Monthly Archives: June 2016

Demographics is Destiny

Here’s a timely reminder from Ben Carlson about the future purchasing trends of “millennials”.

I completely agree with Carlson that the “millennials” will grow up and will usher in a new wave of consumption. Heck, they might even decide not to live with their parents. We have been adding US home builders to our equity portfolios on the recent Brexit dip, because I fail to see how Britain leaving the EU will affect US housing demand. However, on a global macro level, lower rates for longer should continue to provide ample incentive to first time home buyers.

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Mutual Funds -vs- ETFs

Over the past 10 years there has been a massive migration of investor money from mutual funds to ETFs.

Much of this makes sense. The vast majority of ETFs charge smaller fees than managed funds with similar investment mandates, and most fund managers can’t beat their benchmark index net of fees.

What gets forgotten in this argument is that there is still considerable value in choosing the right fund for the right climate.

For example, for the past year or so we have decided to entrust our European equity mandate to a mutual fund rather than an ETF. The decision was based on having met the fund managers and having been very impressed by their acumen and previous ability to have ridden out difficult markets. Another characteristic of the fund was the ability to take on short positions, which theoretically could offer a degree of protection in falling markets. We felt this was important given the ongoing trials and tribulations in Europe. Valuations were attractive, but uncertainty remained. Still, as long term investors it is our job to seek out opportunities that we think will pay off down the road.

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Big Problems, Big Opportunities & German Automakers

Yesterday Volkswagen AG announced that it would pay $14.7 billion to get 480,000 emissions cheating diesel vehicles off of US roads:

LINK: VW settlement

This is a very heavy settlement.

One thing to remember, however, is that Volkswagen is 20% owned by the German state of Lower Saxony. It also bears a very large imprint on German manufacturing. As such, we decided that Volkswagen debt was to be considered as quasi-sovereign German debt and decided to buy on the heavy sell-off that occurred when the scandal broke in September.

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Brexit Carries the Vote – Now What?

Last Thursday, Great Britain voted to exit the European Union. Markets had been indicating that a remain vote was to be expected. Markets were wrong. This happens. But what happens next is not certain. Markets like certainty. They did not like the Brexit vote, and sold off heavily in its wake.

Here’s a link from ‘The Economist’ that provides a depth of commentary as to what will most likely happen next:

LINK: What happens next?

Here’s a link from Scott Grannis that provides a slightly different spin:

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