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Performance review: Canaccord cuts equities and property
by Elsa Buchanan on Mar 31, 2014 at 13:01
He also expects emerging markets to pick up after performing poorly in the first half.
BUY: Short Canadian dollar, long US dollar ETF
The challenge for asset allocators in 2014 is to identify investments that have a low correlation with both bonds and equities – investments that will diversify portfolio risk in all market conditions while also providing a return. To that end we have purchased this currency position via an ETF. As profitable investment opportunities in commodities have dried up, we believe money will start flowing out of Canada and back into the US, where economic growth will come closer to the pre-crisis average than in any other developed market economy. The Canadian private sector is dangerously over-indebted and our fair value model suggests the USD could appreciate by >10% against the CAD, irrespective of the general direction of equity markets.
HOLD: Vanguard US Opportunities fund
A great fund that has recently soft closed. The US is one of the few economic regions in which growth is likely to approach the pre-crisis trend this year. Now that the QE-driven era of multi-expansion is more or less over, investors need to look for earnings growth to drive returns. This fund favours mid and small cap stocks that we believe are better exposed to some of the acyclical themes driving US markets (the fracking revolution, for example)
SELL: Emerging Markets
A range of conflagrant macroeconomic problems are plaguing a broad cross-section of emerging market countries. Over-indebtedness is a rampant problem throughout the developing world. By our calculation, private non-financial borrowing has almost quintupled since mid-2005 and totals 127% of GDP. As governments look to curtail further credit growth and foreign lenders are less willing to extend new loans to the region, economic growth is very likely to shrink further. Moreover, our favoured valuation measure (trimmed mean PE ratio) suggests that they are not even cheap.
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As the UK coalition government strives to rebalance the national economy, so called 'reshoring' looks set to play an increasingly important role in economic recovery.
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From Nigeria to Pakistan and from Kenya to Kuwait, frontier markets are catching investors' attention as never before.