First, here are excerpts from Michael Keppler’s quarterly good value update of global developed equity markets. Borrow Low-Deposit High subscribers, you can read the entire 79 page report at your password protected site. Click here.
Recent Developments & Outlook
Global equity prices finished yet another quarter at new highs, making it the 13th consecutive positive quarter in local currencies since September 2011. The MSCI World Total Return Index (with net dividends reinvested, December 1969 = 100) advanced 3.3 % in local currencies, 1.0 % in US dollars and 5.4 % in Euros. The Euro continued its recent downtrend, giving up 4.2 % versus the US dollar last quarter and now stands at 1.2101 USD/EUR, down 12.2 % in 2014.
Fourteen markets advanced and nine markets declined last quarter.
Israel (+6.9 %), Japan (+6.7 %) and Ireland (+6.3 %) were the best performing developed markets last quarter.
Portugal (-19.6 %), Norway (-12.4 %) and Italy (-9.6 %) performed worst.
Year-to-date, twenty markets included in the MSCI Developed Markets universe were up and three markets declined.
The best performing markets in 2014 were Israel (+37.6 %), Denmark (+20.7 %) and Belgium (+18.6 %).
Portugal (-29.7 %), Austria (-20.0 %) and Norway (-3.7 %) performed worst last year. Performance is in local currencies, unless mentioned otherwise.
There were no changes in our country ratings last quarter. The Top Value Model Portfolio currently holds ten “Buy” rated markets: Australia, Austria, France, Germany, Hong Kong, Italy, Japan, Norway, Singapore and the United Kingdom — at equal weights. According to our analyses, an equally-weighted combination of these markets offers the highest expectation of long-term risk-adjusted performance.
The table above shows how the Developed Markets Top Value Model Portfolio compares to the MSCI World Index, the Keppler Asset Management (KAM) Equally-Weighted World Index, the MSCI Europe Index and the MSCI US Index at the end of 2014, based on selected variables (current numbers for book value; 12-month trailing numbers for the other variables – no forecasts). In addition, we show the MSCI World Index at its All-Time High Valuation at the end of the last Millennium and its All-Time Low Valuation at the end of 1974.
Click on image to enlarge.
The chart below shows the entire real-time forecasting history of Keppler Asset Management Inc. for the KAM Equally-Weighted World Index, starting at the end of 1993. Our numbers are based on relationships between price and value over the previous 15 years. The chart includes two remarkable episodes: the five-year period (1997-2001) during which the KAM Equally-Weighted World Index stayed above the upper forecast band, and the period starting in October 2008, when it last fell below the lower forecast band, where it has stayed through April 2014 (5 years and 7 months). Ever since, the Index has stayed above the lower forecast band and now stands at 6.0 % above the lower forecast band projected four years ago.
Our implicit three-to-five-year projection indicates that the KAM Equally-Weighted World Index is expected to rise to 13,031 from its current level of 9,139. This corresponds to a compound annual total return estimate of 9.3 % in local currencies — up from 8.7 % last quarter. The upper-band estimate of 15,637 by December 31, 2018 implies a compound annual total return of 14.4 % (up from 13.8 % three months ago), while the lower-band estimate of 10,425 corresponds to a compound annual total return of 3.3 % (up from 2.8 % three months ago). Given the current low interest and inflation environment, even this lower estimate sounds enticing and beats the expected returns over three to five years for most alternatives in the fixed income area.
Annual growth rates of key fundamentals have improved markedly compared with last September’s numbers. Annual book value growth (December 2014 over December 2013) for the KAM Equally-Weighted World Index now stands at 11.4 % (compared to 3.1 % as of September 30, 2014). Cash flow is up 12.4 % over the last twelve months (previous quarter +2.9 %) and earnings, which declined 1.5 % three months ago, are now growing again at 5.4 % year over year. Finally, dividends for the KAM Equally-Weighted World Index grew 9.8 % in the last twelve months as compared to the annual dividend growth of 1.9 % as of the end of September 2014. Numbers are in local currencies.
Michael Keppler New York, January 16, 2015
To help you develop your own plan that takes advantage of falling share prices and a strong greenback, we are sharing access to five ENR International Investing conference calls by Eric Roseman and Thomas Fischer of ENR Asset Management. The calls were recorded last week. Each call reviews of different types of portfolio and as a Gary Scott reader, you can listen in free for the next three weeks until the recordings expire. Last Saturday we began by looking at a low risk portfolio strategy.
Today we are sharing the ENR Dynamic Portfolio strategy.
This strategy issues the Multi Currency Sandwich and has 0.8x leverage (Invest-Loan). The dynamic portfolio seeks aggressive growth from a diversified portfolio of income-producing global stocks and uses a value approach to stock selection with a 41% non US dollar currency diversification. This portfolio currently shows excellent performance because it boosted loans in Euro and Yen in June 2014; so the rising US dollar has increased the profits.
Eric Roseman and Thomas Fischer are my investment advisers at ENR Asset Management. ENR is the access route to an investment account with Jyske Bank. Merri and I are sponsoring two Multi Currency Asset Allocation seminars with ENR so you can meet Eric and Thomas.
You are invited to meet them first via these conference calls. Join in at no cost as a Gary Scott reader.
Call 905-694-9451 or 1-800-408-3053 and use the Viking Dynamic Portfolio Pass code: 309503242 #
To listen to the Low and Medium Risk Portfolio conference calls, click here.