6 January 2015

AS 2014 ENDS, THE BULL RESTS, AND MARKETS SLIP ; A CONTRARIAN’S VIEW OF EUROPE, EMERGING MARKETS IN 2015; BEST INCOME IDEAS FOR 2015

January 4, 2015

The above is the title of Vito Racanelli’s article in this weekend’s Barron’s. He writes that “on the last day of the year, the Bull rested. Stocks took most of the week off,” he added, “dropping three straight days after a record close last Monday, for the Standard and Poor’s 500 Index. The major indexes finished more than one percent lower — in a holiday shortened week of light trading. The drop came more from an absence of buyers — than plethora of sellers,” he noted.

For the week, the DOW lost 221pts., or 1.2 percent, to close at 17,833; while the S and P 500 fell 31pts., or 1.5 percent, to 2,058; and the tech-heavy NASDAQ suffered the biggest hit, dropping 80pts., or 1.7 percent, to 4,726.

“With volumes so low, you can’t read much into [last week’s] action,” said Dan Greenhaus, Chief Strategist at BTIG Research. He contends that the trend is your friend; and, that “the trend is still up — until something comes along to change it. In the near-term, there are two important market influences,” Mr. Greenhaus contends. “At the January 22, 2015 European Central Bank (ECB) meeting; or, perhaps the next one on March 5, investors will want to see the ECB make decisive quantitative easing steps, which it has been promising for months.” Steven Sosnick, a Senior Trader at Timber Hill securities, concurs, Mr. Ricanelli wrote. “Ultimately, ECB Chairman Mario Draghi has done what he can with words. At some point, words stop being enough….ultimately, he’s got to deliver.”

“By February,” says John Leo Manley, Chief Equity Strategist at Wells Fargo Fund Management, “investors will look to fourth quarter earnings reports for [market] direction. While they are already expecting weakness in the S and P 500 energy sector profits, which will pull down the index’s earnings per share total, how the market digests the actual numbers could be a worry,” he added.

A Contrarian View Of Europe, Emerging Markets In 2015

Lawrence Stauss, a senior writer for Barron’s, conducted a sit-down interview recently with Brian Singer, Co-Manager of the William Blair Macro Allocation Fund, to get his investment outlook for 2015 Mr. Singer oversees about $1.2B in investment money, $950M of which is in the mutual fund,” Mr. Strauss writes. “The fund has a 5-star rating from Morningstar; and, it has a three-year annual return of 9.84 percent — which beats Morningstar’s category average by 5 percentage, putting it in the top 5 percent of multi-alternative funds over that stretch,” Mr. Strauss wrote.
Mr. Singer said that his fund currently “has a long position in stocks; but, it is about half of what it normally would be — if we just acted on valuation metrics. The reason for that,” he added, “is we perceive heightened risk in global capital markets, and we have reduced that long position. It currently accounts for about 40 percent of the portfolio on a net basis, factoring in longs, shorts, and options — about half the equity position we had….18 months ago. The long positions are primarily in Europe, and emerging Asia (Philippines, Vietnam, Taiwan, Singapore, etc.).” Mr. Singer said that his fund had a 15 percent equity position in Japan in 2012; and, that is now zero. Mr. Singer’s fund has also reduced its U.S. equity position from 20-25 percent in 2012 — to zero now — because he believes that the U.S. stock market is “slightly above fundamental value.” Mr. Singer added that his fund “has maintained an [equity] position in Europe, and in emerging markets — mainly Asia — excluding Japan — for most of this period. Because of the selloff in oil, Mr. Singer thinks China, Taiwan and South Korean stocks,” look particularly attractive.

When asked by Mr. Strauss “what makes European stocks so attractive?,” Mr. Singer said in his view that “European stocks are about 30 percent to 40 percent below fundamental value.” Mr. Singer added that the primary areas for opportunity are: the United Kingdom, Italy, Spain, and the Netherlands.”

When asked what sectors he found attractive, Mr. Singer said, “on a global basis, we’re mildly long financials, and now energy — where stocks have sold off amid falling oil prices; and, we’re mildly short the industrial sector.

Best Income Ideas For 2015

In a feature article in this weekend’s Barron’s, Jack Hough writes that “our search for attractive income investments turned up issues that pay 3 percent, all the way up to nearly 10 percent; and, many that could rise in value in the coming quarters, while much of the income universe falls.

*Bonds

“Most U.S. bond fund categories are priced for low returns in 2015,” Mr. Hough writes. The article is quite lengthy; and, if you want more granularity — I recommend going out an purchasing this weekend’s Barron’s and/or, signing up for a digital subscription. Below, are Barron’s recommendations on “Where To Find Yield In 2015:”

*Bond Funds:

Vanguard High Yield Corporate — ticker symbol — VWEHX — with a recent 5.6 percent yield;

Fidelity Municipal Income — FHIGX — with a recent yield of 3.5 percent;

T. Rowe Price Emerging Markets Bond — PREMX — with a recent yield of 5.9 percent.

*Dividend Stocks

Ford — F (3.2 percent yield)

General Motors — GM (3.4%)

Boeing — BA (2.8%)

JP Morgan Chase (2.6%)

Pfizer (PFE) — (3.6%)

General Electric — GE — (3.7%)

Microsoft — INTC — (2.7%)

Cisco (CSCO) — (2.7%)

Intel (INTC) — (2.5%)

Bank of America (BAC) — (1.1%)

Schwab U.S. Dividend Equity (SCHB) — (2.8%)

*Real Estate Investment Trusts

RLJL Lodging Trust (RLJ) — (3.6%)

EPR Properties (EPR) — (5.9%)

*Master Limited Partnerships

Memorial Production Partners (MEMP) — (15.1%)

Plains All American Pipeline (PAA) — (5.1%)

*Preferred Stocks

Bank of America W Series (BAC.PW) — (6.5%)

Wells Fargo Q Series (WFC.PQ) — (5.5%)

*Closed-End Bond Funds

MFS Intermediate Income Trust (MIN) — (9.6%)

Western Asset Mortgage Defined Opp (DMO) — (8.1%)

* Business Development Companies

Ares Capital (ARCC) — (8.8%)

Apollo Investment (AINV) — (9.6%)

As always, past performance doesn’t mean future gains. Do your own due diligence and homework; and, good luck. V/R, RCP

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