Sunday Morning Coffee

Just a few tidbits from the weekend.

Barron's had a profile of the Virtus Emerging Markets Opportunities Fund (HEMZX). Of interest to me was the manager's focus on investing in companies that meet the needs of "2 billion people who want to eat, drink more, gamble, buy toothpaste, candy and enjoy life in general." This is a point I have been making for a while which is that the demand is going to be steady. This does not ensure steady stock prices but does set up for a long term tailwind.

The Barron's interview was fascinating for the unique opinions put forth by Murray Stahl from Horizon Kinetics. He had an opinion about ETFs in general that I've never heard before and don't really agree with but it is very interesting. Long story short is that they do not capture the owner operator companies (which he feels is a very important trait).

Giving him the benefit of the doubt conceptually he is really talking about the construction of the index not the investment wrapper. So avoid broad indexes? Ok, I'm on board with that.

Stahl had three very interesting, to me, stock picks. He went with WisdomTree (WETF), the company not one of their funds, CBOE Holdings (CBOE) and Beijing Capital International Airport (BJCHF). In terms of trying to build the financial sector of a portfolio but exclude the banks in doing so I think fund companies and publicly traded exchanges are good places to look, I still don't know why there is no ETF that covers publicly traded exchanges. I've been writing about ports and toll road for years as being compelling ways into various countries.

Stahl also talked about the Kinetics Multi-Disciplinary No Load Fund (KMDNX) that he manages. Per the interview the fund sells puts to replicate a modest equity-like return. He gave the example of selling a put on a stock every six months and having the two premiums collected add up to an equity like return. The fund also owns fixed income but specifics on the options were not available at the website. The website does offer a sector breakdown of the short puts and 32% are in financials. That could be a problem at some point.

The big picture objective of KMDNX is to smooth out the ride and according to the chart from Morningstar is has indeed smoothed out the ride. It looks like it was down about 20% when the SPX was down about 40%. Some people can have success with selling puts but it is a difficult strategy to rely on heavily as opposed to opportunistically selling the occasional put option.

I was quoted in the ETF column talking about currencies which is always neat. One observation about the entire issue this week is that while a couple of the articles were very interesting most of the magazine this week was instantly out of date as it had been written before the news of the downgrade Friday night.

The picture is from Friday night dinner we had with one of my buddies from the fire department and his wife. He works in the beer industry and always has all sorts of different beers that most people have never heard of including He'Brew Messiah Bold which according to the bottle is the Chosen Beer. Needless to say this is hysterical and the beer was fantastic if you like dark beer (I do). You can learn more about it here.