Nothing says China like a Starbucks store.I'm working on a theStreet.com article about one way to recreate the portfolio put forth by Mohamed El-Erian in When Markets Collide using ETFs (mostly).
One part of the allocation is infrastructure and while there are several ETFs they all focus on different areas. If infrastructure is as big as many think (FWIW I tend in that direction) then it is still very early, the pitcher might still be warming so to speak.
There will be plenty of time to build an allocation that makes sense in terms of capturing the effect without being taken down if it doesn't work out as expected. I have been saying the same thing about China in this regard for a long time; there is a middle class ascendancy going on in many places including China and this is something that I want to capture as I invest in China and infrastructure.
I do not want to own Chinese banks any more, when the theme was easier I owned FXI for some clients which is heavy in banks, and I don't want to own companies that rely on exports. The way I figure it the ascendancy of a middle class and the modernization of the country is going to happen. It will be cyclical and lumpy but it will happen--again, the way I see it.
Back to the article I am working on, without frontrunning the article I was aware of a particular Chinese stock that plays into the infrastructure build out I think I see coming. I called into Schwab to make sure I had the correct A-share symbol, Hong Kong symbol and US symbol for the ordinary shares. The trader at Schwab Global told me that there is an ADR for the stock that just started trading in the last couple of weeks.
He went on to tell me that they (not exactly sure who they are) are bringing 150 un-sponsored ADRs every week. I can't vouch for that but the guy I spoke to has been on this same desk for close to ten years. The relevance here ties in with something I have talking about for a while about easier access to various markets via more choices.
While many folks do not want to manage a portfolio of 40 different stocks, if you are familiar with the portfolio on page 198 in When Markets Collide, most of it can be built with ETFs or other funds but with his allocations to infrastructure and "special opportunities" it might make sense to include a couple of stocks in the mix.
A point I have made along these lines before is that in a portfolio that mostly avoids single stock risk it is not crazy to add in two or three names moderately weighted that capture very narrow effects.
11 comments:
Interesting challenge, Roger. I'll be anxious to see where you come out.
With the exception of precious metals, my own portfolio still seems to know only one direction. Do you have any sense that asset classes are becoming less correlated yet? I haven't seen anything updating the "correlation of one" articles that were so prevalent last year.
Thanks for your insights.
"when the theme was easier" What does this mean? Is the infastructure theme easy now? Is identifying a "theme" just a gut feeling or a result of rigorous analysis?
I thought renewable energies would have been a good investable theme last winter and spring, especially with all the rhetoric during the campaign.
FWIW, I'm not trying to be a smart-i-pants.
6:42 the correlation benefits of asset class diversification needs to be viewed over the course of the entire cycle. Hoping for a visible change to occur in a couple of months is likely to disappoint. I think i'll expand on this in a blog post, i think it is interesting. TY
6:46, probably a combo of gut and analysis but in the early days of a theme occurring in a bull market makes the theme, IMO, much easier. Everything China was going up regardless of the risk or the fundies. In the last couple of months China is up a lot but it does not seem easy to me. this is difficult to articulate but in early days it is just easier.
given the severity of the declines i would not call infrastructure easy in terms of everything will go up because it does not feel like that to me.
You can probably underweight consumer-dependent stocks for a while (except the essentials - Walmart, Coca-Cola etc) and the governments are all making noises about infrastructure. About &%$"(@) time too, the road/rail networks are appaling in so many countries, we're living in the 21st Century, for goodness sake.
Rant over.
We had storms here in the KSA this week, but not of the snow variety. Big plans for building are being mooted here, too. Especially as there's a slack in demand since Dubai has cooled.
I and some friends on a Morningstar forum spent months last summer debating how to implement the El-Erian portfolio with ETS or even mutual funds. Conclusion: it can't be done properly. There are no ETFs which effectively provide the equivalent of private equity (BDCs notwithstanding) or ownership of infrastructure--which is not the same as equity in companies that *build* infrastructure. Furthermore, effective bond portfolios must be managed; IMHO, no index can keep ahead of the variables which make bond funds valuable across currency and interest rate fluctuations.
Possibly it can be done with CEFs. El-Erian impelled me to invest a chunk in MGU for infrastructure ownership.
Do not use an unsponsored ADR. Every time I have done so, nothing but trouble ensues. This is especially true if the company goes though any corporate reorganization.
Home safes would be a great investment. Can anyone recommend a stock? :-)
Thanks for the blog Roger. Not
that you need my advice, but I
think when you do YOUR retirement
planning you must take into concideration that you may have 30 or 40 dogs by then to feed and keep healthy :-)
30-40 dogs, you're right. cutting back to that few would save us a fortune.
sorry if i was not clear about the unsponsored ADRs, my point was access to things is getting easier. The 150 a week thing is a step on that path.
Roger, do you know if the finalized stimulus plan contains the protectionist elements that you were worried about several weeks ago?
THANKS
AAlan,
I'd agree that's its tough replicating the PE component in a portfolio (I'm thinking the way BDCs have to raise additional capaital makes them a relatively poor substitute, esp. under current credit conditions), but the infrastructure part is less tough. BIP is one possibility, and I'm pretty sure they're European publicly traded firms that own/operate infrastructure.
Jan
Roger- Here is a link to where Harvard is investing now:
http://blogs.moneycentral.msn.com/topstocks/archive/2009/02/12/harvard-pulls-investments-in-many-u-s-stocks.aspx
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