Chartwell ETF Investment Letter
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The Chartwell Global Investment Letter describes model portfolio performance, allocation changes, updates on global markets and economic and political trends that I am watching closely. This section also summarizes strategies outlined throughout the website.
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Wednesday, February 01, 2006
Dear Client,
2006 is so far anyway turning out to be a continuation of trends from last year. Latin America, small and micro stocks, emerging markets, Europe and oils are all off to a strong start. Fixed income is a dud and despite all the talk about being the year for mega cap stocks they have turned in only modest returns.
Our five portfolios had a solid start as well. The Core was up 4.37%, Global, +6.06%, International, 6.31%, Asia, +8.43% and the New Venture up a nice 10.26%. Keep in mind that 15% of the Core allocations move opposite the market. I am adding a 5% allocation to the Profunds Short Real Estate Fund this month as well. The whole idea is to try to insulate this portfolio as much as possible from a market downturn. Chartwell Global 30 was up 4.38% again beating its Dow benchmark handily. We added Starbucks and Statoil (Norway) at end of 2005 and both did nicely with Statoil up 16% this year already.
As of January 30th, Microcaps are up 9.2%, madcap just over 5%, the S&P global 100 up 3% and the S&P 500 index slightly less. Brazil steams ahead at plus 22%, the Latin America iShare is up 15%, South Africa and China iShare up 14% and Austria is up 11%.
Emerging markets continue their momentum up over 10% and the S&P Europe 350 turned in a very respectable 6.1%. The US and global oil iShares were up about 12% and the semiconductor sector is already up over 10% (good for Taiwan pick!).
The S&P 600 small cap index has now beat the S&P 500 for six straight years. It could go the other way but I think only marginally so unless some events force investors to seek more stable earnings and much more emphasis on value over growth. A study by a couple of Harvard guys pointed out that 75% of the value of a global brand company like P&G is not even captured in its financial statements. For example, brand name, goodwill, staff, international network and distribution relationships etc.. Some of these companies like Dell are relatively cheap.
Looking at the last 52 weeks, gold is up 31%, crude oil up 44%, emerging markets 46% and Europe a surprising 26%.
Our Plum Creek timber REIT 2005 earnings were $354 million, or $1.92 per diluted share, on revenues of $1.576 billion. Earnings for 2004 were $362 million, or $1.97 per diluted share, on revenues of $1.528 billion. "We are pleased with our results for 2005, concluding another year of excellent strategic progress and profitability," said Rick Holley, president and chief executive officer. "Our 2005 income from continuing operations approached our 2004 level, one of the best years in Plum Creek's history."
Cash provided by operating activities for 2005 totaled $516 million and included approximately $31 million from the sale of large, non-strategic timberlands. Cash provided by operating activities during 2004 totaled $582 million and included approximately $129 million from the sale of large, non-strategic timberlands. The company ended 2005 with $369 million in cash and cash equivalents.
Here's a quick regional update for Asia. With the restating of China GDP numbers (accuracy highly doubtful), the composition of China's economy has changed with the industrial sector's share decreasing from 53% to 46% of GDP and the share of service sector increasing from 32% to 41%.
India's current account deficit stood at $7.7 billion for the quarter ending September 2005, or about 4.2% of GDP, and is higher than the previous peak of 3.8% hit during the balance of payments crisis in 1991. Indonesia's central bank increased the benchmark interest rate by 50 basis points to 12.75%, marking the sixth such increase in four months.
The rate hikes were initially implemented partly in response to the rapid depreciation of the rupiah during the month of August, when the currency hit levels last seen in 2001. The currency has since then appreciated 9.5% from its August lows. With the Sensex index up 53% last year and valuations getting to uncomfortable levels, we are halving our Morgan Stanley India Fund position in the International and Asia portfolios.
Korean exports rose to a record $25.8 billion in December, while exports for 2005 increased by 12.2% compared to 2004. China was the primary export market followed by the U.S. The expansion in exports occurred in spite of the won appreciating 11.8% on average during 2005.
In terms of cash position, I still like the Yen and Swiss Franc CDs at Everbank but it also seems likely that the US Dollar will stay relatively firm and money market rates are not a bad place to be for now. If the markets run into turmoil, the dollar should more than hold its own.
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