FTAlphaville had an interesting research note from Merrill Lynch about emerging markets.
The premise is that when the Fed begins to cut rates it could create an emerging market asset bubble (perhaps you think one already exists) making the returns of the last few years look small.
Cheap money in the US is a positive for emerging market assets, while this is true it is not clear to me from the post what the catalyst is for returns to accelerate.
If this starts to unfold investors will allocate more to the space and there will be more investment products created and the temptation will be to have a lot of your portfolio in emerging markets.
Be careful. It is good to think about this now before it happens, if it even ever does. I like the idea of having a modest weight, letting it go up a lot (hopefully), and then taking some off the table and leaving the rest of the position to keep going (again, hopefully).
Once stocks in the sector get going they move a lot but a broad based fund may not be the way to go. One name I have disclosed owning for clients is CVRD (RIO). I have owned the name for several years now. So far this year it is up 40% while iShares Emerging (EEM) is only up about 9% YTD.
I mention RIO as an example because it is far from an obscure pick, it gets touted all the time in print (a Barron's roundtable pick for three or four years running) and on the network. While picking this stock may not be right for some folks it is accessible enough to get information about.
To be crystal clear I am not suggesting anyone buy RIO, I haven't bought any stock up this high, it is just an example.
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6 comments:
Roger,
Fundamental indexes seem to be gaining in popularity. There is a new fundamental emerging market index which is suppose to have an ETF available come May.
Any thoughts on fundamental indices in general?
I am sold on the concept of fundamental indexing. I've looked at the data and I am a believer.
I use several WisdomTree funds but they are narrow based, a couple of their sector funds and High yielding Asia Pacific ex-Japan (DNH). I use DNH as proxy for Australia.
Anyone who uses broader products for their portfolio should probably take the time to learn about the WisdomTree funds.
Sold DNH and Sold RIO. Nice ride.
Here's a great animated perspective to illustrate what will finally kick all of our butts:
http://www.speculativebubble.com/videos/real-estate-roller-coaster.php
Any more and they'd need O2.
Put on 1/3 positions in DXD, SDS, QID (again). 2nd standing by. Portfolio now to 40% PM's. I'm on the agressive side when I see a clear ponzi-scheme. It's just a matter of when. Been hit on options due to the sideways action. Japan off, gold recovering at this moment.
The last two years I left what I thought was a reasonable portfolio and went to the LV Money shuw. Got KILLED both times. This year, I'm gonna be right here, watching. Don't be a Goober with Office (GWO).
http://www.financialsense.com/editorials/2007/images/0424_2.jpeg
hehe
You mentioned that you own CVRD (RIO) for some clients but would not recommend buying at today's price. I am puzzled by the logic behind this. If you own for some clients, then you must think it's a Buy now; if you don't recommend people buying it now, then why aren't you selling it for your clients?
This is one of the first things I learned as a (buy side) equity analyst more than 10 years ago. "Hold" is just an euphemism for "sell", invented by the sell-side analysts. The price where you bought the stock months or years ago is irrelevant today, what matters is yesterday's closing price.
RIO is up 40% in four months. I would not be the least bit surprised if there was a 10% correction in the name after such a big run in such a short time.
In the four or so years I have held it there have been several 10-15% corrections that I have not attempted to trade around and I wouldn't attempt to trade around the next one either but I would hold off on buying either until it corrects or slows down one way or another.
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