Sunday, September 26, 2010
This past week, Bloomberg News noted that billionaire investor Sam Zell's Equity International unit is increasing its focus on Mexican and Colombian real-estate firms. At the same time, Financial Times columnist Martin Wolf highlighted the cautionary comments from Chinese premier Wen Jiabao who stated, "In the case of China, there is a lack of balance, co-ordination and sustainability in economic development." Wolf 's concern is that "The longer rebalancing is postponed, the more painful the adjustment will be. The Chinese economy of two decades from now will have to be vastly less investment-driven than the one of today. How smoothly and how soon will it get there? These are huge questions."
MY TAKE: While there is a mantra of "buy emerging markets", investors should not lose focus on the need to understand the business drivers, valuation and risks associated with potential investments. Understanding the maturing and stability of the investment environment in each region is also important. This week, as a brief primer, I am sharing several charts which compare the per capita gross domestic product (GDP), population and population density for the largest (by population) economic regions globally; along with the International Finance Corp's Investor Protection Index ratings which measures the strength of shareholder protection from asset misuse by directors. In the coming weeks, I look forward to expanding this discussion with you.
Sunday, September 19, 2010
As structural changes are reshaping the global economy, significant changes are taking place among investors about their strategies as well. Driving these changes are 1) concerns about persistent equity market volatility 2) how lower economic growth may limit the potential for stock price appreciation, 3) the impact of declining interest rates on investment portfolios and 4) the potential for increase risk aversion as many investors move toward retirement. In an environment where investors are interested in "what CAN you do for me?" rather that "what MIGHT you do for me?"
investments that provide hard cash to shareholders in the form of dividend payouts has increased appeal. To provide additional context to the dividend yield topic, please consider the following: as of Friday's market close, 104 of S&P 500 stocks in the US provided a dividend yield of 3% or higher, and 9 companies provided a yield of 6% or higher. In Europe, 246 companies in the DJ STOXX 600 provided dividend yield above 3%, 54 were above 6% with the highest providing an annual yield of 15.5%. When reviewing a universe of publicly traded limited partnerships and real estate investment trusts (REITS) in the US, there are 140 with an annual dividend yield greater than 3%, 68 above 6% and the highest provided a yield of 18.9%.
MY TAKE: As treasury yields have dropped into record low territory, stocks with a dividend yield of 3% or higher, provide an interesting investment alternative. In addition, as cash has increased on many corporate balance sheets, some companies which have historically been reserved about providing a dividend, such as Cisco Systems (US: CSCO), are moving in this direction as well. It is important to understand that investments options are never without risk. While providing a dividend payout is generally a sign of a strong company, the investment should be assessed on both the potential future dividend yield and the safety of the principal (the price of the stock). When considering high dividend yield investment ideas, an understanding of both a company's financial health and its capacity to pay dividends over a long period of time are important. A track record of consistent or improving earnings and free cash flow growth should be helpful tools in assessing the quality and potential risks related to these investments.
Sunday, September 12, 2010
Sunday, September 5, 2010
Another week of cross-currents with 1) stronger economic data from China and Australia, 2) the Institute for Supply Management's index on U.S. manufacturing activity rose to 56.3 in August (expectations were for a decline to 53.2) and 3) while the US unemployment report on Friday was mixed, the results could be interpreted as "while not getting much better, it was not getting much worse". President Obama's comments on Friday presented his view of the situation in the US: "There's no quick fix for this recession. The hard truth is that it took years to create our current economic problems, and it will take more time than any of us would like to repair the damage."
MY TAKE: Investors have significantly debated the potential for deflation, inflation, a double-dip or a "V" shaped recovery as they position their portfolios. However, what happens if we just end up with a "muddling-along" economy? If this is the case, some investors and money managers, in an attempt to generate positive returns, may move beyond their traditional comfort zone and extend the reach of their processes. Such approaches can lead to costly mistakes. In this environment, job number one remains "risk management".