OUR JUNE RESULTS

Our weighted average return in June was +4.54%. Since 2015, we have generated a net return of +33.44%.

In terms of investment strategy performance, our weighted average net returns for June were (a) +1.88% for conservative strategies, (b) +4.76% for balanced strategies, and (c) +5.59% for aggressive strategies.

Stocks rallied in June following the false tariff escalation with Mexico at the end of May, and the S&P 500 ended the quarter near all-time highs. Hopes for reduced trade tensions between the U.S. and China following the Tokyo G-20 Summit ‘truce’ helped drive the rally, but it is hard to perceive any real progress. Although both sides agreed that they would not increase tariffs and China committed to purchase more U.S. goods, this is very similar to the ‘truce’ reached seven months ago at the previous G-20 summit. This protracted dispute has pushed down trade and business confidence worldwide, with the manufacturing sector in most Asian countries declining and expectations of an economic recession in Germany seen as inevitable (Germany’s high dependence on exports and the Chinese market means ever greater uncertainty until the customs dispute is resolved). Without actual trade deals that provide certainty to businesses, global growth will not be picking up.

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Pirkt un turēt – vienkārši, ne viegli

Ja tev būtu jāizvēlas starp ieguldījumiem divos uzņēmumos, tikai skatoties uz akcijas cenas grafikiem, kurā tu būtu vairāk gribējis ieguldīt 2000.g. sākumā?

1.

2.

Esmu pārliecināts, ka lielākā daļa no jums izvēlētos pirmo variantu. Apsveicu! Šis grafiks ir Amazon, pasaules 2. vērtīgākais uzņēmums. Ja būtu nopircis šo akciju 2000.g. janvārī, un turējis to līdz šodienai, tavs ieguldījums būtu pieaudzis par 2 157%!

Ja Amazon grafiks likās pievilcīgāks redzamās straujās izaugsmes dēļ, šeit ir daži pārsteidzoši fakti. Ja būtu pircis Amazon 2000.g. janvārī, 2001.g. oktobrī tu būtu zaudējis 93% no savas ieguldītās naudas. Paietu vēl 6 gadi, pirms tu būtu atguvis savu pamatkapitālu 2007.g. septembrī. 20 gadu griezumā bilde ir smuka, bet diez vai tu šajos pirmos gados baigi lepotos par savu izvēli.

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Jo ilgāk, jo labāk

Ieslīgšana akciju tirgus ikdienas, nedēļas un pat mēneša apritē var būt nogurdinoša pieredze. Jautājumi par tirgu labklājību tiek apspriesti katru dienu finanšu medijos, ar neskaitāmu daudzumu ekspertu viedokļu, statistiku, ekonomisko rādītāju utt. Ir iespējams atrast visvisādus iemeslus, kāpēc tirgi ir kāpušies vai kritušies, kā arī prognozes (robežās no ārkārtīgi pozitīvām līdz apokaliptiskām) par nākotni.

Īstermiņa tirgus kustības arī var radīt stresu. Sekot līdzi ASV tirgum (S&P 500) šo pēdējo gadu ir bijis kā braukt pa amerikāņu kalniņu. No 2018.g. jūnija beigām līdz 20. septembrim, tirgus vērtība izauga aptuveni 8%, sasniedzot savu vēsturiski augstāko līmeni, bet tad līdz Ziemassvētkiem nokritās gandrīz 20%. Nākamos četros mēnešos notika strauja izaugsme un 30. aprīlī tirgus atkal sasniedza savu vēsturiski augstāko līmeni. Maijā tirgus atkal piedzīvoja kritienu un zaudēja gandrīz 7%. Šonedēļ atkal tika sasniegti vēsturiski augstākie līmeņi. Un kas tad kopumā ir noticis pēdējo 12 mēnešu laikā? S&P 500 ir izaudzis aptuveni 10%.   

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OUR MAY RESULTS

Our weighted average return in May was -5.69%. Since 2015, we have generated a net return of +27.73%.

In terms of investment strategy performance, our weighted average net returns for May were (a) -0.33% for conservative strategies, (b) -5.51% for balanced strategies, and (c) -8.21% for aggressive strategies.

May was a difficult month. At the start of the month, US President Donald Trump announced that contrary to all hopes and expectations, the US would in fact be going ahead with their tariffs on Chinese imports. All risk assets sold off on this news. Trump’s decision to go after Chinese technology company Huawei led to a particularly sharp selloff in the technology components and semiconductor space. Then, on the very last day of the month, Trump also threatened Mexican imports with tariffs. Thankfully, these tariffs were cancelled a couple of weeks later and risk assets have been recovering in June. In May, the S&P 500 lost -6.58%, the Dow fell -6.69%, the NASDAQ shed -7.93% and the Russell 2000 closed down -7.90%. International equities also took a hit. Japan was off -4.87% while German markets lost -6.53% and Chinese large caps fell -9.26%.

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Par atšķirībām

Es nesen gāju pirkt jaunu televizoru un nevarēju saprast, kuru izvēlēties. LED vai OLED, Full HD vai UHD, 4K, 5K vai 8K… kāda atšķirība?

Ja kādreiz televizors bija liels pirkums, kas tev kalpotu ilgus gadus, tad mūsdienās cilvēki tos maina tikpat bieži, cik viedtālruņus. Tas, kas kādreiz bija ieguldījums, arvien vairāk sāk līdzināties parastai patēriņa precei. 

Bet, ja par televizoru var teikt “kāda atšķirība?”, tad par finanšu ieguldījumiem tā noteikti nevar. Šeit ir dažas svarīgas lietas, kas ir jāņem vērā, runājot un domājot par investīcijām.

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OUR APRIL RESULTS

Our weighted average return in April was -1.59%. Since 2015, we have generated a net return of +35.44%.

In terms of investment strategy performance, our weighted average net returns for April were (a) +0.56% for conservative strategies, (b) +0.13% for balanced strategies, and (c) -4.09% for aggressive strategies.

In April, many of the themes that had been troubling markets over the past several months were provided some temporary reprieve thanks to positive news flow. After a very turbulent end to 2019, analysts had cut their earnings targets for US companies. However, Q1 earnings have delivered positive earnings surprises, which helped restore investor confidence. As such, US stocks performed well, but the gains were mainly attributable to multiple expansions rather than impressive earnings growth.

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OUR MARCH RESULTS

Our weighted average return in March was +0.10 %. Since 2015, we have generated a net return of +37.64%.

In terms of investment strategy performance, our weighted average net returns for February were (a) +1.01% for conservative strategies, (b) +0.30% for balanced strategies, and (c) -0.46% for aggressive strategies.

March was another positive month for financial markets. In December, markets sold off strongly on fears that the US Fed would continue to raise rates. The Fed buckled and now markets are pricing in the likelihood of a rate cut rather than a rate hike. Both bonds and stocks continued to gain strength on the back of this sentiment. Last month, the S&P 500 (SPY US) rose +1.81%, the MSCI Emerging Market index (EEM US) gained +1.13%, High Yield US corporate bonds (HYG US) rose +1.29%, Emerging Market bonds (EMB US) gained +1.51% and US investment grade bonds (BND US) returned +1.94%.

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OUR FEBRUARY RESULTS

Our weighted average return in February was -0.47%. Since 2015, we have generated a net return of +37.50%.

In terms of investment strategy performance, our weighted average net returns for February were (a) +0.79% for conservative strategies, (b) -0.88% for balanced strategies, and (c) -0.53% for aggressive strategies.

Financial markets continued their positive trend in February, fueled by more encouraging US-China trade talks and heightened confidence that the Fed would not be raising rates in the near future. “Lower rates for longer” translated into higher prices for high yield debt across all markets and equities continued their positive trend. In February, the S&P 500 (SPY US) rose +3.24%, High Yield US corporate bonds (HYG US) rose +1.21%, Emerging Market bonds (EMB US) gained +0.40% and US investment grade bonds (BND US) returned -0.09%.

I am at a loss to report anything of note that actually happened in financial markets or world politics in February. Brexit discussions dragged on. Tariff implementation was extended and trade deal discussions continued without any actual agreements. Softer Chinese economic data was interpreted to mean greater Chinese stimulus going forward, but Chinese industry seems to be more concerned about tariffs. European growth continued to be anemic. European industry is also worried about tariffs. Data revealed that German economic growth was flat in the last quarter of last year.

Only the US showed that, despite the impact of the government shutdown, everything seemed to be going fairly well. Data showed that US GDP grew +2.6% in the fourth quarter. This was slower than the previous 3.4% quarter on quarter annualized growth rate in Q3, but showed that the US economy continues to be on a strong footing.

Looking at our investment performance, we were pleased at the returns for our conservative strategies, but our security selection let us down in our balanced and aggressive mandates. Long-term outperformance can only be achieved by high conviction stock picking, and some of our conviction holdings had a sub-par February. In terms of investment strategy, we continue to look for interesting companies that have not participated in the recent rally, but stand to benefit from continued lower interest rates and moderate economic growth.

On behalf of our Client Portfolio Management team, I thank you for your continued trust and support!
Pauls
FULL DISCLOSURE: Please note that the opinions expressed in this blog should in no way be considered as investment advice or a solicitation to buy or sell securities.

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“Markets in Turmoil”

2 months ago we saw a tweet from Charlie Bilello. It was 27th December. The tweet stated that CNBC will be airing “Markets in Turmoil” episode that night. Episodes of this particular show are aired when markets have been falling hard and everyone is scared.

The tweet also included a look back at past occasions when the show was aired and the performance of the S&P 500 index following the episodes.

We’ve updated the table to include the most recent data:

Markets in Turmoil S&P 500 close 1-week 1-month 3-month 6-month 9-month 12-month Up to 2/25/2019
2/5/2018 2649 0.30% 3.70% 2.40% 8.90% 4.30% 5.41% 7.85%
2/8/2018 2581 5.90% 7.40% 6.30% 10.40% 10.60% 7.04% 10.66%
10/11/2018 2728 1.50% 0.10% -4.35% 3.29%
10/24/2018 2656 2.10% 0.90% 0% 6.06%
12/27/2018 2489 -1.59% 7.21% 12.74%

Going back to 2010 the airing of Markets in Turmoil basically has worked as a buy signal. Every single time after the show was aired 6 months later markets were higher, the same can be said regarding periods of 9 months and 12 months.

1-week after the airing of Markets in Turmoil more than 70% of time markets are higher, more than 60% of time markets are higher 1 month later and more than 90% of time markets are higher 3 months later. Since the last episode aired on December 27th S&P 500 Index returned 12.74%.

Any individual episode of Markets in Turmoil shouldn’t be taken as a buy or signal. Next time the episode could air when the markets are just starting to fall or vice versa starting to go up. Using the data and table above, we want to point out that history shows patience pays off. The longer your investment time horizon the less sense it makes to try and time every single market move. read more

The History (and Future) of the Stock Market’s Biggest Sectors

Today, half of the top 10 ranking companies by market capitalization are technology and communications companies. While these companies like Apple, Microsoft, Amazon, Alphabet (Google) and Facebook may receive the lion’s share of attention, technology and communication companies as a whole have surged to become the dominant sector in financial markets over the past few decades. And despite the stronger fundamentals of these companies relative to the dot-com boom 20 years ago, there are still questions about the sustainability of the dominance of this sector going forward. So what does the history of the U.S. stock market tell us about sector dominance?

The combined information technology and communications sectors today represent slightly more than 20% of the U.S. stock market, and this sector has largely dominated the market over the last 40 years, excluding the rise of finance and real estate over the years leading into the Great Recession and a short resurgence of energy and materials during the early 1990s. But this dominance hasn’t lasted as long or had as large a share of the market as other sectors in the past.

In the earliest days of the market, the financial sector made up almost 100% of the U.S. stock market. Unlike most banks of the time, U.S. banks were corporations that raised capital through issuing securities, made attractive by the development of active trading markets in the 1790s. Thanks to this, the organization of financial institutions that developed was astounding – the number of state-chartered banks increasing from three in 1790 with total capital of $3.1m dollars to 584 in 1835 with total capital of $308.4m and the U.S. experienced the most rapid spread of banking institutions seen in any country over these decades. These were the growth stocks of their time and enabled the development of the economy as a whole, no different from the dominance of the financial sector in many of the emerging markets of today. These stocks were also increasingly bought by overseas investors enticed by the huge potential gains from investing in the emerging market of the time, and this flow foreign capital would reach huge proportions in the first half of the 19th century and in the railroad age that followed.

Within 50 years, the financial sector’s share fell by more than half as transportation stocks began to boom. And while the exploding railroad system in the U.S. certainly made railroad investments seem like the future of the stock market, its greater value came from the astronomical benefits to the wider economy that would ultimately shrink the relative market share of the transportation sector. These rail networks unlocked the vast wealth the U.S. interior and enabled the velocity of commerce to increase dramatically.

Aside from immediate increase in business for the steel and lumber industries that the developing railroad system created, the movement of goods and people allowed entrepreneurship to flourish further now that companies could scale and distribute goods to a wider market. In addition, the railroad infrastructure spanning across the country enabled the quicker and easier deployment of telegraph infrastructure, which would revolutionize communication. The railroad also facilitated the large-scale transport of coal and oil that would power the growing country.

Despite its importance to the industrialization of the U.S. and its role as the transportation backbone of the economy, by the First World War transportation was no longer the leading sector in the economy and by 1925 had shrunk to less than 10% of the total stock market. There was physically no more room to expand the infrastructure and the sector’s relative importance shrank as a result as capital sought out higher rates of return in emerging sectors. Energy and materials would come to dominate over the next 60 years to meet the insatiable demand for fuel and gasoline, energy to keep the economy running and raw materials that served as inputs to the various industries producing new goods, ranging from household appliances to cars and airplanes, for the U.S. and the world to consume. While brief periods of leadership from the emerging technology sector interspersed the dominance of the energy and materials sector, the relative importance of energy and materials would remain until the surge in communications and information technology during the 1980s.

The breakup of Bell System in 1983, the company that held a near-monopoly over telephone services in most of the U.S., triggered a boom in the deployment of fiber-optics networks in the country by new players in the sector that would lay the backbone for the Internet boom in the 1990s. Much of this fiber-optics network was laid along the same railroads that enabled the spread of the telegraph in the 19th century. Around this same time, the personal computer was making its way first into businesses and then into homes across the country. These developments first led to a surge in investments in the telecommunication networks that were creating the infrastructure necessary for this communication. Afterwards, in the 1990s, capital flowed en masse into the innovations and companies that were born as a result of this networking effect.

With groundbreaking developments such as the initial securitization of financial institutions and the paradigm shifting opportunities that the computer and internet revolutions have created, initially there is a massive wave of excitement, speculation and overvaluation. We’ve seen in it in the past and we’ll see it again in the future. But what does that mean for the information technology sector and its top players going forward? The speed of innovation has never seemed faster, but history has shown that the dominant companies that drove the previous waves of technology remain dominant for a long time. And the reach, earnings power and sheer wealth of information, the currency of our time, which these companies possess is larger than anything we’ve seen in the past.

Today’s technology is enabling new businesses and innovations in every corner of the economy, revolutionizing how companies do business and expanding the realms of possibility. The dominant technology companies understand these opportunities better than anyone else, and we’re already starting to see them make lateral investments into other sectors, deploying their vast capital and using their troves of data to further redefine the way we live. One sector that we have our eye on and that could be the greatest beneficiary of today’s technology revolution is biotechnology. Often overlooked until it’s too late, our health is our most valued commodity. The possibilities for technology to improve and lengthen our time here, whether that’s through devices that monitor our vitals and recognize irregularities before any doctor could, big data analysis that can identify and help prevent disease, etc., could be the most valuable deployment of capital that’s ever occurred. We don’t know how this will play out, but we’re excited to be along for the ride. read more