First was an interview with Scott Minerd from Guggenheim Partners. He had some interesting comments on asset allocation.He said that 10-20% of a portfolio should go into art and collectibles. I thought this was astounding. I have no doubt that data can be found to support his opinion but anecdotally it seems like I always hear about these things not doing well-- other than the Honus Wagner T-206 or some painting that was bought five years ago for $12 million being sold for $30 million. I've got one of the Tim Flannery surf board cards--anyone out there who will bid me $0.17 (humor attempt)?
Seriously, part of the decision to get into collectibles and art as investments has to include willingness and ability to sit on very illiquid assets and understand that conditions can change. If you want to buy a piece of art or some other collectible I would do so because you love the item and not because you expect some rate of return.
Minerd also averred for 10-20% in commodities where he would overweight metals presumably over softs, agriculture and energy. He would then split the rest between equities and fixed income with 10% of equities in emerging markets. He said that US equities are "exceptionally cheap." US equities might be exceptionally cheap but the fundamentals to cause higher prices are not there, certainly not compared to many foreign destinations. The Fed's explicit targeting of asset prices creates a weak an unnatural foundation.
The mutual fund article looked at the Aston River Road Dividend All Cap Value Fund (ARDEX). Early in the article Barron's notes that "The fund yields 2.27%, far more than any but the longest-term Treasury securities." What? The 2.27% is corroborated by Morningstar. The trailing yield on the SPDR S&P 500 ETF (SPY) of 1.96% so I'm not sure why they are all worked up about an extra 31 basis points in yield.
In my confusion over this I went to the company's web site to see if maybe it is a dividend growth fund meaning that they look for stocks with good prospects of growing their dividends which is a valid strategy but not necessarily a high yielding one. The description as follows; The Aston/River Road Dividend All Cap Value Fund invests in a diversified, multi-cap portfolio of income producing equity securities with yields that management believes will exceed the Russell 3000 Value Index.The fund itself has done quite well. It has outperformed its benchmarks pretty consistently and went down a lot less than the market during the meltdown but I don't see how this is a high yielding fund, or even a dividend fund. BigCharts.com has the yield of this fund as being quite low for most of the last five years getting above 3% for a while when the market was at its lows in 2009. It might be a good fund but if you need yield, contrary to what Barron's said, there are plenty of funds that yield more than 2.27%.
Lastly was an article titled China's Sure Bet about that country's shift from buying nothing but US treasuries to buying now a mix of treasuries and hard assets or companies in the materials sector all in the interest of building out the industrial base of the country. It was a great read and reiterated several important points that I have been trying to make for a while.
First is that the build up and out of the infrastructure that provides a middle class lifestyle of sorts for more people is going to happen even if the economy and stock market ebb and flow. This means that one productive way to invest in China is in companies that are up and down this process which can include energy companies, cement companies, infrastructure builders or companies that provide the actual service to the end users (toll road stocks as an example for that last one).
It also reiterates the extent to which despite all the attention that banks (and to a lesser extent reverse mergers that list on American exchanges) receive the manner in which China is spending its money tells you there are plenty of other places in the country to look. I do not know if there will ever be a problem for the Chinese banks and real estate companies but if you've done some reading it seems obvious that it is these segments that are most at risk for some sort of mistake which is why I avoid the sector in China
Lastly the article gives a sense of how much China is driving the global economy. Maybe instead of not fighting the Fed we should focus on not fighting the Chinese Sovereign Wealth Fund (or other pools of capital).
6 comments:
Roger, I am living proof that putting part of your portfolio into collectibles can work. I was a lifelong collector/restorer...antique Edison and Victor phonographs; 1920s Reproducing pianos and finally, 1950s-60s British Sportscars. Now, in retirement i collect and restore antique radios.
I sold off my collections as I approached retirement and that money has funded a significant portion of my retirement for the past decade. I can't tell you the rate of return on the collectibles but I know I did make money on all of it. It was a great hobby and an investment all combined in one.
ditto my father in law but i wonder if you two are exceptions that prove the rule
sorry, my father in law collects different things than you do
Cowabunga dude! Found a fun story on the Flannery card at http://tinyurl.com/2aj37zq but the bad news was an entire 1988 Padres card set only went for fifty cents in 2008. Bummer!
I was into body surfing myself so the board left me cold. Ever hang out at Jalama while you were in SB?
More seriously, per your post, eventually China will certainly be a primary world economic driver but right now their economy is still relatively small compared to ours and, even more to the point, their policies are mercantilist and predatory; e.g., more in the beggar-thy-neighbor category than in the tide-that-lifts-all-boats category -- an investment in China can certain prove a winner but the other side of that analysis is identifying which countries are going to lose.
As far as Minerd's allocation formula goes, I agree it is unlikely to work well for most people but as retiredinprescott asserts it can certainly work for some; the key is interest in a collectable domain and a well-developed expertise I would suppose.
In my case I have some fine art pieces but they'll go to my heirs as I don't need the money and like the pieces just where they are; bought 'em as an investment in my personal well-being more than anything else (okay some of them were for my wife's well being but that counts double!). OTOH I do build an occasional fine furniture piece and might sell some of those; I'm working on an antique oak, carved parsons coffee table with a pegged, herringbone top that I might let go cheap, say $3k or so if you're in the market [g]
as odd as it sounds often a complete set can be less than individual cards (in a sum of the parts way) at least that used to be the case so there is still hope for my $0.17.
China is small compared to the US but is obviously growing at a much faster rate.
Great post, Roger. I'd agree that any collectibles acquired would be more enjoyed if you have an emotional attachment to them. It could be argued that assets in general have emotional as well as financial attachments - they do with me, more often than not. I would say that collecting is a hobby with a certain amount of risk, speaking from a financial and conviction aspect, and so it is something which you cannot expect input to equal output from the get go. With collectables there are sectors, regions, eras, different qualities and opinions which may be subjective and influenced. Not exactly a basis for a part in a balanced portfolio.
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