With 2019 in the history books, financial analysts are “cautiously optimistic”. Translation: fundamental and economic data show no immediate signs of a recession on the horizon, however, how long can we go without a correction, times when the S&P 500 falls at least 10% from a prior high. In the past decade, investors have endured only six corrections, a fact that may have some investors spooked, waiting on the sidelines for the so-called right time to invest. This month’s issue of The Samra Report highlights our firm’s strategy and tactical opportunities for 2020.
In January 2017, Samra Wealth Management released a Global Investment Outlook: “The Year Ahead 2017”, identifying four select sectors for double-digit growth: Technology, Healthcare, Financials and Industrials. Our recommendation avoided investing in the consumer discretionary and consumer staples sectors, in favor of direct investments in Amazon, Alibaba, Walmart, and later adding MecardoLibre and Rakutan in 2019. In 2019 these recommendations performed as follows:
Technology 50.3 %
Healthcare 20.8%
Industrials 29.4%
Financials 32.5%
Amazon 23.17
Alibaba 54.74
Walmart 29.75%
MercardoLibre 95.30%
Rakutan 27.89%
** In addition to the above, we believe it prudent to mention the returns of the following, that were moved out of the Information Technology Sector: Alphabet (29.10% & 28.18%), Facebook (52.58%), Baidu (-20.30%) that were moved into the new Communications Sector in November 2018, and Ebay (28.64%) that was moved into the Consumer Discretionary Sector as part of the Global Industry Classification Standard (GICS).
There is no doubt 2019 proved to be a stellar year, however, at Samra Wealth Management we find our clients are more risk averse and have less of an appetite for the rollercoaster ride of the market. With 2019 in the bag, our “2020: The Year Ahead” global investment outlook aims to provide investors with research-based insight. As a Chinese delegation heads to Washington for the signing of a planned Phase 1 trade deal, consumer sentiment ticks-up with a similar trajectory to the financial markets, a sentiment shared across global markets. Presidential Tweets have estimated the trade deal will result in the Chinese buying $50 Billion worth of farm products as part of the Phase 1 deal. However, investors should be cautious, as it is unclear the toll the trade war has taken on U.S. Farmers as the Trump administrations allocated $24.5 Billion to compensate farmers for trade war losses. In summarizing, the United States may not be in a better position than prior to the administration’s tariffs, with regards to trade. However, investors who have stayed in cash on the sidelines, may have an increased appetite for risk, heading into equities as bonds payout near record lows. A substantial move from cash and fixed-income into equities could find stocks moving to new highs in 2020. Furthermore, the graph below strengthens the argument that recessions rarely follow a year of great returns, as it is more likely we will expect to see a year of good returns in 2020. At Samra Wealth Management, we believe the market will return 13% in 2020, with heightened probability of a 10% or greater pull-back.
Our Sector Rotational Strategy continues to promote Technology, Healthcare, Industrials (ex. Manufacturing) and Financials. We will continue to stay away from Consumer Staples and Consumer Discretionary Sectors in favor of: Amazon, Alibaba, Walmart, Rakutan and MecardoLibre. In addition, we are adding Energy. As companies continue to buy back their own stock, led by financials in the amount of $48 billion in Q3 2019, we believe it is unlikely that we will see a recession until after the Presidential Election. Globally, we remain bullish on China and developed Europe, however, now have nearly zero exposure to India, given the violence following the nationalist movement. Although we believe the Modi government will be able to keep this contained, censorship will likely slow the flow of direct foreign investment to India. With Brexit nearing reality, the UK could present a good investment opportunity in dollar terms, as we seek low equity prices with a weaker sterling, pushed down due to lower consumption. As the UK moves a step closer to divorce, we believe The Netherlands will be the primary beneficiary of job relocation, a diverse country where the majority of people speak English. Tactically, we recommend hedging portfolio risk with exposure to Net Lease Commercial Real Estate and following social migration patterns for multifamily residential real estate, specifically around metro areas of D.C., Charlotte, Atlanta and Tampa. In addition, we have been shifting away from growth towards value, in search of quality dividend paying stocks with strong balance sheets. Disclosure: All views/opinions expressed herein are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC. All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed. All economic and performance data is historical and not indicative of future results. The information contained here does not constitute a recommendation or a solicitation or offer of the purchase or sale of securities. Before investing or using any strategy, individuals should consult with their tax, legal, or financial advisor. Investing involves risk including loss of principal. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. Indexes are unmanaged and do not incur management fees, costs, or expenses. It is not possible to invest directly in an index. Returns are shown without deductions of advisory fees, trading fees or internal management fund expenses. The deduction of such fees and expenses, and the compounding effect of such fees over time, will reduce returns over time. *Amended January 14th, 2019. References DQYDJ. (2020). 2019 S&P 500 Return, Dividends Reinvested - Don't Quit Your Day Job.... [online] Available at: https://dqydj.com/2019-sp-500-return/ [Accessed 14 Jan. 2020]. Finance.yahoo.com. (2020). SNP - SNP Real Time Price. Currency in USD. [online] Available at: https://finance.yahoo.com/chart/%5EGSPC?p=^GSPC [Accessed 14 Jan. 2020]. Lewis, A. (2020). The stock market boomed in 2019. Here's how it happened. [online] CNBC. Available at: https://www.cnbc.com/2019/12/31/the-stock-market-boomed-in-2019-heres-how-it-happened.html [Accessed 14 Jan. 2020]. MSCI.com. (2020). CONSULTATION ON IMPLEMENTATION OF 2018 GICS CHANGES IN THE MSCI EQUITY INDEXES. [online] Available at: https://www.msci.com/documents/1296102/8328554/GICS2018Consultation.pdf/0f246611-27f7-4126-b7f0-02a9255724d5 [Accessed 14 Jan. 2020]. Novel Investor. 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