March 2015 Portfolio Notes

PDF imageView the full March 2015 Portfolio Notes here.

mar15.countriesFebruary Comments

  • The MSCI ACWI was up 5.57% in February, moving the global markets back into the green for the year. Russia led the way up 22.82% while Turkey was down 9.11%
  • Europe has been the best performing region on the year up 10.22% in LCL. Dollar strength has been a headwind, as Europe is only up 6.27% in USD.
  • Emerging Markets are positive, but trailing developed markets for the year. They have trailed developed markets by 38.24% over the last three years.

March Rankings

  • Japan and Israel surged up the rankings. Japan showed solid improvements in their risk ranking, while Israel improved in both fundamentals and risk.
  • The March country rankings show a decisive bias towards developed markets. China, Indonesia, and Taiwan are the lone emerging countries in the top 10.

October 2014 Country Rankings

In October, value countries have continued to underperform the market and have been a significant drag on country selection. Meanwhile, Latin America took a huge step back as Brazil was down -19.22% on the month, showing a significant turn in what had been several months of positive momentum. Even so, the model remains split on Latin America overall: Brazil and Mexico are both in the top 5, while Peru and Chile are both in the bottom 5.

Read the full Country Rankings here.

Notable Moves to the Upside…
  • Russia… jumped 13 spots and is now back in the top 10 countries. Russia still looks most attractive from a valuation perspective, but improving risk and momentum is what moved them up in the rankings. From a currency perspective, the Russian Ruble is the most attractive in the model.
  • Israel… climbed 9 spots and is currently ranked 5th overall. Israel has had improving momentum and is the 4th best performing country on the year. Fundamentals are the main issue in Israel  where earnings growth has been slowing.
Notable Moves to the Downside…
  • China… dropped 9 spots and is now ranked 10th overall. Momentum has slowed and risks have increased. Downside volatility has increased in China by over 6% during the last 30 days, while the average country has been relatively flat.
  • Taiwan… fell 10 spots in the October rankings and is now ranked 17th overall. Most of this move came from slowing momentum. Over the last three months, Taiwan has underperformed the average country by over 5.5%.

4 Countries to Focus on in August

Heading into August, we think that the 4 countries listed below warrant extra focus. Our complete list of country rankings can be downloaded here.

3 Points to set the Global Landscape

  1. Developed Europe has been a drag for investors who were chasing the performance from the end of 2013.  It is the only region (MSCI Europe Index) with negative performance (-3.02%) over the last three months, and is highlighted by MSCI Austria which was down -11.49% in July.
  2. The MSCI Emerging Markets Index outperformed MSCI World Index (developed markets) by 3.53% in July.  China and Indonesia led the region as both were up over 8%.
  3. Countries with the strongest fundamentals continued to outperform while buying countries with cheap valuations has been a drag on country selection.

2 Countries that are rising


South Korea (EWY)(FKO) Jumped 4 spots in the rankings and is now ranked #3 overall.  South Korea already had top 5 risk and valuation rankings, but got a big boost with improving momentum.  As of the end of July, the MSCI South Korea Index was up 6.53% over the last 3 months.  In addition they are trading at a major discount with a 10.9 P/E compared to the MSCI ACWI Index at 17.3.

Brazil (EWZ)(FBZ)(DBBR) finally climbed in the rankings after an extended time near the bottom.  They are currently ranked near the middle of our universe at 18th overall.  They have had good momentum over the last 6 months, and are one of the few countries with positive returns this month.  Brazil remains the riskiest country we follow, especially when considering their currency valuation.  However, downside deviations are improving make it worth monitoring.

2 Countries that are falling


Italy (EWI) dropped 9 spots and is now ranked 30th overall.  They are the 3rd worst performing country over the last 3 months, down -6.97% (MSCI Italy Index) in USD.  Italy also has the worst fundamental profile of any country we follow.  They have the lowest Return on Equity at a mere 3.2% compared to the ACWI of 11.9%.  Valuations are also extremely rich.  The MSCI Italy Index currently has a P/E of 32.2, 18.4 points higher than their average 5-Year P/E of 13.9.

Peru (EPU) continued to slide in the rankings and is now the second worst ranked country we follow.  Valuations are at extreme absolute and relative levels. Price/Cash Earnings for the MSCI Peru Index is 33.3 while the MSCI ACWI is only 10.2.  Additionally, they have the worst year-on-year trailing growth in EPS and a dividend yield of only 1.2%.



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