Japan: Quality Q.E.

For some time, one of our stronger themes has been to buy Japanese stocks with the yen hedged. An update on this topic seems warranted at this time. Measured to mid-October of this year, a fairly large range of returns can be calculated between the Nikkei and the ACWI. Depending on the date used to calculate returns, outperformance by the Nikkei can be seen as high as 8% and a similar number can be seen if looking for underperformance by just changing the start date.  A currency-hedged ETF such as DXJ or DBJP has increased the upside and decreased the downside when looking at similar measurement periods. As always, different stories can be written depending on when return calculations start. What really matters is the outlook going forward. We believe that improving earnings, valuations, monetary policy, and reforms all point to a strong relative value story tipping in favor of Japan.

Japan has seen one of the strongest EPS trends of any country in the ACWI. While they have slowed recently, the longer-term growth rate remains around 10%. Valuations are attractive on an absolute and relative basis. Out of a universe of 40 countries, Japan has the 7th lowest price to book ratio (1.35x) and the 9th lowest price to cash earnings ratio (7.88x). Relative to history, Japan has the #1 ranked value profile. Japan’s current P/E ratio is 6.18x lower than its 5 year average P/E ratio. Lastly, Japan’s forward P/E multiple is trading at a 10.6% discount to the MSCI World, the largest discount in 20 years.japan pic 1Monetary policy has become one of the most important drivers of stock market outlook. While the market has not necessarily rewarded countries with cheap valuations or countries with relatively strong fundamentals, it has rewarded countries where the central bank is loose. The playbook since the crisis has been to buy stocks on pullbacks in the market where monetary policy is most accommodating. That has meant the US for some time has been the stock market to buy on pullbacks. With the Fed at a key juncture in its policy, meaning moving to neutral, the Bank of Japan is the central bank that wears the mantle of most accommodating.

japan pic 2Recent economic data has come in weaker than expected in Japan, but this will lead to further easing of monetary policy within weeks perhaps. This is the stated policy of the Abe regime which is actively devaluing the yen in pursuit of inflation. The BoJ is entrenched in policies that will depreciate the currency in order to gain a competitive edge internationally. This makes companies more profitable; that seems to be a clear outcome. Whether the BoJ can engineer an economy that grows consistently at an acceptable rate and breaks a multi-decade deflationary cycle is a question with a less-clear answer.  As equity investors, owning export-oriented companies and hedging that exposure out of JPY into USD is an attractive play. The average forecast of 80 financial institutions is for JPY to move to 115 over the next year. Against EUR, the yen is expected to weaken as well. For the Japanese economy to recover, a depreciation of the yen is a necessary condition. While the Fed approaches the end of QE, the BoJ will be expanding its balance sheet, gaining a relative monetary policy advantage.

On the reform side of the ledger, expectations for more aggressive action should be expected on several fronts; tax, labor, social spending, electoral system, agriculture, immigration, and education. What should also be of interest to equity investors is the announcement that the Government Pension Investment Fund is planning to increase its allocation of domestic equities to 25%. The current allocation is 12%. The increase could drive purchases of up to ¥8T of Japanese equities. Other mutual funds that follow the GPIF weights could create buying demand double that amount. It is also probable that Abe delays the raising of the consumption tax that affected the market negatively in the spring.

Based on fundamentals and valuations, our call is to have an overweight to Japanese stocks in core strategies. A weaker yen is part of that outlook as we believe many of the companies in the index will do well given a more competitive stance with a weaker currency. Typically we would add to the analysis that a potential currency appreciation creates additional return possibilities. In the case of Japan, we do not expect currency appreciation to play out, hence our desire to hedge the yen when it comes to owning Japanese stocks. While there are other ways to do this, an ETF is our preferred vehicle. The ease of purchase, the very low cost relative to replicating the strategy independently, intra-day liquidity, and instant diversification all play into the selection. DBJP and DXJ both fit the bill.  We have rotated between the two based on our view of relative value at the sector levels where there are key differences between these two ETFs.

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Disclosures: This article was compiled by Brad Jensen, a Portfolio Manager at Accuvest Global Advisors. This article is strictly informational and should be used for research use only. It should not be construed as advertising material. The opinions expressed are not intended to provide investing or other advice or guidance with respect to the matters addressed in this brochure. All relevant facts, including individual circumstances, need to be considered by the reader to arrive at investment conclusions to comply with matters addressed in this brochure. Charts and information are sourced from Bloomberg, unless otherwise noted. Remember that investing involves risks, as the value of your investment will fluctuate over time and you may gain or lose money. You should seek advice from your financial adviser before making investment decisions. Investment risks are borne solely by the investor and not by AGA. AGA is an independent investment advisor registered with the SEC. All disclosures, marketing brochures, and supplemental firm sheets are available upon request.

Mexico Energy Reform: What Investors Should Know Now

In May, we posted “Mexico: A Country in Transition”. That piece received favorable feedback related specifically to its overview of energy reform taking place in Mexico. At that time, we mentioned that the reform is a journey and not a destination, stating that occasional updates would be necessary to stay plugged into the reform process. Recent events create the need for such an update.

What You Should Know

This month, legislation to implement energy reforms was approved with the spotlight now on implementation. The information that will begin to flow will cover corporate investment and business opportunities and will dwell less on the legislative process. Regardless of how these opportunities present themselves and whether investors are able to take advantage in direct ways, the country of Mexico has pushed the ‘go’ button on activity that will create long-term, growth-enhancing capabilities. Investment vehicles that could play the benefits of the structure reforms are limited presently, certainly for average investors. However, the Mexican equity market as a whole should benefit, the Peso should see relative strengthening, the trajectory in economic growth will tilt further upward, and societal benefits will also be seen in a country that has already begun to grow its middle-class. Further sovereign credit rating upgrades are likely to be seen, lowering risk premiums and spreads for Mexican bonds. Some have likened Mexico’s energy reform to Germany’s reunification in terms of economic impact, timing, human capital, and infrastructure. Investors should consider the shot-gun approach to investing in Mexico currently, building exposure broadly across Mexican asset classes while looking for positive knock-on benefits from the ongoing energy reform.

What You Should Watch

However, to stay in front of the curve and to build knowledge and awareness of how the game is evolving, the playbook, and an understanding of the roster of players, a brief overview follows.

The Players:

  • Secretaría de Energía de México. SENER will have the responsibility to select fields and define contracts in the bidding process.   The Secretariat’s website has video and other material covering recent and future efforts in the reform process.
  • Secretaría de Hacienda y Crédito Público de México. The Finance Ministry will determine the fiscal regime related to any bidding process.
  • Comisión Nacional de Hidrocarburos. CNH is a technical body dealing with the implementation of Mexico’s hydrocarbon policy. It will supervise and regulate exploration and production which will include opening the bidding process and awarding contract.
  • Pemex. The state owned petro company established in 1938 whose mission and business model will change significantly going forward.
  • CFE. The state owned electric utility whose dominance is second only to Pemex.

Recent Regulatory Changes

  • CFE and Pemex are now “State Productive Companies” with budgetary autonomy as well as economic, administrative, and technological independence. Both are free to partner with private entities through a process managed by SENER.
  • CFE can engage in contracts with private companies for the operation of the distribution and transmission network. Private companies will be able to generate electricity for self-consumption.
  • SHCP will slowly migrate from collecting taxes on CFE and Pemex to dividends starting in 2014.
  • Expropriation of private land will cease. Land owners will get rent or 3% of project earnings.
  • The Mexican government will assume a percentage of the Pemex and CFE’s pension liabilities.
  • CNH will regulate and grant contracts through auctions in which private and state companies can participate.
  • SENER will determine the technical conditions of the contracts to be awarded.
  • CNH will receive all geological and technical information held currently by Pemex.
  • Private companies can distribute gasoline with impendent franchises in 2016 and import gasoline from 2017.

Opportunities for Foreign Investors

  • Investors can participate in gasoline commercialization and petroleum gas distribution
  • Investors can own up to 49% of companies dedicated to offshore activities in exploration.
  • Pipeline construction is possible for foreign investors.

Future Steps:

  • Round 0. This is what has been happening over the course of 2014 and was essentially wrapped up this month. Pemex was required to present to SENER the economics and technical aspects of the projects they wanted to keep. Pemex also provided a list of likely private company partnerships. Pemex requested 100% of proved reserves, 83% of proved and probable, and 70% of proved, probable and possible, as well as 31% of prospective resources. SENER effectively ended Round 0 by issuing a resolution in which Pemex was declared to keep certain projects where they are considered a competitive operator and a list of projects where a private partner could improve production or efficiency. Of those projects requested, Pemex has been granted all of the reserves requested which is about 20.6 billion proven barrels of oil equivalent (boe) and 22.1 billion boe of possible reserves. In the Round 0 disclosure only a small fraction of the prospective resources were awarded to Pemex. Hardly any of those already small prospective resources correspond to deep sea and shale gas fields. The lower initial allocation should be seen as a desire for SENER to be flexible and allocate broadly to private enterprise.
  • Round 0.5. This round should take place over the remainder of 2014 and into the Q1’15. It is in this round where farm-outs and JVs will be announced. SENER will auction projects in which Pemex has solicited or been assigned a private partner. This round is unlikely to involve any meaningful transfer of assets as Pemex was granted most of the reserves requested already in Round 0. Projects that will be farmed out will be the deep sea, heavy crude oil in shallow waters and mature fields. There are approximately 10 sites fitting these descriptions that have been identified.
  • Round 1.0. This round is likely to play out in H2’15 and will focus most attention on the auction process. SENER, CNH and the Treasury will auction oil and gas projects in which Pemex and private companies can compete head-to-head. The bidding process currently includes 109 blocks in exploration and 60 blocks in production, leading to 28k sqm. Blocks include fields in deep water, extra heavy crude oil and shale resources. Nearly $13B p.a. in additional spending is expected to be invested in the sector over the next six years. Pemex has been spending about $23B p.a. in capex in recent years.

What You Should Remember

In the country of Mexico, Energy Reform will create a significant number of new jobs, lower the cost of energy, increase the manufacturing competitive advantage, ignite a strong infrastructure build-out country wide, bring significant foreign investment, all adding up to increased economic growth to as much as two percentage points higher. It is not just in the energy sector where benefits will be seen, but across the entire economy with important benefits to society as a whole.

Investors will find it difficult to uncover any pure-play investment vehicles focused on energy reform. However, all asset classes should be considered for increased exposure. The Mexican stock market is not cheap currently, but it has always traded at a premium to EM and should not discourage long-term investors from building positions. Mexican sovereign debt should see relative price improvement through spread compression given potential rating-agency upgrades. This would include the quasi-sovereign entities, CFE and Pemex. Pemex is currently rated A3 by Moody’s and BBB+ by both S&P and Fitch. All three services have the credit as “Stable”. Pemex disclosures all abide by US SEC standards and most of the USD-denominated bonds are eligible for major investment grade indexes. A broader base of investors will be holding the bonds going forward. Corporate credits in Mexico also can see spreads narrow. Much of the fixed-income sector of the market has not seen the improvement yet that can be expected. Exposure to MXN is also a likely beneficiary of energy reform and should be sought through local fixed-income instruments.

 

Sources: SENER, Credit Suisse, UBS, Morgan Stanley

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Disclosures: This article was written by Brad Jensen, a portfolio manager at Accuvest Global Advisors. The opinions expressed in this report are those of the author. The materials and commentary are strictly informational and should be used for research use only. This brochure should not be construed as advertising material. The opinions expressed are not intended to provide investing or other advice or guidance with respect to the matters addressed in this brochure. All relevant facts, including individual circumstances, need to be considered by the reader to arrive at investment conclusions to comply with matters addressed in this brochure. Past performance is not indicative of future results. Remember that investing involves risks, as the value of your investment will fluctuate over time and you may gain or lose money. Investment risks are born solely by the investor and not by AGA. AGA is an independent investment advisor registered with the SEC. All disclosures, marketing brochures, and supplemental firm sheets are available upon request Charts and information used in this report are sourced from Accuvest Global Advisors, unless otherwise noted above.

Our Big Picture View Heading into H2

The Accuvest Team invites you to download our Big Picture View for the 2nd half of 2014. In the pages of our Outlook, we will provide some insight as to why the 1st half of 2014 played out the way it did, what the 2nd half might bring, and most importantly, how our allocation and implementation strategies will benefit from what could be a powerful rotation in the financial markets. As always, the comments are not to recommend a certain strategy or product, rather to outline how our management process should work in the current market environment.

Hopefully our thoughts and commentary are useful and insightful, and we encourage your comments and questions below.

From all of us at Accuvest, best wishes as we begin the 3rd Quarter!

PDF image Big Picture View H2 2014

 

Mexico: A Country in Transition

We have been traveling regularly to and investing on and off in Mexico for over thirty years. We have seen the Peso strengthen and bust a couple of times; government-owned banks privatized and then bust; an ongoing roller-coaster ride in the Bolsa. Through it all, we have been big believers in the long-term prospects for the country, its economy, and financial markets. However, it is clear that a thoughtful process regarding entry and exit points is required.

High Valuations, Low on the List

In our country-ranking methodology we have seen the Mexican stock market move around our attractiveness list quite a bit. For several quarters, however, it has been lurking at the bottom of the pack as extremely high valuations (relative to its own history as well as to the other thirty countries in our model) have kept the market in an unattractive zone, which currently means the absolute bottom of our list. Consider some of the positives and negatives related to Mexico in the following tables.

mexico tablesFor some of the reasons shown above, on a tactical basis, we have been without Mexico in our global and international portfolios and actually short in our long/short portfolio. There are some interesting headlines, however, that we are tracking closely. Energy reform has been talked about for decades, but is only recently, with the election of the new president Enrique Peña Nieto, actually becoming realtiy. Since 1917 with the creation of the current Mexican constitution, the government has controlled oil and its derivatives, basic petrochemical industries and the generation of electricity. In 1938, Presidente Lazaro Cardenas nationalized the entire Mexican oil sector. This has meant that, in practice, all profits that are generated from the state-run petroleum agency (“PEMEX”) have flowed to the federal budget. Investments in new technologies, required capital expenditure, and deep water exploration have been woefully insufficient.

Recent Regulation & Reform

In December, historic constitutional amendments were passed, laying out the terms under which private companies will be able to bid on energy projects. In April, the government laid out new proposals implementing regulations to its congress that will dictate how it plans to open up its oil and gas resources for international private investment. There are more key dates in the timeline towards eventual implementation. The biggest is a special session of Congress planned for mid-June, at which time Congress will debate and vote on the regulations that have been put forth. A simple majority of 51% is required for passage. Regulations will lay out the specifics on bidding rounds, contracts, tax structures, etc. There will be additional detail on the different type of profit-sharing arrangements companies can use, including licenses and production-sharing agreements.

Mexico is showing itself to be very aware of how to compete internationally. A 25% minimum national content threshold will be enforced staring in 2025. Both of those variables are considerably friendlier than the Brazilian market, which was privatized in 2008. An overhaul to the fiscal regime has also been unveiled which is quite progressive and should make investment in Mexico’s energy projects more appealing. The royalty will be as low as 10%, which will compete aggressively with other international markets.

The Bigger Picture

Check back occasionally as we update the progress on this topic. The momentum and outlook is strong. What will it mean for the country, its markets, and investors? There are no real direct ways to play this theme via Mexican companies in a pure sense. There will be positive knock-on effects that will be analyzed and assessed for petrochemical, cement, infrastructure, and financial companies. The bigger picture has to be seen as quite positive. It is hard to forecast precisely, but we are seeing research estimating 2.5 million new jobs by 2025. GDP could increase by 1% to 1.5% as a result of the reform. This kind of activity could translate into higher demand for goods and services. Emigration to the US could subside. In the US, the multiplier effect in the energy sector shows one new job created in the oil and gas industry supports four more indirect jobs; hopefully that kind of multiplier effect will be seen in Mexico. Government revenues certainly would increase, lower energy prices would reduce the need for electricity subsidies, and public financial pressures would ease. US companies that currently operate in the Eagle Ford should find it easy to extend their expertise across the border where the same formation flows into Mexico. The geographic regions of Tamaulipas, Nuevo Leon, Coahuila, Dallas, Houston, San Antonio and the actual border towns could see huge direct investment. If these various benefits begin to show themselves as realities, the Peso could strengthen as well. Mexico will be a strong candidate for rating agency upgrades.

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Sources: Bloomberg, BBVA, Morgan Stanley, UBS, Credit Suisse

Disclosures: The opinions expressed in this report are those of the author. The materials and commentary are strictly informational and should be used for research use only. This brochure should not be construed as advertising material. The opinions expressed are not intended to provide investing or other advice or guidance with respect to the matters addressed in this brochure. All relevant facts, including individual circumstances, need to be considered by the reader to arrive at investment conclusions to comply with matters addressed in this brochure. Past performance is not indicative of future results. Remember that investing involves risks, as the value of your investment will fluctuate over time and you may gain or lose money. Investment risks are born solely by the investor and not by AGA. AGA is an independent investment advisor registered with the SEC. All disclosures, marketing brochures, and supplemental firm sheets are available upon request Charts and information used in this report are sourced from Accuvest Global Advisors, unless otherwise noted above.

Israel: Under the Radar

In recent travels and presentations, I was asked frequently about Israel. How is it that the Israeli market is #2 in our country ranking methodology? It seems as though the country is off the radar screen of most investors, so a quick overview of the market and why it ranks high currently seems to be in order.

Israel is a developed market. It constitutes only a 0.19% weight in the All Country World Index (ACWI) and is also part of EAFE at 0.52%. With these tiny weights, it is no surprise that the country is not in most investor’s playbooks. The Israeli market is mature and diversified, however, with the Israel MSCI Index being comprised of 24% banks, 24% pharma, 13% telecom, with other sectors below 10%. Teva Pharmaceuticals and Bank Hapoalim are the two largest positions in the Index. There are two Israel ETFs – EIS and ISRA. iShares’ EIS tracks the MSCI Israel Index which fits our methodology best and is larger in terms of assets. Since the June 2013 launch of ISRA, EIS has a fractionally higher return which may or may not be important. At least we know that the “Bluestar Israel Global Index” used in the Market Vectors implementation has produced similar results.

We recently traded approximately 480,000 EIS shares in one block, $23 million in a single print. That represented 10x ADV (average daily volume) and 20% of the current shares outstanding. We were able to buy the block 5 cents inside the ask price and 10 bps above the then-current INAV (intraday net asset value). As we often say, there are no ETFs that benefit more from the wrapper than the single-country roster. There is no way to own Israel in such a diversified, low cost, easily-executed way except through an ETF; and to execute it for size inside the bid/ask spread with no market impact is exemplary.

But, back to the question as to why we own Israel in the first place. Some highlights from our country ranking model are presented below. Overall, the Israeli market could be characterized as fundamentally solid, fairly valued, with strong momentum, and reduced risk headwinds.

Israel: The Good and The BadIsrael’s economic growth has been resilient even amid a period of weak global trade expansion. The 3.3% 2013 number should be replicated in 2014 and 2015.* The country has seen a strong start to major natural gas production. As production expands it will moderately continue to contribute to growth. Even larger fields are expected to come online in 2018, providing another significant boost to GDP.

Exports have been volatile, but are outperforming in a difficult global environment. Israel exports are up 3% while global trade volumes have actually declined by 2.5% over the same three year period.* The Current Account is in surplus and is growing with more momentum likely as natural gas production expands. The country has seen FX reserves triple since 2008. Government debt ratios and fiscal deficits have declined.

The main risk to the country may be the potential strengthening of the currency which would diminish some of the competitive advantages currently in place. The Bank of Israel, however, has been highly aggressive with its monetary policy, lowering base rates 180bp over 18 months to 0.75% as well as intervening in the FX market and creating a sovereign wealth fund.* Inflation pressures remain very low and considerable flexibility is still afforded to the BoI.

Of course there are geo-political issues in Israel. The current cabinet remains split on what caused the recent breakdown of Palestinian-Israeli peace talks. Clearly some are committed to peace talks while others aren’t. Ongoing issues are likely in Israel as we all can imagine. “Event risk” is always present when investing in individual countries. There may be more likelihood of such events in Israel than other countries, but nothing currently causes us to back away from the other positives specifically related to the financial markets. And, as has been the case for ten years, we will reevaluate all of these factors every month. To the extent that there are changes that cause Israel to be less attractive or other countries whose profile improves in a relative sense to give us a more attractive opportunity, there can be moves in our rankings and portfolio allocations. Please check back often to our blog for updates on all of these issues.

 

Sources: Barclays, UBS, Bloomberg

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Disclosures: The opinions expressed in this report are those of the author. The materials and commentary are strictly informational and should be used for research use only. This brochure should not be construed as advertising material. The opinions expressed are not intended to provide investing or other advice or guidance with respect to the matters addressed in this brochure. All relevant facts, including individual circumstances, need to be considered by the reader to arrive at investment conclusions to comply with matters addressed in this brochure. Past performance is not indicative of future results. Remember that investing involves risks, as the value of your investment will fluctuate over time and you may gain or lose money. Investment risks are born solely by the investor and not by AGA. AGA is an independent investment advisor registered with the SEC. All disclosures, marketing brochures, and supplemental firm sheets are available upon request. Charts and information used in this report are sourced from Accuvest Global Advisors. Commentary marked by “*” are sourced from Barclays, UBS, and Bloomberg, respectively.

When Will it be Time to Get Back to EM?

Global investors have been experiencing an ongoing drag on returns to the extent they have had exposure to Emerging Market (EM) equities. It is difficult to abandon the asset class given historical performance, relative economic growth, current valuation discounts, and portfolio management tenets regarding diversification. But the fact that the U.S. has been such a strong performer, along with its size and prominence in the press, creates questions about why any non-U.S. stocks should even be in the portfolio. For experienced investors, the real question centers on how to exploit the eventual recovery and what might trigger such a move. In this article, we attempt to review all of these issues in a short-hand, summary fashion.

The EM Case

  • EMs are too important to ignore with 82% of the world’s population and 32% of its income;
  • EMs have an abundance of natural resources;
  • Emerging economies have been growing consistently faster than developed markets for a long period of time;
  • The emerging consumer is becoming more important with middle class membership increasing substantially in many countries.  For instance, growth in consumption is far outpacing what is being seen in the U.S.;
  • Investment spending is outstripping DM and is expected to continue to expand;
  • Portfolio benefits are compelling with higher long-term returns and diversification benefits.

EM Differentiation

  • With the case made for EM, it then seems counterintuitive to belittle the investment management profession and call the space a contrived asset class. Yet, the differences amongst countries’ fundamentals are considerable.
  • Currently, the fear of tapering and attendant rise in interest rates has created a potential scenario whereby countries with a current account deficit find it difficult to fund their shortfall. However, there are many EM countries with strong external fundamentals – current account surpluses, exceptional foreign reserve balances, etc.  These countries are as cheap as those that have funding issues.
  • Fundamental and risk metrics are varied amongst all countries and perhaps more so in EM.  Valuations, however, are universally cheap.  On average, there is a 4 point discount in P/E’s for EM vs DM.  China, as an example, is trading at a 27% discount to its 10-yr average which is 90th percentile cheapness to its own history.  Relative to APxJ, EM is at its 98th percentile cheapness to its 10-year history.

EM Performance Triggers and Outlooks

  • Valuation is a necessary condition for EM countries to attract attention and see prices move higher. However, it is not a great timing tool.
  • EM needs to see growth outlooks stabilize and the Yellen-led Fed to confirm its accommodative stance.  Avoiding a currency crisis is paramount.  As of now, that does not seem to be a problem.
  • So, we could be very close to a rotation out of what is a relatively expensive US market into countries that have fundamental and valuation profiles that are attractive.  The cycles seen historically as EM countries gain attention and assert their relative growth advantages can be strong, long-lasting and highly rewarding.  In the spirit of “buy low, sell high” there is no doubt that many EM countries pass the test of being “low”.  Investors need a process to select those countries and a commitment to value-based principles that will produce strong outperformance from current levels.

Equity Valuation

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Disclosures: The opinions expressed in this report are those of the author. The materials and commentary are strictly informational and should be used for research use only. This bulletin is not intended to provide investing or other advice or guidance with respect to the matters addressed in the bulletin. All relevant facts, including individual circumstances, need to be considered by the reader to arrive at investment conclusions that comply with matters addressed in this report. Charts and information used in this report are sourced from Accuvest Global Advisors, unless otherwise noted. Past performance is not indicative of future results. Remember that investing involves risks, as the value of your investment will fluctuate over time and you may gain or lose money. Investment risks are born solely by the investor and not by AGA.

2014 Outlook and Big Picture View

PDF imageBig Picture View 2014

The Accuvest Team invites you to download our Big Picture View for 2014. In the pages of our Outlook, we will provide some insight as to why 2013 played out the way it did, what 2014 might bring, and most importantly, how our allocation and implementation strategies will benefit from what could be a powerful rotation in the financial markets. As always, the comments are not to recommend a certain strategy or product, rather to outline how our management process should work in the current market environment.

Hopefully our thoughts and commentary are useful and insightful, and we encourage your comments and questions below.

From all of us at Accuvest, best wishes in 2014!

PDF imageBig Picture View 2014

Our Q4 Big Picture View

Thus far in 2013, global equities have been largely led by developed markets.  Returns and economic growth have been highly disparate amongst countries with many markets revealing exposure to the risk of higher US interest rates.  Equities, Fixed Income, and Alternatives all present distinct opportunities for attractive risk adjusted returns.  With three months remaining in 2013, a focused strategy, implemented in a disciplined fashion can make this year a rewarding one.  The Accuvest Big Picture View lays a foundation for the Q4 2013 Investment Outlook and reviews the tenets it will be built on.

PDF imageAccuvest BPV Q4-13

Our Q3 Big Picture View

A very interesting quarter comes to a close with significant questions still being debated in the market.  Most important to strategy that will be described herein are, a) is the US equity market decline a garden-variety correction, or does it portend something more significant? b) Have interest rates increased too quickly too soon, or has a persistent trend only just begun? c) Why are emerging markets underperforming the US so dramatically?

Thus far in 2013, the financial markets can be characterized as US-driven almost entirely.  Outcomes are highly disparate amongst markets with many showing significantly negative returns.  With rates rising and many equity markets negative on the year, portfolio performance has been challenging.  With six months remaining in 2013, a focused strategy, implemented in a disciplined fashion is required make the year a rewarding one.  This report will attempt to lay the foundation of what that strategy will look like and on what tenets it will be based.

PDF image3rd Quarter Big Picture View

Our Q2 Big Picture View

It is important to note some broad highlights as we move into the Second Quarter of 2013; a) Growth in Europe has disappointed and the Euro Area remains in its second recession in five years; b) the most dramatic recent market development has been the sharp depreciation of the yen in the face of the new administration’s insistence on much more stimulative monetary policy; c) Chinese policy makers made modest tightening moves intended to take some steam out of the property markets and credit growth.  Neutral policy and relatively stable growth with inflation around 3% means China will stay an engine of growth.

These 2nd quarter highlights and more are discussed in our in-depth review of the last quarter and thoughts for moving forward through into 2013.

PDF image 2nd Quarter Big Picture View