Portfolio Allocation (XV – Emerging & Frontier Markets)

Tags

asset managers, BRICS, closed-end funds, developed markets, dollar-cost averaging, emerging markets, frontier markets, Hong Kong, Howard Marks, NAV discount, NAV premium, portfolio allocation, reductio ad absurdum, Trading Economics

Continued from here. [And most definitely, this is the last post in the series!]

This might actually be the perfect time to write about emerging markets – the developed market douche-bags (DMDs) are out in force again, warning us emerging markets are tanking… It’s a common refrain: a) developed markets are in recession, emerging markets must tank, b) developed markets are showing zero growth, emerging markets must tank, c) developed market growth’s bouncing back & rates are rising, emerging markets must tank, and d) well…emerging markets simply must tank!

2013 may turn out to be even sillier. So far, most of the year’s been spent denigrating – nay, reviling – emerging markets, simply because developed stock markets have done so well. Of course, the sub-text here is ‘why don’t you just forget/sell emerging markets (forever) & just stick to developed markets?!‘ Christ on a rope, that’s like handing out bloody gold medals to whoever took the most steroids… And now developed markets have caught a dose of the colly-wobbles in the past week or two – again, DMDs would have you believe it’s another good reason to sell emerging markets. Yes folks, we’ve finally reached the point of reductio ad absurdum:

i) Developed markets go up – sell emerging markets,

ii) Developed markets go down – sell emerging markets, and

iii) Don’t forget i) & ii).

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Portfolio Allocation (XIV – Emerging & Frontier Markets)

Tags

agri-business, correlation, corruption, developed markets, Donegal Creameries, emerging markets, Europe, financial crisis, frontier markets, German property, Japan, portfolio allocation, portfolio performance, QE, US, volatility

Continued from here. Wow, it’s been a leisurely journey – spanning a full year – is this really my last post of the series?! Hmmm, we’ll see… Here’s my portfolio allocation pie chart one more time:

[NB: This is from Jun-2012, but since then the only major changes (funded mostly from my Hedge Fund allocation) are: a) an increase in Property from 10% to 13%, as I continue to scale up my German property exposure (see Parts I to V – also here), and b) a large jump in Agri from 5% to 11%, due to my purchase of Donegal Creameries (DCP:ID) & its subsequent hefty appreciation. Note I don’t classify DCP as an Irish stock – after all, the company feeds people (potatoes, mushrooms & yogurt) and animals, what could offer a more ideal uncorrelated exposure?!]

UK Asset Managers & Argo Group

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% of AUM, Andreas Rialas, ARGO, Argo Group, asset managers, Charlemagne Capital, Dolphin Capital Investors, Ex-Cash Ratios, F&C Asset Management, Impax Asset Management Group, Investor Relations, Kyriakos Rialas, Miton Group, NAV discount, The Argo Fund, Third Point, UK

In April, I took a closer look at the universe of UK-listed asset managers. A key piece of research was a (relatively) simple analysis which focused on financial stability & market valuation – this study also offered a useful peer comparison with Argo Group Ltd. (ARGO:LN) (& see this recent post).

Frankly, the numbers (plus the rest of this post) speak for themselves, but let’s have a taste of the main highlights:

Name	Ticker		Net Cash/Inv as % of Mkt Cap
F&C Asset Management	FCAM		(23)%
Liontrust Asset Management	LIO		3.9%
Henderson Group	HGG		6.2%
Aberdeen Asset Management	ADN		7.9%
Jupiter Fund Management	JUP		8.4%
Polar Capital Holdings	POLR		16%
Ashmore Group	ASHM		18%
Miton Group	MGR		26%
Schroders	SDR		34%
Man Group	EMG		55%
Impax Asset Management Group	IPX		59%
Charlemagne Capital	CCAP		64%
Median			17%
Argo Group	ARGO		175%

It’s encouraging to see the entire sector now enjoys robust financial health. Only F&C Asset Management (FCAM:LN) is in a net debt position – all other companies sport net cash & investments on their balance sheets. But it’s also clear this healthy financial position is not the key driver of market valuations – for Argo’s peer group, net cash/investments only represents a median 17% of market cap. On the other hand, Argo’s $23.6 mio of net cash/investments amounts to a whopping 175% of its market cap.

Why I Read…

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autodidactism, biography, bloggers, Blogroll, Bloomberg, fund managers, history, latticework of mental models, LSE, MOOCs, mosaic theory, Nasdaq, Niall Ferguson, reading, Ron Chernow, stock ideas, Ugg slut, Vanity Fair

[NB: I guess you might call this a companion piece to my February post, ‘Why I Write…’].

The immediate & obvious answer, as with most things in life, is ‘What else would I bloody do…?!‘ But I have to admit, I’m an autodidact – always have been, always will be, ever since childhood – which unfortunately made organized education increasingly intolerable** the older I got. However, when it comes to investing, the odds are stacked in my favour – organized education doesn’t offer you a hope in hell of becoming a good, let alone a great, investor. As people often notice with regard to MBAs… [Again, I can’t resist this classic!].

[** Hopefully, that all changes with the advent of MOOCs, which have the potential to offer interactive autodidactism. But don’t believe all the hype – sadly, most people just aren’t motivated enough to learn & study alone. In fact, they often have different priorities… Of course, if you’re dirt-poor & living in a third world slum, you may be incredibly motivated – I think MOOCs present an amazing business/investment (& charitable) opportunity to bring Western education to emerging & frontier markets. Forget the hollowed-out state of manufacturing…the next generation of US college kids, plus their six-figure student loans, should be bloody terrified of the rest of the world potentially competing on far more equal terms…and far less pay].

Buffett perhaps said it best, as he often does: ‘But ultimately, the key to success is emotional stability. You don’t need a high IQ to get rich‘. He was highlighting EQ, rather than IQ, but also implicit in the quote is that education (at least in the traditional sense) isn’t required to get rich either – this is particularly true when it comes to investing. I scarcely need to argue the point – simply give me a couple of books, and a day or two of your time, and that’s really all that’s needed to teach you the essentials of investing. Seriously..!

While that crash-course would certainly provide a good foundation, it’s ultimately irrelevant – as I guarantee you it could take a lifetime (or never) to become a great investor. Gulp… So, is there anything to help with/change that? Actually, yes – c’mon, you know my answer:

Read, read, read & then read some more (’til you puke..!) 🙂