What we're seeing now
January 16th, 2009 | Posted in Announcements
January Update from Peter Spann, CEO Freeman Fox
After a turbulent 2008, I am very pleased to be wishing you a "Happy New Year". And I am fairly confident, from a financial perspective, it will be happier than last year!
As expected, there is still a lot of turmoil and volatility in markets around the world and while we think much of the fallout from last year has been priced in, we are coming up to reporting season. As I warned in my December email, many businesses will struggle to maintain earnings and will be under pressure to cut costs in the first half of the year. This week Alcoa announced its first quarterly net loss in six years which resulted in a 7.5% fall in the stock that night. While there could be some unexpected positive results, Alcoa won't be the only ones with bad news.
In fact, bad results combined with negative economic data are likely to keep on shaking things up for a little while yet.
Of course while all this has been going on, we've been busy researching. We positioned our GEM Funds to be ready to take advantage of new opportunities that we find and now we're getting ready to pounce on them!
Here's some of what we're seeing...
PEs showing value
Recent in-house analysis highlights that Price Earnings (PE) ratios have moved into a favourable range for investment. In November 2008 the average PE ratio of the ASX200 was approximately 9.17x - down significantly on previous years because of the lower prices.
To illustrate this point, the following chart shows the correlation between the PE ratio and 5 year return in relation to the US S&P 500. As you can see, investments made below a PE of 10x have high probabilities of generating 15%+ p.a. returns in the subsequent 5 years.
There is just one caveat to this data... it goes without saying that regardless of the PE, the company you invest in has to prosper! In times like this, that is not always a given. So once again value investing comes back to quality and fundamentals.
If you'd like to find out more about selecting quality investment opportunities, call us on 1800 000 369 today.
Why the fundamentals matter
We have been through an extremely unusual period and every aspect of our investing has been tested. I mention this because when times are tough, the fundamentals matter more than ever. That's why you'll have noticed we've been talking about them a lot more lately.
Freeman Fox's 8 Key Principles of Wealth Creation are based on my personal investment philosophy. They underpin the strategies that our Advisers design for you and the way we manage our GEM Funds.
In the good times, almost anyone (with or without an overriding strategy) can make money.
At the moment, when things are unpredictable, sticking closely to a simple but sound framework like this is important. It assists you in making better decisions about your investing. It helps keep perspective when the rest of the world appears to be going mad. And, it works if you follow it. Our investments have outperformed their benchmarks which is a very good achievement in this climate.
In fact, the people who are in real trouble right now are the ones who ignored one or more of these Principles.
They really do work in unison and in my last email I made a special mention about Gearing.
There are two others that I think are of particular importance right now...
1. A reminder to Invest for the Long Term; and
2. Set up your PIP (Personal Investing Plan)
Making the most of turmoil
You already know that taking a longer term view inevitably improves the chances of a positive outcome. And when you started on your wealth creation journey you were thinking longer term, why would you change your mind now?
And so, if you are investing for the long term, do it well.
Setting up a PIP - an automated, regular investing program with even small monthly amounts can have a wonderful impact on your long term outcome. First of all, you are constantly adding to your assets - putting more and more in to maximise the power of Compounding over the long term. And secondly, while prices are down, it's a way to 'Dollar Cost Average'... A fantastic opportunity to reduce the average "cost" of your investments if you did pay more for them than they are "worth" now.
Please talk to an Adviser about these or any of the 8 Key Principles. I cannot stress enough how important each one is (and will continue to be in the coming weeks and months).
We will write again soon with more information to help you manage your wealth strategy. Until then, if there's anything you'd like to discuss with us, just call on 1800 000 369.
Cheers,
Peter Spann
Important Notice Regarding Advice and Potential Conflict of Interest
The information in this email has been prepared without taking into account your investment objectives, financial situation, or needs. Before making an investment decision you should consider the appropriateness of the advice having regard to these matters, obtain a copy of and consider the relevant Product Disclosure Statement ("PDS") for that product. If you require assistance in relation to your personal investment situation please contact a representative of Freeman Fox on 1800 000 369. Past performance is not a reliable indicator. Performance data has been gathered from a variety of sources. While the information in this report is given in good faith and is believed to be reliable and accurate, Freeman Fox Ltd gives no warranty as to the reliability or accuracy of the information, nor accepts any responsibility for any errors or omissions.
This is not an offer to acquire an interest in a managed investment scheme (otherwise "Fund"). Persons wanting to acquire an interest in the Funds promoted in the Market Update must complete an application form in, or accompanying the PDS for that product. Freeman Fox Ltd (ABN 17 010 763 087) ("Freeman Fox") is the holder of an Australian Financial Services Licence (AFSLN 246510). Fundhost Limited (ABN 69 092 517 087) (AFSL 233045) ("Fundhost") as the Responsible Entity is the issuer of GeneratorTM ARSN 127 699 754, EmergentTM ARSN 130 533747, and MaximiserTM ARSN 130 533 685. Freeman Fox and its Corporate Authorised Representative, Fox Portfolio Pty Limited, are the Investment Manager of the Funds.
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