As we head into the Christmas holiday week, we are thinking about how far we have come and how much more we have to consider as investors. We have survived the European financial crisis and the election. The U.S. economy has avoided recession despite the headwinds of the looming fiscal cliff, recession in Europe, slowdown in China, and Hurricane Sandy’s devastating rampage in New York, New Jersey, and Connecticut. As of this writing, there has been no agreement reached between the White House and Congress. The Republican led House narrowly passed a federal spending cut bill. According to Bloomberg, the vote was 215-209 “with 21 Republicans voting no and no Democrats voting in favor.” House Speaker John Boehner’s Plan B includes the once unthinkable, a tax increase on wealthy Americans, in this case those with annual income over $1 million dollars. The White House has said it will veto it.

Time for a deal is really running out. The Senate is supposed to return December 27th, meaning only a few days to reach an agreement before the automatic “fiscal cliff” cuts and tax increases of more than $600 billion take effect. It’s a very scary scenario.

Meanwhile, how do you feel about your portfolio this year? If you are similar to the vast majority of investors you are probably leery of stocks, resigned to bonds, and grateful for anything yielding more than the 2% or less offered on ten-year treasury notes this year.

In fact, the trend away from stocks and into bonds has grown more pronounced since the 2008 financial crisis among both individual and institutional investors. Do these gigantic shifts still make sense? Over the last year, the wisdom of stock rejection and bond acceptance has been challenged by the markets. Stocks have had a remarkably good year, especially considering all of the uncertainties buffeting investors, from the Eurozone crisis to a slowdown in global growth, to the U.S. election. The S&P 500 is up double digits as is the NASDAQ and major European and emerging market indices.

There has also been a huge divergence in bond performance. Ten-year treasuries have lagged while other bond sectors, such as high yield bonds and emerging market issues, have delivered equity like returns.

Where in the world should you look for opportunities in 2013? Two global investors are joining us this week, both with excellent track records, one in stocks and one in bonds, and both are new to WEALTHTRACK.

Rupal Bhansali is a star global stock manager, who is now the Chief Investment Officer of International Equities at Ariel Investments and portfolio manager of two new funds there, Ariel International Equity and Ariel Global Equity. Prior to joining Ariel last year, Bhansali spent a decade at Mackay Shields, where she ran a top decile performing, five star-rated international equity fund.

David Rolley is co-head of the Global Fixed Income Group at Loomis Sayles and co-portfolio manager of the Loomis Sayles Global Bond Fund, as well as their International Bond and Global Equity and Income funds. Over the years, Dave and his team have been recognized as best in their categories by Morningstar and Lipper for their long-term performance.

I’ll begin the interview by asking them what surprised them the most in the market in 2012. You won’t want to miss our Action Point this week, especially if you still have some Christmas shopping to do!

Have a great weekend, a Merry Christmas, and make the week ahead a profitable and a productive one!

Best regards,
Consuelo

David Rolley

Vice President, Global Fixed Income Group
Loomis Sayles & Company

 

Rupal Bhansali

Chief Investment Officer, International Equities
Ariel Investments

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BHANSALI: “CONTROVERSIAL” IDEA: Japanese multinational companies

“This will prove to be a very contrarian, possibly controversial idea for people, but that’s exactly what we at Ariel do. We try to pick the best investment ideas before the market discovers it, so here I go. I would say that the biggest mistake people are making in their portfolios today is not owning Japanese multinational companies. You know, everybody wants to own emerging markets. Japan is viewed as a submerging market. I think that’s where you go, because some of these Japanese multinationals- Toyota, Nintendo, Canon, and I can give you a string of names like that. I don’t mean Japan, the domestic stocks, but I mean the multinationals. I think they have extremely good products. They’re very competitive, and they have the global marketplace as their opportunity. So no matter what happens to Japan, they will sell their wares in overseas markets. And they’re very undervalued. You get four to five percent dividend yields in a stock like Canon. I mean, this is unheard of in Japanese markets. They’ve corrected 75% from the peak while the U.S. market of the same period, about the last 25 years, is up 500%. Japan is down 75%. Enough is enough. All good things will come to an end. All bad things will come to an end.” – Rupal Bhansali

 

ROLLEY: DECENT YIELD: Emerging market corporate debt and actively managed domestic bank loan portfolios

“I think that the two fixed income ideas that probably will not break your heart over the next year would be emerging market corporate debt… which I’ve talked about and, to go domestically, bank loan portfolios but that are actively managed. Again, now you’re at the top of the capital structure, and you have a decent yield. We’re talking about a flow income of over four percent, so that’s… in a dangerous fixed income landscape, that’s a relatively safe place to be.” -David Rolley

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