Thursday, January 20th, 2011
Tags: Arbuthnot, Autoload, Brazil, BRIC, Bric Countries, BRICs, Canadian Equity Fund, Canadian Investment Awards, Canadian Market, David Taylor, Div, Dynamic Value, Equity Investment, Flv Player, Hana, Investing Strategy, Investments, Lt, Manulife, True Loop, True Source
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Wednesday, September 8th, 2010
by David Andrews, CFA, Director, Investment Management & Research, Richardson GMP Ltd.
Amidst the dark economic clouds looming over the global economy, investors saw several rays of light last week in the form of improving manufacturing, housing, and employment data for August. The positive economic data emboldened the bulls to take charge of a rising equity market and forced bond investors to scramble for cover as bond prices fell and yields moved higher. At least for now, recent economic data has put investor fears of a double-dip recession to rest.
Looking back at the week, the S&P/TSX index rose 2.2% led by Financials (+2.3%) and Consumer Discretionary (1.7%). In Financials, the last of Canada’s big banks (TD Bank) to report its third quarter earnings showed a 29% jump in profit versus the previous year. In total, the quarterly results from the banks were somewhat mixed this quarter, although they were generally viewed as sufficient to support the overall rally in equities market last week. In addition, investor sentiment generally favoured equities helping to bolster the sagging shares of Canada’s large life insurance companies. Sun Life shares jumped 11% and Manulife rose 9.7% for the week. The big story in Consumer Discretionary last week was Magna International. Magna officially did away with its controversial dual class shares structure and the new, single-class Magna shares rose 12% for the week.
In U.S. markets, the S&P500 rose 2.6% (CAD$ terms), with all 10 sectors in positive territory. Financials (+4.5%) Consumer Discretionary (+3.8%) and Industrials (3.5%) led the surge.
The positive news began last Tuesday when Chinese manufacturing data (Purchasing Managers Index) jumped up from 51.2 to 51.7 in August. The data suggests China’s economy is beginning to stabilize and is not continuing to weaken as had been feared by investors and economists. Chinese policy makers have induced a slower rate of domestic growth this year by tightening monetary conditions in an attempt to thwart inflation. The August manufacturing data helps to suggest they have not become too restrictive in policy, especially with slowing momentum elsewhere in the world, specifically the United States.
Surprisingly enough, it was U.S. manufacturing data that also showed signs of life last week. U.S. PMI in August expanded to 56.3 versus a consensus expectation of only 52.8. A reading over 50 signals growth and expansion. Factories added workers and cranked up production allowing stocks to rally and bonds to slide as US and Chinese manufacturing data tempered concerns the global economy will falter without additional government stimulus.
By far the big news item of the past week was the always eagerly anticipated August non-farm payroll data. Investors were braced for the worst following an earlier ADP report showing a surprising loss of 10,000 positions where economists had expected 15,000 to be gained. Economists have not been having a good week! It turned out the U.S. non-farm payrolls fell 54,000 in August but it was feared over 100,000 positions may have disappeared. Unless you were one of those that lost their job, the news was actually better than expected. Also of importance were the revisions made to the July data as fewer jobs disappeared in the prior month than first thought. The unemployment rate ticked up from 9.5% to 9.6% as discouraged workers actually resumed the elusive search for employment in August.
The U.S. housing market has also continued to weigh on both investor and consumer confidence and remains one of the missing pieces of the recovery to date. Recent Case-Shiller housing data may now be pointing to signs the housing market is far from recovered but may be finally beginning to stabilize. The latest data from June shows home prices rising on average 0.3% in 20 American cities. The index showed year over year price changes up 4.2% versus last year. Economists were only predicting a 3.5% increase.
Compared to last week, the economic calendar is rather quiet in the holiday shortened trading week. The Bank of Canada is expected to increase overnight interest rate by another 25 basis points following recent quarter point hikes in June and July. On Friday, Canada’s August employment report should show 30,000 positions added in the month. This follows the dismal performance in July where 9,000 positions were lost.
In the U.S., the July trade balance should show some moderation following a run up in June. Economists are expecting a trade deficit of $US47 Billion. Trade data will be released on Wednesday this week.
Tags: Amp Research, Bond Investors, Bond Prices, Canadian Market, China, Chinese Policy, Class Shares, Double Dip Recession, Dual Class, Employment Data, Global Economy, Investor Fears, Investor Sentiment, Life Insurance Companies, Magna International, Manulife, Positive News, Purchasing Managers Index, Quarter Earnings, Quarterly Results, Rays Of Light, Sun Life Shares
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Thursday, March 25th, 2010
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Over the past twenty years, New York based Third Avenue Management has outperformed the US market by six percent annually. Third Avenue manages Manulife Investment’s newly acquired AIC Global Focused Fund.
Watch this manager discuss where he’s finding value today.
Ian Lapey discusses his firms “deep value” investment style pointing out that they like “safe” and “cheap.”
Safe – 1) Strong financial position, high quality assets, relative absence of liabilities. 2) Competent management team – impressive long-term track record, whose interests are aligned with outside passive minority shareholders, like ourselves. 3) Understandable business – our investment process is very document driven, we need to have very good disclosure, and we need to be able to understand after a review of the financials in order to invest.
Cheap – “A significant discount from the intrinsic value or private market value. What we try to do in valuing the company, we put on the business person’s hat, figure out a conservative valuation of the company as either a private entity or a takeover candidate, and then pay a significant discount to this private market value. We also want the business not only to be trading at a significant discount, but we want the business to have very attractive long term growth potential. So say, double digit long-term potential to compound net asset value.”
Where in the world is Third Avenue finding value?
Highest concentration in Hong Kong – investing in several Hong Kong Real Estate operating and investing companies, accounting for about 24% of the portfolio. About 20% of the portfolio is in the U.S. – a mix of high-tech companies with huge cash rich balance sheets, and a large investment in BNY Mellon a huge asset management custodian. 11% in Canada – Forest products company and a couple of energy names.
Hong Kong real estate companies represent the biggest bet in the portfolio – these companies all have extremely strong financial positions, net debt to capital ratios no higher than 15%, the management teams have impressive long term track records, and own between 30-50% of the outstanding shares of the companies, so their interests are very much aligned with ours – and the stocks trade at a significant discount to our estimate of NAV. So currently today, the best examples for us; the most fertile ground for safe and cheap, is in these Hong Kong real estate and investment companies.
Our biggest position is Henderson Land, a Hong Kong based company with very high quality assets primarily in the form of income producing real estate in Hong Kong, and a small but growing presence in mainland China. They also have a huge agricultural land “bank” in Hong Kong which should be a huge driver of growth for the company, and they own 39% of Hong Kong and China Gas, the sole provider of piped gas to Hong Kong, also with a presence in mainland China. The Chairman and CEO, Li Shau-Kee owns 54% of the common stock, so his interests are very much aligned with ours, and he has a great long term track record.
BNY Mellon is extremely well financed, and though they were battered a bit by the financial crisis, they weathered the storm quite well because they have very significant cash generative core businesses, i.e. asset custody, where they’re the leading global custodian, with $22-trillion under custody, and asset management, where they have over $1-trillion in AUM. These businesses have performed very well, in the bear market and financial crisis, and in fact, their assets under management were up over 20% in the first quarter of the year, and assets in custody were up over 10%.
Tags: Asset Value, Balance Sheets, Bet, Bny Mellon, Business Person, Canadian Market, China, Competent Management Team, Custodian, Financial Position, Financial Positions, Forest Products Company, Global Value, Henderson Land, Intrinsic Value, Manulife, Minority Shareholders, Net Asset Value, Private Entity, Private Market, Quality Assets, Relative Absence, Takeover Candidate, Third Avenue, Value Investment Style
Posted in Bonds, Canadian Market, China, Markets | Comments Off