Mark Mobius is a well-known emerging market portfolio manager at Franklin Templeton Investments.  In a recent Time Magazine article, he offers his outlook on Asia, Russia, Eastern Europe and Africa.

Click here to read the article

A great advantage of travelling is that you get to see things from a different perspective. Odette and I just returned from a trip to Greece. Before leaving I admit to some apprehension as North American media focused on Greece’s economic uncertainty and our television screens provided multitudes of images of Greek strikers, rioters and all around economic and social upheaval. This is what we see on our television screens. These are sensational images and probably make for “good television”. Looking at this one might conclude that nobody would want to invest in Greece in such chaotic times.

What we don’t see on our TVs is the less sensational but profoundly more important news.  For example, Cosco the giant “China Ocean Shipping Company” has recently signed a 3.5 Billion Euro deal for a 35 year concession giving the company control of part of Athens main port of Piraeus.  The company’s chief executive, Wei Jiafu, declares that Cosco has plans to turn Piraeus into the “greatest container hub in the eastern Mediterranean.” Thus far he said he was very happy with his company’s investment in the Piraeus terminals, noting that the first four months of this year had seen an increase of 43 percent in container traffic compared to the same period last year. 

As well, in June of this year, less than 24 hours after Moody’s slashed Greece’s sovereign rating to “junk” status, the Chinese vice premier Zhang Dejiang was in Athens to sign 14 commercial agreements.  Premier Dejiang said that Beijing wants to stand by Greece in its moment of crisis. “The government is going to encourage Chinese entrepreneurs to come to Greece to make partnerships and investments,” “We are convinced that the Greek government is capable of overcoming the crisis and returning to stable growth.”

So remember what we see on TV in the evenings is only one slice of the real events and probably the most sensationalized one.

In a 10-part series, Advisor.ca looks at top performing funds in their categories over 10 years.  In the emerging markets category, AGF Emerging Fund comes out on top.  The fund has a 10 year return of 9.1% well above the benchmark MSCI Emerging Index return of 6.2%.  The manager, Patricia Perez-Coutts has been managing the fund since 2002.  Being born and studying in Peru and living in Brazil, she has deeply-rooted understanding of the developing Latin American market.  The fund currently has a 25.5% allocation to Latin America, a couple percentage points over the benchmark index.  One of the key themes in emerging markets is the rise in consumer spending, which is why AGF Emerging is also overweight in the consumer goods and services sectors.  Patricia says that consumer spending in emerging countries has still lots of room to grow. 

The article goes on to explain that, despite emerging markets being all the rage today, they weren’t always as popular.  Several emerging economies were marked by political and economic instability in the mid 90’s, but the harsh lessons learned from that period led to debt repayment at the government level and cleaner balance sheets at the corporate level.  Also, the low interest rate period of the early 2000’s led to widespread global spending, which led to rising commodity prices and resource rich countries like Brazil (and Canada!) benefited. 

You First Portfolios will typically have around a 10% weighting emerging market sector. The risk level for emerging market funds will usually be “high”, because returns tend to be more volatile than developed equity markets. 

To read the full article click here. 

Some of you may be wondering about the effect of the Greece, Spain, Portugal and potentially soon Italy crisis on your investments. Luckily, you will recall that we have dramatically reduced your portfolio exposure to Europe last time we met. We expected volatility in that region including the UK for several months now.

Without minimizing the situation, Europe will likely have little effect on the World capitalization. It is unlikely to affect your investment in a big way over the mid or long-term. Canada will likely not be affected much at all other than through currency fluctuations. In times of uncertainty, people go back to the US dollar. That is why our dollar has dropped a little in recent days. Remember that a lower Canadian dollar is a good thing for us being an exporting country.

Also, our resources are in big demand from the expanding economies of Asia and Emerging Markets. That is really where the growth will come from going forward. Greece & Spain are a drop in the bucket compared to that.

Also important to remember, here is a quote from Chuk Wong, Dynamic Manager on this issue:

“Macro headlines encourage misjudgement and fear creates opportunity. A company’s operating fundamentals are ultimately what matters and fear-driven valuation discounts are the best friend to long-term value-oriented investors like us”.

Again, I don’t want to minimize the crisis, because it is not that black and white but given the overall global outlook, the fact that we have lowered your exposure to Europe and the US and increased Canada and Emerging Markets, I would not be overly concerned.

If we survived the near apocalypse year we just went through, we can and will eventually survive Europe’s troubles!

You may be interested in reading this articles on the subject of Greece common Tax Evasion. An improvement in the Greek Tax collection system will go a long way towards invigorating investor confidence in the region.

click here for article

From a March 20th Globe and Mail articled titled “Small-Cap Funds Soar in Early Stages of Recovery”, which highlights the one year return of some well known Canadian small-cap mutual funds. 

Small-Cap mutual funds, which focus on buying shares of smaller companies, have historically outperformed in the first year of a market recovery, and last year was no different.  The popular BMO small cap index has a 1yr return returned 87.6% compared to 47.6% for the TSX Canadian index. 

Small-cap companies tend to do well in early stages of recovery because of their presumed higher growth potential than larger companies.  Also, they do not have the widespread stock analyst coverage that larger companies have.  Fund managers have a better opportunity to uncover overlooked companies. 

There is a flip side to this of course.  Small-cap funds are more volatile than large-cap funds. Smaller companies have a harder time securing credit and offer less diversified revenue streams than larger companies. It should be mentioned that the BMO small-cap index fell 46.7% during the “great recession” of 2008, versus only 33% for the TSX. 

From an Article titled “Lifeplan: Upgrade your Portfolio”.  From the SmartMoney website, part of the Wall Street Journal Digital Network. 

This article goes over some of the fundamentals and latest trends related to portfolio construction, asset allocation, and fixed-income. 

Summary: 
-Although stocks and bonds remain the pillars of any portfolio, some investors look to add certain “alternative asset classes” to their portfolio.  These include commodities, infrastructure, income trusts, and precious metals through the purchase mutual funds. 
-The benefits of these classes of funds is they offer low correlation to equity funds.  They tend to do well when equity funds go down. .
-Young investors should still load up on equity funds, as high as 80% of their total portfolio
-Interest rates have nowhere to go but up and the simple rule of thumb with bonds is that when interest rates go up, bond prices go down.  Fixed-income fund investors should be paying attention to the average bond duration in the fund.  The shorter the duration, the less sensitive the fund will be to rate increases.  The corporate and real-return bond weighting is also important as these tend to perform better in a rising-rate or inflationary environment. 

Getting a tax refund?  Before spending it all, read my suggestions below. 

Not getting any refund or not enough of a refund?  Start a monthly RRSP now!  You now have 12 months ahead of you to make this happen.  It is so easy to save for a comfortable retirement and increase your chances of a refund next year.  Just let us know and we will prepare the required forms for when you pick up your tax return. 

Many of you will be getting a tax refund soon.  Before spending your refund remember that a refund isn’t a gift.  It is the return of an interest free loan you made to the Government for overpaid taxes.  Even if advisors like me tell you that the best tax refund is no refund at all, the truth is that it is for most, the best forced saving.  So, now when it comes back to you, think hard before spending frivolously.  Why not spend some and save the rest!

Here are some thoughts on how you can use the refund to better your financial position.

1. Begin or add to your emergency savings plan: If you don’t have a cash emergency fund set aside, put some of your tax refund in a high interest savings account like ING or Dundee savings.

2. Make a 2010 RRSP contribution: Get a head start toward your 2010 RRSP contribution. This way you will add to your retirement fund, have more to spend later in life and get a tax saving for next year!

3. Invest in a TFSA: You can add $5000 a year to a Tax-Free Savings Account.  You can save it short-term or invest it for wealth accumulation and retirement!

4. Add to your children’s RESP: And get the 20% government Grant! You know this will cost you a bundle and an education is the best investment!

5. Reduce the mortgage: Please remember however that with interest rates this low, you will likely be better off investing your refund. More on that in a future Blog post.  Stay tuned!

Every situation is unique, whenever in doubt, just call us. We will review your situation and help you make an appropriate decision!

One of my 27 year old clients said to me today: “I could have made an extra RRSP contribution before the deadline but I didn’t because, I don’t care....really, I’m serious, I really don’t care!”

For all of you 27 years old out there, let me just say that it is totally normal or ok to not care at this time in your life but I can guarantee that you will care later when you get to 60.  So, I thought I would design an “I don’t care plan” for you!  This plan is simply a way for the young and carefree individuals to make things happen automatically without having to talk about it, think about it or even care about it!

Here is the “I don’t care plan” that I prepared for her.  After factoring her employer Group RRSP contributions, her retirement income need based on current income plus inflation, I figured that she would need a retirement fund of about $875k at age 60.  Based on an 8% rate of return, she will need to save an extra $1600 per year. Yep!  That’s all.  Can you imagine having to save only $1600 per year??  If she waits to age 50, she will have to save a whooping $27,000 a year!!! Ouch!  That is a lot of pub nights!

If she ask s her employer to increase her RRSP contribution by $66 per pay, the net difference on her paycheque will only be $46 (she is in a 30% tax bracket). 

$4000 a year seems like a lot but if you work out the numbers, look at your situation and divide the figure per pay cheque, $46 is a lot more manageable! The best part is that you won’t have to give up a lot of pub nights, think about it, talk about it or even “care about it”!!

She looked at me, smiled and said, I can do that!  I think she liked her new “I don’t care plan”.  She left my office after signing the form to adjust her Group RRSP plan, smiling and went straight to the pub!