(PUB) Investing 2015
3
Septemb er 2015
Morningstar FundInvestor
Five-Year Market Appreciation in Value of $10,000
p MSCI EAFE NR USD
p MSCI EM NR USD
p Barclays US Agg Bond TR USD
24,000
p MSCI China A NR USD p MSCI EU NR USD
p S&P 500
20,400
16,800
13,200
9,600
2010
2011
2012
2013
2014
2015
It has been a remarkable run for U.S. equities even after this latest drop. Even China is ahead of where it was five years ago. But emerging markets have been completely left out of the party, as they are now in the red for five years. Data from 09/01/10–08/31/15.
“This is a once in a decade opportunity where the Mexican peso, Malaysian ringgit, Korean won, Indone- sian rupiah, and Brazilian real have tested all-time lows. Today fundamentals are far better and capital reserves stronger than in the 1990 s when they were in crisis. The Mexican peso has fallen further than it did in the tequila crisis of 1994 even though it has little debt and has a strong economy. The panic is not rooted in market fundamentals.” American Funds New World NEWFX manager Rob Lovelace sees this as a healthy correction rather than a repeat of 2008 : “U.S. stocks have had a strong run. There has been a bit of a ‘hope’ rally in Europe and Japan, though emerging markets haven’t had much of a rally at all. That’s a big difference compared with before the 2007 – 09 global financial crisis. All areas of the global capital markets have not rallied indiscri- minately. That is why I think this correction is not a repeat of the global financial crisis, but rather more akin to the market downturns we experienced in 1994 and 1998 . “These situations when we are most fearful are generally the moments of greatest opportunity. In 2009 , when the market was at its bottom, nobody wanted to buy.”
Oakmark Select ’s OAKLX Bill Nygren is taking the sell-off in stride: “Sometimes we just forget that the market doesn’t really need a reason to have a 10% correction, which we basically had over the past four trading days. They occur pretty frequently—about once every year and a half, on average, historically— and they are really nothing for investors to worry about as they are pretty common. “For energy companies, quality of balance sheet is important. We want to invest in companies that can weather a reasonable-length depression in the commodity price. One of the advantages of oil investing compared with other international commo- dities is that because decline curves are relatively rapid on existing wells, it doesn’t take very long for production to slow down. Because of that, market forces have to push the price more toward a level that justifies new investment by oil companies. ... What excites us about this is that the market seems to be pricing a lot of these companies as if $40 oil is going to be a permanent fixture, but we’re quite con- fident that prices need to get back up to that $70 or $80 level to incentivize oil companies to invest in new wells. Without that, a couple of years down the road, we’re going to be in seriously short supply.”
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