I read a very thorough article about the water theme and water ETFs on Seeking Alpha over the weekend and I was reminded how bleak the numbers surrounding potable water are and how compelling the theme is. I have owned PHO since its second or third day of trading and while I have thought a better mousetrap will come at some point the actual theme will be a part of the portfolios I manage for a long time to come.
I've made a couple of references to the evolution of of investing/portfolio construction/investment products in the last couple of days. In thinking about the ascendancy of a middle class in many countries where it did not exist and the grimness of the numbers from the above article will make having exposure to stuff or companies that help grow stuff will become increasingly important for investment results.
This includes food, commodities, water, oil, coal, iron ore, manure, timber, cement, grains, soft commodities, agricultural commodities, industrial equipment to plant, grow, harvest and deliver, alternative energy and the list goes on.
In past articles I have noted subscribing to the notion that this will be China's century. Using the same sort of thinking perhaps the last century brought an accelerated evolution in finance, healthcare and technology, perhaps in this century advancements in food and water (for lack of a better term) technology that provide enough of each for more people will be the big thing. This is not to say healthcare and technology will stand still though.
If this theory turns out to come anywhere close to reality it will happen over many years, will be cyclical as it plays out and will be demand driven. I would imagine that in addition to the types of things mentioned above there will be some countries that emerge as proxies for different segments of this idea.
If this resonates with you it's time to start learning. If you have a diversified portfolio that drifts toward narrower products or individual stocks it is possible you already have some exposure to the concept and while I will never think 25% in in such a narrow idea would be the right allocation, having more than 4% probably will make sense.
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23 comments:
Roger, I understand your are a botomm-up kind of guy. Do you also look at technical analysis? Your choices in water and some other schemes do have better technicals than the S&P 500. I am wondering if you will arrive at the same choices if you look at just technical analyses first?
actually i am top down.
I use TA sometimes to try to help me validate a thesis or entry/exit point, but not religiously.
TA is not my strongest suit so I am not sure if I would come to the same conclusion or not.
You are essentially asking if I did things differently would I come up with a different mix. Probably so but I don't think there is a way to know for sure.
I totally agree with the emphasis on commodities
mentioned in your post, Roger. I referenced Don Coxe's (BMO analyst) a couple of days ago, and that he
was early on the commodity bandwagon about five years ago, and sees it running for at least another five.
This is one reason why i think investing in commodity rich/politically stable/exporting country funds/ETF's is
a good idea. That boils down to energy, food, ag,
metals, wood, and water. And the countries boil down to the U,S,, Canada, and Australia. Investing
in companies from those countries who emerging and non-commodity producing countries depend on makes imminently more sense to me, at this geopolitical juncture, than Europe or emerging markets. Using a global commodity index as a measure of how well I am doing vis a vis inflation
than does the S&P. Then again, I am an amateur.
Any criticisms welcome.
Scoot
I don't know if there is a global inflation index or not. Even in US the real inflation(including food, energy) is more likely to be 10%, much higher than the CPI number. Someone mentioned the "Turkey" index--cost of a turkey dinner compared to a year ago-- to be around 11%. I am all in favor of using "real inflation number" as a target for investing. Clearly an inflation based target has more bearing to spending power and standard of living than a S&P based target. What if Professor Hussman is right that the future US market returns are likely to be in the sigle digits. The big question is would I do differently?
I've been researching this one for about a month. The less expensive stocks are on overseas exchanges. Dats a problem.
Markets are getting ready to fall big, get your clients out of market now.
that a lot of the stocks that might fit the bill for this post are on foreign markets, I would say that may not be the problem you think it is.
I would say to learn a little more before drawing a line in that sand.
I have a list of about 40 stocks related to growing and distributing food ....potash related stocks have gains that dwarf anything else but the p/e still makes it fundamentally ok; still hurts my brain to look at some of these price charts. Some distributors are in SA, probably becoming less expensive. But, it's in Asia that I'd like to find some of the seafood companies. Actually, my guess is that Vietnam and Iceland would be two countries that will have a healthy fishing industry. I know that quality shrimp are coming from Vietnam and Thailand. I buy them at Whole Foods. Have not yet read seeking alpha.
WOW! You have 40 stocks that just relate to food?
Expect a nice Christmas card this year from the folks that hold your brokerage account. ;)
JackS
Hey everyone, I was wondering if it was too late to buy into SKF? I would appreciate any suggestions on this matter.
Of course my sister would have to make the buy for me with some cash that I took under the table for, well, nevermind.
Ben Bernanke
lol, is their an ETF for the UAE dirham?
Seriously, I've been a little frustrated at the lack of Arab-world exposure available through the standard emerging-market or global funds/indices.
There are some very exciting things happening on the Dubai stock exchange, and the whole region stands to benefit from high oil prices (as long as they can manage away the inflationary impact of the dollar peg). Any ideas for how to gain broad exposure to these economies (ie, more than just the oil companies)?
OT.
Here are some interesting videos on the current market in China:
http://tinyurl.com/2o5m6a
I don't have a great answer about accessing this part of the world. some of the stocks trade in the UK. Perhaps they would be accessible through an eTrade account?
I am way overweight commodities, this blog would not approve of my idea of diversification.
The November edition of Don Coxe's Basic Points is a must-read classic on the subject :
http://www.beearly.com/pdfFiles/Basic%20Points-November.pdf
Jag : try TRAMX.
TRAMX seems interesting, bu the 60% weight on financials strikes me as a little odd...
jag...Don Coxe has the ring of a guy who can truly see and communicate a vision. Bring that Cannuck (umm not sure of my choice of words here) to America and let him bring some order to our mess.
and, jackS it's a 40 odd stock research list, wise guy...and, i don't have a broker, most of us here don't. It's me and my computer.
I suggest you look into atmospheric water generators and atmospheric water coolers (air to water coolers). Basically they use a condensation unit and can turn air into water almost anywhere (even many deserts!). They are started to build big units that generate thousands of litres for governmetns and cities! Might be something to look into.
Interesting factoid. Canada largely avoided the last 2
US recessions.
Given that Canadian banks are in much better shape than ours, perhaps they have a financial sector that
is more appealing than ours, especially given the strength/liquidity of their currency.
With an economy rich in water, precious and base metals, oil, gas, timber and ag products, is there a better economic hedge, country-wise, right now?
Lastly, TLT (20 year Tbills) were up nearly 2% today.
Do many of you think they will continue to hold up well in this uncertain environment. And, Roger, thanks for the inverse ETF ideas. Not that I acted on your idea (wink,wink) but increasing my SDS/TWM by a third last week really helped today.
Scoot.
Scoot
I wonder if basic materials ETFs would someday include stocks associated with the water industry.
I assume water wouldn't be considered a commodity?
High-yield bonds are dubbed junk for good reason. Corporate mortality tables indicate that defaults of high-yield bonds within five years of issuance occur 28% of the time for those just below investment grade and 47% of the time for those with the lowest ratings. Past instances of high default rates lagged periods of strong junk issuance by 4 to 5 years, coinciding with recessionary periods in the economy.[ix]
[ix] Presentation by Dr. Edward I. Altman, "Current Conditions in Global Credit Markets," October 2007.
http://www.investorsinsight.com/otb_va_print.aspx?EditionID=619
Hi Roger,
First of all thank you for taking so much of your time to share your process with us!
I am thinking about increasing foreign exposure by switching from utility ETFs held in the US to utility unit trusts listed in the UK (via an eTrade global account). Does this make sense? I have not seen anyone else talk about doing something like this.
Regards, Tom F
I moved a lot of clients into the global utility etf quite a few months ago (most clients also own one stock too). If you are doing this for foreign exposure and it is just as easy as buying a local ETF here (don't have accounts at eTrade) i'd say why not.
to be clear this is a top down comment about the concept. I don't know the trust the reader is asking about.
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