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specific to our investor portfolios and is NOT intended, in any way, as advice
for use by others. Readers are reminded that all comments posted here are
for information and entertainment purposes only! Any commentary,
especially those that include specific mentions of 'buying' or 'selling' or
'positions', is made solely for those limited informational and entertainment
purposes, and NOT as advice. We're delighted to hear thoughts and
comments. Thx!)
Soos Global Investors: below are a few of my thoughts
on markets overall, and in some cases, on specific positions in our
portfolios.
Today's data in Europe, EuroZone (EZ) manufacturing PMI,
beat estimates. This raises expectations that EZ economic growth is
picking up, expectations that have already been bolstered by ECB QE kicking
in. The Euro has bounced off recent lows and appears to be finding some
floor from which to recover after having been sold-off aggressively in the past
year (from levels of 1.4000 to 1.0500, and now 1.0850. See chart below).
European stocks have rallied YTD, reflecting renewed
optimism about European economic prospects. As you can see in the
chart below, the ETF of European equities, VGK, has rallied YTD. What's
not as evident, however, is that part of the upside was lost due to the EUR
currency weakness over that time period. Looking ahead, if the EZ economy
continues to improve and the EUR is able to continue its recent rebound, then
VGK could have meaningful upside through 2015. I'm still of the view that
the EUR has fallen too much (USD rallied too much), and that EZ's economy
should continue to slowly improve, therefore, I'm watching this situation
closely as a new add to our positions.
When that time arrives, I would expect to consider using an
ETF (such as VGK) that diversifies the risk across several countries and
industry sectors. I wouldn't hedge the EUR exposure inherent in that
position since, as I've mentioned, I think over time the EUR will rally back. (fyi…there
are ETFs that provide the same exposure to European stocks but embed a currency
hedge to protect against a fall in the EUR, and if my currency view should
change, I'd consider those alternatives).
One final note regarding Europe: our current
exposure. On a direct basis, it is quite limited.
Namely, we own Unilever (UN) and Telefonica (TEF)….but our 'indirect'
exposure is more meaningful given that many of our large, multi-national
holdings have significant business footprints in Europe (and, correspondingly,
in most cases, in Emerging Markets, where our direct exposure is also very
limited). Until recently, I've felt that this 'indirect' exposure
was the better risk/reward tradeoff, however with improving growth prospects
and current valuations, that could change.
With Q1 over and earnings starting to be reported in coming
days, I'm a bit concerned about earnings disappointment. That said,
the concern isn't too high since many analysts have lowered earnings estimates
throughout the first Quarter as more and more companies announced sober
guidance. With broader US stock indexes still at or close to
historic highs, any meaningful disappointments in earnings could result in a
market selloff, though any selloff would likely be mitigated by the market's
reaction that weakness in the US economy would delay a Fed rate hike. So
this balancing act between strong/weak economic and corporate earnings growth
vs expectations of Fed rate hikes, in my view, is likely to keep the equity
markets somewhat volatile, but within reasonable ranges close to current
levels. Correction? Certainly possible. Debacle? Some
new catalyst would have to emerge for the outlook to migrate to this
extreme.
Clearly, individual stocks' volatility will vary and when I
perceive an overreaction by the market, in either direction, I expect to adjust
our positions accordingly.
In that light, our Walgreens (WBA) position has performed
quite well, and is currently the highest percentage holding in the
portfolio. I expect to maintain a strong position in WBA, though I might
consider trimming part of it at higher levels.
I'm still looking to exit Davita (DVA), having sold ½ of it
earlier this year, as I continue to prefer valuations and potential in other
sectors. I'm concerned that the further we get into the Presidential
race, the more talk there will be about cutting Federal funding for all kinds
of Medicare, Medicaid, Obamacare issues. It will be very challenging to
anticipate which stocks will be the winners/losers in those debates, so with
this kind of anticipated lack of visibility, I'm looking to exit healthcare for
now, and at best maintain only small opportunistic positions over time as they
become available.
I have been looking to add some biotech, though I still
believe that the sector, after having been the outperformer of 2014, is still
too pricey. Many street analysts refer to it as being in a
'bubble'. Whether that's true or not, I do think we'll see some sector
rotation out of biotech into other sectors that have ytd underperformed, most
notably, energy. If that happens, and in turn, biotech cheapens to
reasonable valuations, I'd be interested in adding an ETF of the sector (such
as XBI…see below), in that way diversifying the individual company risk of FDA
approvals, new-product testing, etc.
Finally, I continue to like the 'yieldy' assets in our
portfolio such as fixed income ETFs, preferred stock/bond ETFs, a convertible
closed end fund, a utility ETF and some REITs. As I've been saying for
some time, the Fed's need to raise short-term rates is likely to be minimal for
quite a while, and while that's going on, in the face of world where the risk
of 'Deflation' continues to outweigh 'Inflation', I remain a fan
of longer-term fixed income and yieldy assets.
As always, if you have any questions, please email or call.
I look forward to keeping you posted.
Best,
Ed
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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 including UN, DVA, WBA, TEF. Positions may change at any time without
notice.
