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The Global Cash Tsunami, and funds to benefit

As a result of money-printing by central banks since 2008, there are vast sums of money sloshing around the world looking for a home. Until recently investors large and small focused on bond markets, now there are signs that they are turning to stock markets. Here we explore where the greatest impact might be on equity markets, creating more profitable opportunities than the usual “go to” funds.

Buy India

We’ve said it before and we say it again.  India remains a fascinating opportunity for all sorts of reasons, among which are:

  • a positive stock market trend
  • a very young population...
  • ...with very little debt
  • less reliance on global trends
  • and, lately, evidence of a much greater commitment to reform

Buy Jupiter IndiaAnalysis Save to my funds Add to basket

Buy China

While we all have obsessed about the US fiscal cliff and eurocrisis, we miss the “momentous shifts taking place in the global economy” (says HSBC). We agree. 

The Chinese economy showed clear signs of stability in late 2012, and their stock market is cheap, as we highlighted in the last edition.  China won’t switch to a domestic-focussed economy overnight or without pain, but the risks might just be in the price.

Buy Invesco Perpetual Hong Kong & ChinaAnalysis Save to my funds Add to basket fund.

Buy gold miners (but not gold)

It is not a secret that we aren’t big gold fans.  But we believe an opportunity has emerged. Gold mining shares were horrible performers in 2012 (-19.38%). In contrast the gold price itself edged up (1% in sterling, 7% in $). 

What about 2013? There is now the opportunity for these relative performances to reverse.  Why? 

  • There are vast sums of cash washing around the world looking for a home; 
  • the evidence of recent weeks is that investors are prepared to take on a bit more risk; 
  • they will seek out corners of the globe where good value is apparent; 
  • gold mining shares look reasonable value; 
  • it is a very small sector, 
  • and it won’t take much investor interest to drive prices higher.  

This is an opportunistic trade, looking forward 6-12 months.  Smith & Williamson Global Gold & Resources.

Buy global energy

In a similar vein are energy funds. Some of them were battered in 2012 (down 10% at worst). The Artemis Global Energy fund performed somewhat better, up 2% over the year. 

It also has a different approach to other funds, being much less US-centric, seeking out truly global opportunities, and trying to be less dependent on the oil price to make progress.  And of course growing demand from China would be helpful, as would any renewed problems in the Middle East.  . 

Buy hedged Japan funds

Another opportunity for cash-rich global investors with a currency angle is Japan.

We have said for some time that at some point the 20+ year bear trend in Japanese equities would come to an end, and highlighted one catalyst as being the point when Japan attempts to inflate away its vast debt via massive central bank action, which could in turn result in sky rocketing share prices in Tokyo. 

The problems was (and this is now becoming evident) that this could cause the Yen to collapse. In fact Yen weakness is a key part of the strategy from a Japanese perspective, as it makes their exporters more competitive.

To take advantage of this new trend (still in its early stages) UK based investors should buy funds which hedge the yen, or they could lose all their stock market gains through yen weakness.    

For example, even in the last year the Nikkei was up 27.86% in local currency terms but up just 5.14% rebased in sterling.

Our recommended fund is Neptune Japan OpportunitiesAnalysis Save to my funds Add to basket. This fund is approximately 85% hedged. The fund is up 18.92% over the last year.

ACTION FOR INVESTORS

Obviously a number of the opportunities highlighted above are higher risk, but also hold out the possibility of higher reward.  As such, it enables you to still keep a higher proportion of your portfolio in cautious funds, but balance it with a selection of these at the other end of the risk spectrum - what we call a barbell approach, albeit a lop-sided one e.g. we don’t believe anyone should be embarrassed with a 70/30 “balance”, with the greatest proportion still invested cautiously.

Topic: Fund analysis


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