of these companies are dynamic and each followed a discipline that keenly executed their business plan. The biggest insight was just how global the companies are; even CHUM has a TV packaging formula for certain shows that are now being produced in countries around the world. These are no longer just Canadian companies; they are TSE listed companies that are world class. To conclude the name dropping; an evening with Jack Welsh, former Chairman of G.E., like many of the other industry leaders, seemed less moved by daily market fluctuations and the direction of interest rates. The importance of having a solid plan and the right people to help you execute the plan was highly emphasized.
For outlook 2002, Stock-market pundits continue to study historical trends for their supposed predictive powers. And Wall Street’s reigning seers repeatedly note that markets almost never fall three years in a row. Then again, before the 1990s, the US Stock market never produced double-digit returns for five years in a row. This only proves that every rule has an exception, and that 2002 will be no exception to having a diversified portfolio.
I’ve been glued to CNN, the internet, conference calls, emails and other reporting mediums which I can tap into, to provide you with some insight in terms of what this current state of uncertainty can mean in financial terms. Remember, stock markets in general will reflect the anticipated future conditions or an extrapolation of the present state of affairs, to indicate the future. Therefore, I keep looking for the indicators to lead the way six months from today.
Our world may be different today, however, the economic progress marches forward. The financial stimulus of the continued reduction of interest rates and promises of tax reductions will help to keep markets afloat.
In the past weeks, I have had exchanges with a least ten portfolio managers on your behalf. While each manager sees the market with a different discipline, ALL agreed, there are some good buying opportunities now. However, they exercise the caution of not building an overexposure to any one specific area of the market.
On our successful October 16th event with Victor Therrien of Brandes Partners, Managers of AGF International Value, Victor reinstated that globally, there remains good quality companies and investment opportunities for your portfolios, to own.
Next week, I will be on a three-day due diligence trip, alongside several of Canada’s top portfolio managers, “kicking the tires” of some of the individual companies invested in your portfolio. The finale will be an evening with Mr. Jack Welsh, retired chairman of GE. He is certainly one who has been through ups-and-downs and survived a few recessions. I look forward to sharing my notes from this insightful trip with you.
As news of Canadian and US stock markets continued to be in our headlines, I took the opportunity to have lunch with John Arnold, AGF’s Head of European Investments on his recent visit to Toronto. His view on European investing is very positive, as investors shift into a spending phase and companies continue to re-structure operations to drive profits to shareholders. Technology is not a core growth element at the moment. The view is that there is better stock selection in consumer goods and retail. As for the Euro currency, it is expected to become at par with the US dollar. The expectation is that the US dollar will begin to fall against the EURO by February of 2002. At present, old European currencies used prior to the EURO, are being exchanged on the street for US dollars. By February 2002, the law will only permit old European currency exchange at the Central banks, hence at present there is run-up of US dollars buying as Europeans get rid of old currencies. As a core holding, European stocks have been and continue to be an important component of any global portfolio I recommend.
We live in interesting investment times, indeed. This last quarter I had the pleasure of meeting with two leading Investment Managers, Bill Sterling from CI Global Managers, and Dave Picton from The Synergy Management Team, as well as the internationally renowned financial author Nick Murray, a.k.a. “the philosopher” of investing.
Given the recent volatile nature of the markets, managers are focused on managing portfolio volatility. Bill Sterling’s strategy is to diversify by having securities in many sectors and countries. He would typically hold up to 150 stocks in his portfolios. However, his most important message was the history lesson on Market Recovery. From 1946 to the year 2000, an exponential “Bull Increase” followed every single major market “Bear Decline”. For example: In January 1973 markets declined 48% and recovered over the next 21 months, by 226%. In July 1990, markets declined by 20%, and proceeded to recover over the next 3 months by 527%. From 1946 to the year 2000, the average decline was 30% and the average recovery was 179%, over a 15 month period. His point: “Don’t miss the recovery”. Dave Picton’s method of managing volatility is by managing portfolios using varied investment styles. He employs Growth, Value and Momentum to reduce volatility and garner growth. Since no one can predict one winning “style”, his view is ‘a blend of all styles’ is needed.
So what does “investment philosopher” Nick Murray have to say about the nature of markets? (I paraphrase),“ We cannot control the markets; what we can control is our behaviour towards investing”. His view is that everyone must have an all stocks portfolio for long-term wealth accumulation. Stock investing remains the only asset that will provide the growth investors will need to have a secure financial future. Nick Murray’s famous line about Investment Asset Allocation is: “how much equity (stock) can’t you handle”.
Yes, we live in interesting investment times indeed.
After much ado about Technology and Dot.Com, I thought a change would be refreshing. So we’re off to the Far East for a visit with KC-Lee of Fidelity Far East operations. Actually, KC made a stopover in Toronto recently to provide us with his insights.
While most South East Asian countries reported higher-than expected real GDP growth in the first quarter of this year, growth continued to be driven by exports. Private consumption has started to contribute to economic growth, which reflects a strengthening of domestic economies.
With all the good news in Asia comes increased speculation. Much like North Americans, our Asian counterparts are also keen on the ever-popular TMT theme (telecom, media and technology). The reality is that Asian markets, like North American markets, will continue to be volatile. The Asian markets have had a high and increasing correlation with the US stock markets.
However, there is a significant difference. According to KC-Lee, the macro and micro picture for Asian markets remains very encouraging. On the macro front we have economies recovering fast and interest rates staying at very low levels. At the micro front we have strong earnings recovery, and Asian Markets are still cheap compared with the U.S. and European markets.
So, should we stay out of South East Asia because it will be volatile? Not likely. Top global investors, such as Charles Brandes (AGF International Value), continue to include these markets in the portfolios.
Our next “Straight Talk” will have quite
a line-up from my trip to Boston in September.
I will be spending time with some of the
top minds of the investment industry from
around the world. First, at the International
Financial Planning Conference, then with
the Top Managers at AGF and finally with
some of the Top Analysts at Fidelity’s Investment
Research Facility in Boston. It will be an
investment-festival to rival a Stratford
and Shaw experience! I look forward to sharing
insights and findings from these conferences
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