WHEN THE FACTS CHANGE, I CHANGE MY MIND…. WHAT DO YOU DO?

January 8, 2015

 

 

Regardless of whether you are trying to accumulate assets for retirement or generating income in retirement it is IMPORTANT that your investments are positioned for the next 18-24 months and economic environment that will most likely exist over that time frame.

 

That will probably include:

  • Gently rising interest rates

  • Rising oil prices (from these levels) as production slows reducing supply 

  • Improving U.S. economy (brought along in part by lower energy costs)

 

With that in mind client portfolios NEED to:

  • Minimize exposure to longer duration investment grade bonds (2013 was a negative year for investment grade bonds as rate increased.      SUGGESTION: 1 year cash flow in SHORT TERM or FLEXIBLE BOND FUND.

  • Take a position in ASTON HILL RESOURCE AND INFRASTRUCTURE FUND to participate in upside for energy stocks and other resource related areas.  THIS FUND IS CURRENTLY 65% IN CASH!!!

  • Reduce exposure to interest sensitive equities that have benefited from falling and low interest rate environment.  These stocks suffered during 2013 and the rising rate environment at that time.  REDUCE NOT ELIMINATE!   SUGGESTION: move CI Yield into CI Signature Global Income and Growth and Dynamic Strategic Yield into Dynamic Power Global Balanced.

 

We have included comments from the manager of Aston Hill Resource and Infrastructure Fund that I received yesterday.  I have highlighted what I believe are the most important.

 

Few quick bullet points for now:

  • Closed the year out essentially flat…top decile in the group of resource funds   

  • In H214 we maintained a cash position of >50%...In December cash was as high as 70%....Currently cash is 65%

  • Q115 will be volatile…great opportunities to generate alpha for a small liquid fund…ie.current shorts in the fund include COS, PWT, ESI, PRE, BHI

  • Have recently put on some gold exposure…Reasons: Increasing global gov’t stimulus as economic conditions deteriorate, Safe haven demand (Greece), Solid physical buying out of Asia (China), Lower input costs (Oil/FX)

  • Have taken HY weights up slightly with the selloff in the 10yr – lots of rock solid bonds out there with generating material yields à POU, BTE, CFW, MRD.us, PVA.us

  • Will look to slowly put more capital to work later in the quarter, unless we get another large selloff ie/ $40WTI, then we will deploy sooner

 

Crude thoughts

  • Expect continued oil price volatility in the first half of 2015 as the market works through the 1– 1.5mmbbld of oversupply  

  • Potential bottom in the first quarter when seasonal demand is weakest à peak of global refinery maintenance

  • No growth in production below $70/bbl: at a Brent price of $70/bbl (WTI $65bbl) the industry generates enough cash flow to hold production flat but not grow given current balance sheet limitations

  • H115: Crude prices to trade in a range of $55–65/bbl (WTI $50–60/bbl), which is low enough to force producers to reduce spending à we have already started to see this

  • H215: This should drive a moderate crude price recovery in the second half of the year to approximately $60–80/bbl (WTI $55–75/bbl)  

 

For this group to work right now, we need stability not volatility.  Long only funds wont re-commit to the space until we get some trading band in commodities and SPX.  That being said, long term risk / reward throughout the oil levered energy complex reached very attractive levels. 

 

 

 

The views expressed do not necessarily reflect the opinion of Argosy Securities Inc. This does not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. Please consult a professional before making an investment decision.

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