Posted by Andrew Hamlin
I just returned from spending two days with CEOs of U.S. trucking companies in NYC. This provided a good “boots on the ground” read on the economy, as trucking companies haul freight, and freight demand is “the” barometer on the health of the economy.
There are a few high level takeaways I wanted to share:
Weak freight areas:
Strong freight areas:
Posted by Andrew Hamlin & Helen Liu
During all periods of volatility, the knee jerk reaction is to sell stocks, preserve capital and go to cash. For long term income investors, we think this is the wrong approach.
From where we sit today, stock valuations are reasonable. Dividend increases remain strong. Share buybacks continue in force. Interest rates will be low for a while. Yes, growth is anemic, but we are making the case that during this period of volatility investors should continue to own stocks. To generate a long term consistent return there are few alternatives in this current low interest rate environment, but for income investors this could not be a better time to own high quality equities that pay growing dividends.
Firstly, let’s look at the bond market. With ample global liquidity, and certainly what looks like an environment where the world will have to get used to lower for long on the rate side, the bond market (absent high yield corporates) looks to generate very anemic returns globally. Indeed in Exhibit 1 we show 10 year government bond yields by country compared with dividend yields on the major indices in those countries. Owning bonds in this environment is not going to generate anywhere close to an adequate return.
Posted by Ben Cheng
There are two recent quotes from Capital Economics that I thought important to share:
“Return to deflation should be brief"
“Headline inflation fell below zero in a number of major economies in September, but we expect the latest bout of deflation to be short-lived. That said, the further drop in inflation expectations in Japan and the euro-zone over the past few months suggests that the BoJ and ECB still have more work to do.
There is still a great deal of belief that the return to inflation is just around the corner. The chart below shows that the market believes a pickup of 100-200 basis points in inflation is just around the corner.
Posted by Ben Cheng & Sandy Liang
Every major country in Europe and the U.S. - and now Japan - have 10 year bond yields trading at the lowest yield in the previous three months.
Japan 10-year yield – 31bps (!!)
Germany – 55bps
Canada – 141bps
U.S. – 203bps
An important question to ask is, why are bond yields so low?
Increasingly the Fraser Institute, and recently strategists at Credit Suisse and RBC think the below demographics table has something to do with it. It’s the percent of the population over 65 and it looks like the order of bond yields too. (Here's a good article from January that talks about the Fraser Institute's thoughts: http://business.financialpost.com/fp-comment/the-natural-rate-of-interest)
Posted by Darren Cabral*
Nike, one of the largest equity positions in the Aston Hill U.S. Growth Fund, released quarterly results after the close yesterday that defied gravity. The company’s share price has responded by rising almost 9% this morning. Nike reported strong sales growth across all markets combined with impressive margin improvement which helps offset foreign currency headwinds and has numerous levers to pull to further drive revenue growth and margin expansion. Nike’s performance in North America and China stood out to us. In North America, viewed as a mature market, the company demonstrated it continues to be at the forefront of delivering products that resonate with consumers across multiple lines with strong sales growth in footwear and apparel. China delivered the strongest revenue growth which gives us a window into Chinese consumer demand and bodes well for other best-in-class brand leaders such as Apple (on August 24, Tim Cook said “we continue to experience strong growth for our business in China through July and August. Growth in iPhone activations has actually accelerated over the past few weeks, and we have had the best performance of the year for the App Store in China during the last 2 weeks” – we are more inclined today to believe him).
We were able to enhance the return of our long equity position in Nike in two ways.
First, ahead of Nike announcing earnings, we sold cash covered puts on Nike stock expiring in 3 weeks from now at a strike price of $105, meaning we would be obligated to buy Nike shares at $105 if Nike were to trade at or below this level on or prior to the October expiration date. We had no problem executing this transaction because it’s an attractive price for a very high quality company;, and the probability that we would be exercised was, in our opinion, quite low and our return would be enhanced by the premium we received for selling the put option. The probability that our put gets exercised now is far lower today – Nike would need to fall by close to 15% over the next three weeks.
The AHF Credit Opportunities Fund is generally available to investors that can meet a certain minimum amount of money to invest. The minimum initial investment for residents in any province or territory in accordance with applicable securities laws is set out below:
All provinces and territories $125,000 or $25,000(1)
BC, NB, NS and NL Only: $5,000(2)
(1) A minimum purchase of $25,000 is available to residents who meet certain requirements.
(2) A minimum purchase of $5,000 is available to residents who meet certain requirements and reside in BC, NB, NS and NL by way of the prescribed OM.
Investors should contact their investment dealer or Financial Advisor for more information.
If you can comfortably invest the minimum dollar amount required in your province or territory, please accept the disclaimer below to learn more about the AHF Credit Opportunities Fund.
Disclaimer: Information pertaining to AHF Credit Opportunities Fund is not to be construed as a public offering of securities in any jurisdiction of Canada. The offering of units in the AHF Credit Opportunities Fund is made pursuant to its offering memorandum only to those investors in jurisdictions of Canada who meet certain eligibility requirements. Please read the offering memorandum carefully before investing.
The Aston Hill Opportunities Fund is generally available to investors that can meet a certain minimum amount of money to invest. The minimum initial investment for residents in any province or territory in accordance with applicable securities laws is set out below:
All provinces and territories $150,000 or $5,000(1)
(1) A minimum purchase of $5,000 is available to residents who meet certain requirements. Investors should contact their investment dealer or Financial Advisor for more information.
If you can comfortably invest the minimum dollar amount required in your province or territory, please accept the disclaimer below to learn more about the Aston Hill Opportunities Fund.
Disclaimer: Information pertaining to Aston Hill Opportunities Fund is not to be construed as a public offering of securities in any jurisdiction of Canada. The offering of units in the Aston Hill Opportunities Fund is made pursuant to its offering memorandum only to those investors in jurisdictions of Canada who meet certain eligibility requirements. Please read the offering memorandum carefully before investing.
Nov 27, 2015 10:09 EST