Rosie reiterates his investment thesis for 2011
David Rosenberg, Chief Economist and Strategist of Gluskin Sheff & Associates, has often been accused of being a perma-bear. In the paragraphs below he explains his “preservationist” stance.
For 2011, not only do I still favour credit, especially the spread compression left in the high-yield space, but relative value portfolios, hybrids with a decent running yield and exposure to Canadian dollars. The resource sector is also attractive, especially oil, with a long-term view towards buying these companies on dips and not just for the commodity price uptrend which may be interrupted periodically this year as China’s policymakers move to restrain their overheated economy, but for the reserves in the ground and the ongoing consolidation in the industry. Corporate bonds, especially BB-rated product. Hedge funds, with low correlations with the direction of the market or the economy — across the spectrum of equity, income, and resources. And precious metals as a hedge against periodic bouts of currency and monetary instability in the U.S.A. and Europe.
So you can accuse me of being a perma-bear, but that is just a label that missed the point. I’m a capital preservationist, first and foremost, and a prudent strategist aiming for returns over a business cycle that will exceed anything anyone can garner by relying on the government bond curve or the stock market indices, which themselves are nothing more than concentrated portfolios and as our Chief Investment Officer, Bill Webb, is fond of saying, “accidents of history”.
As an aside, while I am not at all a big fan of the U.S. equity market as an asset class on its own, there are stocks that I do like — the stodgy large-cap blue-chips that deliver a stable earnings stream, those that have been ignored by the investment community and as such trade at steep price-earnings or price-sales discounts to the overall market, have strong balance sheets and pay out a consistent dividend with a yield that you can’t get much beyond the 10-year Treasury note. That would include some in the consumer staples space, largecap tech and health care within the U.S. universe. Definitely a bias towards the laggards after a two-year, near-100% rally, and that involves a strategy that focuses on high-quality stocks, which have woefully underperformed so far this cycle and as such offer very good value with very little downside potential and decent yield protection even in the case of a market correction.
I want to emphasize how important it is to have a core position in hedge funds that actually manage and hedge the risk in this post-bubble period of intense financial market volatility. I highly recommend a read of the Short View on page 16 of today’s FT. The biggest mistake an investor can make today is to superimpose last year’s bizarre surge in equity market correlations among specific sectors and companies. After hitting a 23-year high in 2010, these correlations have now fallen back to much more normal levels (the lowest in almost four years). This in turn means — the current and prospective environment of low and stable correlations — that relative value trades, following a hiatus in performance last year are very likely going to shine in 2011.
Source: David Rosenberg, Gluskin Sheff & Associates – Breakfast with Dave, February 11, 2011.
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