Super Thinking session at our latest North Carolina camp.
Merri and I have added Super Thinking sessions in all our seminars and camps to help global views.
When we have a global view, we expand our horizons and opportunity. We create a larger field for seeking value.
For example last week’s message from Michael Keppler “Where in the World to Invest” said: In 30 years’ experience, I have never seen such a bad sentiment towards continental Europe.
This is why we have been recommending High Yield shares. Most are major market equities that provide income and growth potential… plus make it easy to diversify.
This is when I pointed out why we are weighted into Northern European and Italian banking shares shares that we feel offer extra special value and extra risk premium.
We are happy to read Jyske Global Asset Management’s (JGAM) latest market review because it points out growing interest in Europe. Here is that review by Jyske:
European stocks on the rise
The recurring theme this week was investors’ rising appetite for European stocks. Also, the month-long underlying current of hope for central bank intervention is still intact and supporting global equity markets.
The week started with the unpleasant news that the Japanese GDP only grew at an annualized 1.4% in the second quarter against analysts’ expectations of a 2.3% rise.
Also, at the beginning of the week Brent Crude Oil touched a three-month high above 115 US dollar a barrel. Supply shortage and geopolitical risks in the Middle-East are driving up energy prices, despite lack of growth driven demand.
The eurozone economy shrank by 0.2% in the second quarter, following a flat first quarter. But the financial markets disregarded the bad news and instead focused on the positive part that growth of 0.3% in Germany was better than expected.
In the U.S. better than expected retail sales data and industrial output were also well received by investors.
At the end of the week European stocks rallied to almost year highs. Especially, Spanish and Italian equities attracted demand from investors. Further, Spain’s long-term borrowing cost fell below 6.5%, more that 1%-point beneath its record. Apparently, investors are confident that Greece will not exit the eurozone or in case Greece does exit, the conviction is that the eurozone’s bailout funds and the ECB will firewall Spain.
I tend to be a thematic investor taking long term positions that I do not alter unless the theme changes. This is why I also hold shares.
The themes I am investing in are based on my belief that investors typically oversell bad news and that Europe will recover.
This idea is hedged with some shares (the Italian bank Unicredit, Jyske Bank, German publisher Axel Spring and German TV company Sky Deutsch. These companies mainly earn in North Europe. The theme here is based on the fact that Europe and the euro will either recover or the EU will create two euros… the Euro Hard and Euro Soft. Jyske, Axel Spring and Sky Deutsch are all companies where a big share of their earnings are in areas that would be in the hard euro (Denmark, Germany, Sweden, Netherlands, Finland are likely targets).
You can see from the stock charts of these companies at finance.yahoo.com how the European pick up is helping these shares.
Click on the photos to enlarge them.
Germany remains the powerhouse in German and people there like everywhere watch TV.
One should always try to invest in what they know and publishing is one area I have a pretty good grasp on… so this German publisher is part of my portfolio.
I have always liked the people in Jyske’s management. Their modest budgets (no limos for the CEO here)…their no bonus pay plan for staff and equal responsibility philosophy to look after employee – shareholder and customer make good sense to me.
The shares I hold in Unicredit are a bet that this European banking giant has been very oversold.
I also hold the Jyske Invest European Equity Fund to take advantage of Jyske Invest’s management skills.
Bloomberg.com chart of Jyske Invest European Equity Fund.
Here are seven important points to remember about global equity investing from one of Jyske Invest’s Investment managers.
#1: Look for value and strength.
#2: Seek upwards momentum.
#3: Choose cheap stocks. They outperform expensive stocks.
#4: Stocks in companies with rising earnings outperform stocks in companies with falling earnings.
#5: Select companies with share prices already in established up trends.
#6: Stocks with high earnings and rising earnings outperform stocks with low and falling earnings.
#7: The best finds are cheap, high quality stocks with rising earnings and increasing attention from the market.
What could be better? Europe is a region filled with cheap oversold stocks that have now shifted into up trends!
Now just begin to look for the rising earnings. Euro fundamentals have been overlooked due to the negative nature of reporting about debt in Greece, Spain, Italy, etc.
However a look at currency fundamentals show that the euro area is in far better shape than the USA. The Euro area has a positive trade balance and current account while America’s trade deficit and current account deficits are huge. The Euro area annual budget balance is less than half that in the USA. The chart below from the August 18, 2012 “Trade, exchange rates, budget balances and interest rates” at Economist.com shows this distortion. Click on photo to enlarge.
Borrow Low-Deposit High.
Here is a high risk but potentially lucrative deal at this time.
European shares are in an upwards mode. You can borrow euro for abut 3%. The speculation is to borrow euro and invest in European shares. Let’s look at this potential.
Since we cannot foresee the future, let’s look at what would have happened to the investment in the five shares in my portfolio August 24 2011 to August 17, 2012.
Jyske shares rose from 141 to 168 up 19%.
Unicredit shares rose from .87 to 3.12 up 258%.
Axel Springer shares rose from 29 to 37 up 27%.
Sky Deutsch shares rose from 2.12 to 2.96 up 39%.
Jyske Invest shares European Equity Fund rose from 64 to 76 up 18%.
If the investment was $100,000, at $20,000 into each of the five shares here is what would have happened.
141 Jyske shares became worth 23,688 euro
22,988 Unicredit shares became worth 71,722 euro.
689 Axel Springer shares became worth 25,453 euro.
9433 Sky Deutsch shares became worth 27,921 euro.
312 Jyske Invest European Equity Fund shares became worth 23,712 euro.
The entire portfolio would have risen from 100,000 euro to 172,496 euro or 72.4%.
If the investment was leveraged one time and the investment 200,000 euros, the portfolio would have grown to be 344,992 euro. The loan and 3% interest fees and costs payoff would be 106,000 euro. The 100,000 euro grew to money left is 238,992 euro.
If the investment was leveraged two times, the 300,000 euro invested equally in the five shares grew to 517,488. After loan and 3% interest plus cost and fee payoff of 218,000 so the money left would have been 299,388 euro.
The leveraged portfolios portfolios would have been looked at as highly speculative. I felt quite bold just holding the shares on a non leveraged basis. One must have a strong conviction to hold a position through so much bad news and turbulence. The reality was that this was not speculative.
This would have created a 238% to 259% profit.
Such positions in in volatile markets can create significant draw downs and result in loss. Do not leverage more in this way than you can afford to lose.
For more information on these investments from Jyske Americans should contact Thomas Fischer at Fischer@jgam.com
Non US investors should contact René Mathys at email@example.com
One other European Investing Idea
Of all the European sectors the financial sector is one of hardest hit. This means that this is a good place to look for extra value. A look at the chart of iShares MSCI Europe Financials Index (EUFN) ETF traded Nasdaq shows how volatile this sector has been… how hard hit it was earlier this year and how it is now in an upwards trend.
Learn more about ETFs from Morgan Hatfield at Ruggie Wealth at firstname.lastname@example.org
Whether you are thinking of lifestyle, investing or having a business… think globally. We live in a global economy and today’s technology allows to enjoy the full benefits of this huge marketplace.
Learn more ideas on how to invest and do business globally at our North Carolina Super Thinking plus International Investing and Business Seminar October 5-6-7 2012.