Tuesday, January 20, 2015

Soos Global Investor Update (Tues, Jan 20, 2015)

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Soos Global Investors: 

Just a quick update on markets and some portfolio moves….

First some thoughts on the markets in general….Some time ago I said that I was leaning very heavily into the camp that the Fed would not raise rates nearly as much as the market had been pricing in.  In line with that view, I started putting cash to work in fixed income, especially higher quality, longer dated fixed income, that I believed would trade well once the market recognized that the Fed was not going to tighten aggressively, if at all, and that even if the Fed were to hike rates by 25 or even 50bps, the net result would be a flatter curve, as long rates didn't (and still don't) have much cause to move higher (IMHO).  I still don't see any wages pressures nor any tightness in other means of production, so to argue that long rates have to rise, seems inconsistent with the facts on the ground, certainly here in the US, but even more so around the world.  Some of our holdings in this space include BSV, CSJ, LQD, PFF, PFXF, CHI, and in general, I expect to 'clip coupons' on these ETFs until either the rate view changes or until additional equity opportunities of appropriate risk/reward arise.

In stocks, I've pretty much stayed the course….lots of tech, a reasonable amount of high-dividend paying stocks in telecom, reits, utilites, and trying to cherry pick stocks when the market bashes them on earnings disappointments that appear to me to be not that disappointing!  Of course, despite having very little oil related positions (XLE and KYN), it was hard to avoid some pain in that space, but I'm light and mainly focused on finding companies that I think will survive the mayhem in oil's rout.  On that note, I do think that lower oil prices will persist for some time, partly due to supply/demand issues, but more because of geopolitical issues.  I think the real force behind crushing oil prices was Saudi Arabia's desire to put Iran's back against the wall, and the US's desire the do the same to Putin.  So my overall thinking on oil is that it manifests a much more dangerous world, with the now larger possibility that either Iran or Russia react in some way that could be catastrophic.  I'm not yet moving the family into the bunker, but I do think that volatility runs the risk of episodic spikes, so I'm on alert for that.  I also think that equities, while still not over-inflated in terms of valuation, could have a tougher time rising than falling in the face of market volatility and geopolitical events.  So I'm staying quite long but defensive, and poised to move cash or low-yielding fixed income money into equities on pullbacks.

In terms of some specific portfolio moves in recent weeks/months….The surging USD through 2014 and collapse in yields put significant downward pressure on commodities in general, and in particular, gold and copper.  As a result, our Yamana (AUY) holding suffered.  I bought more in Q4 at lower levels, and after the 30-day wash-sale period, sold the higher cost lots in order to book the loss for 2014.  We're now holding a smaller overall position at lower cost basis as we start 2015.

In addition, I took some profits on Davita (DVA)…still think the co will benefit from the theme of 'US obesity and consequent kidney disease' but the stock has been relatively quiet recently after moving higher earlier in '14, and with no dividend, there's a cost of capital to owning it unless there's a nearterm catalyst for upside.  Still holding DVA, but will be on the lookout for earnings and for how upcoming US election rhetoric impacts health related stocks as Obamacare becomes front and center in the campaigns.

Used some proceeds to add to Unilever (UN).  It's a better fit in the theme of 'global EM emerging middle class'.  Today they announced earnings that were slightly below street consensus, yet the stock held reasonably well (considering past quarterly earnings misses which were greeted more severely!).  The company is really a play on the EM space given its global footprint.  They've adjusted product line offerings and cut costs as global growth has slowed.  I still believe UN will be a major beneficiary of emerging economies.  Their dividend too is compelling.

I also added from cash to our convertible bond closed end fund, CHI.  It's yield is over 8%, and I think that though equities could correct from current levels, I don't expect a meltdown.  In fact, with central banks likely to be on the move again (esp ECB) in terms of stimulus, I think equities can hold their ground especially since in general they're not at overly inflated PEs. Also, with US Treasury yields having come down, yield-hunters are back in action looking for yieldy plays.

Will keep you posted….
If you have any questions or thoughts, please let me know.


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(Please note: This article is solely meant to be thought provoking and is not in any way meant to be personal investment advice. Each investor is obligated to opine and decide for themselves as to the appropriateness of anything said in this article to their unique financial profile, risk tolerances and portfolio goals).
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Additional Disclaimer: currently long many stocks/ETFs incl BSV, CSJ, LQD, CHI, PFF, PFXF, DVA, UN, AUY, XLE, KYN.  Positions may change at any time without notice.