Wednesday Mash Up

Earlier this week on CNBC Asia during the first hour of Asia Squawk Box they had a reporter doing a live segment outside somewhere in Beijing above a highway that was packed with rush hour traffic. I do not know if that was a toll road or not and I am not aware of a publicly traded toll road for Beijing Province but with all the negative attention China is getting the segment was a reminder that this part of the story occurring on the ground is very likely to remain healthy, at least in my opinion.

People are buying more cars and driving them. This is a positive for the toll road stocks. Even if the banks blow up from too much lending and if the real estate companies blow up from over capacity I believe the middle class ascendancy will continue to be relatively strong which could mean less fundamental impact on these stocks should the rest of the Chinese market implode from here. For now these can't really be bought for clients because I am not sure I could get out of the quantity I would need to buy but I believe it would be easy to get out of a few hundred shares even if there had not been any volume for a couple of days.

We've got new information from the Yale Endowment to digest. I tend to be most interested in the asset allocation targets of these pools more than anything else. Yale's targets as follows;

Absolute Return 24.3%
Domestic Equity 7.5%
Fixed Income 4.0%
Foreign Equity 9.8%
Private Equity 24.3%
Real Assets 32.0%
Cash -1.9%

As this article from the WSJ points out, Yale is not shying away from illiquid assets despite dropping 24.6% in the fiscal year that ended in last June. That compares to a 28.4% drop for the S&P 500 for the same period.

My critique of this is not an I know better but more of a what is practical for individuals. I am a fan of having a little absolute return, we had as much as 5% at one point. But 24% is a big chunk that will probably not participate in up a lot. To the extent that is true it places more importance on being right with the part of the portfolio that should go up a lot when the market does. I also doubt that the absolute return vehicles that individual have access to can be as good on a consistent basis as the absolute return vehicles Yale can buy into.

As for private equity, I've been bashing the exchange traded vehicles right out of the gate as just not being the same thing and from there real private equity funds require locking up funds which I am not a fan of. On a related note I have never been a fan of the currency CD concept from Everbank.

Real assets have a role but 32% is more than I want. Part of this, where endowments are concerned, is timberland from some exotic locale. Including this in a portfolio is very difficult. Sino Forest (SNOFF on the US pinks) is one example of this I know some about and while it has had plenty of feast over the years there has been some hard famine and I'm not sure that the correlation to the S&P 500 is that low. It seems to go up more when SPX is going up and go down more when SPX goes down.

I also do not want a lot in commodities. We had about a 5% weight for a while but it is less now. There was no mention in the section of the Yale report about Real Assets on how much, if any, of that portion is in commodities but at some point commodity exposure goes from being a diversifier to the core asset and given the volatility characteristics of many commodities that is not where I want to position.

Over the weekend I did a little reading on Vanuatu, hey it could be an investment destination one day--it is an agricultural society. While there is not much to say now, the currency, pictured to the left, is neat looking.

IndexIQ came out with a small cap fund for Australia with symbol KROO and for Canada with symbol CNDA with plans for a bunch more. These join small cap funds from Japan and Brazil from other providers. I'll be writing about them for TSCM next week or the week after but for now I will say that I think these are a big deal. A big problem with country fund investing is the extent to which many of them are heavy in financials. CNDA is about 6% financials and KROO is only about 10% financials.

Finally a little humor from a friend about the health care bill;

Let me get this straight......We now have a health care plan written by a committee whose chairman says he doesn't understand it, passed by a Congress that hasn't read it but exempts themselves from it, to be signed by a president that also hasn't read it and who smokes, with funding administered by a treasury chief who didn't pay his taxes, all of which is to be overseen by a surgeon general who is obese, and financed by a country that's broke.

What could possibly go wrong?