Here’s an idea to start today’s Reckoning. A recent study says your best bet when it comes to stocks is to either be dead or forget you own any. That’s what Fidelity Investments came up with after they did a survey of their client accounts. Tell that to your financial advisor!
And for the record, it’s actually possible in the US to find a fund that brings you something like that. ‘The Voya Corporate Leaders Trust Fund hasn’t picked a new stock in 80 years,’ says the note that came across my desk recently.
It goes on: ‘Yet this fund has outperformed 98% of large value funds over the past five and ten years, according to Morningstar. The fund has seen inflows of $708 million since 2011, yet there’s been no new activity since 1935!’
Of course, whoever picked the original stocks must have known a thing or two. Which companies would you pick today to be around in 2095?
Well, my crystal ball is as cloudy as yours. But you only have to look at the headlines to see you’d be off to a very rough start with a few iron re miners. The shares of Atlas Iron [ASX:AGO], for example, went into voluntary suspension yesterday.
Will the company come out of it? At the current iron ore price, which is at a ten year low, Atlas loses US$13 a tonne. According to the Australian Financial Review, that would mean Atlas would lose US$180 million over a year.
Losing money is always a problem. But it’s especially acute when you have $327 million in gross debt as Atlas does. It’s surviving on the goodwill of its creditors.
Some of the other iron ore miners don’t look any healthier. And if you’re thinking now might be the time for a contrarian play, our resources analyst, Jason Stevenson, is out of iron ore and standing clear. His advice: don’t fight the last war.
The tailwind for real estate, on the other hand, looks a lot stronger than iron ore, that’s for sure. It would have looked even stronger had the RBA cut the interest rate yesterday.
Lawyer Paul Cleary told the AFR that the decision probably cost him $50,000 on the upcoming sale of his Sydney terrace. That’s because any interest rate cut immediately capitalises into the price of property. It has the same effect on dividend paying shares.
The problem is that there’s no guarantee the RBA won’t cut rates at their next meeting. So if you’re looking for income, considering some top quality dividend payers now makes sense. Total Income editor Matt Hibbard has some ideas for you here.
Of course, that brings us back to the question of what to put in our fund for the dead and mindless. One for the shortlist might be Blackstone Group [NYSE: BX]. Blackstone is the world’s largest alternative asset manager. The company is buying up real estate all over the world. It’s one to watch at least for the next ten years, if not the next eighty.
The Australian Financial Review reports that over the last four months the company has raised — wait for it — US$14.5 billion (AU$19 billion) for a global real estate fund. They’d like another billion just to top it all off.
This company already has the largest real estate investing business on the planet. That equates to a cool US$81 billion worth of assets under management. According to the AFR, the company’s property funds have annualised returns of 18% after fees since 1994.
That might be raising the cash for a bigger bite of European commercial property if the Wall Street Journal is anything to go by. The WSJ reported last week that an arm of Blackstone, LogiCor, already spent $2 billion on European property last year and expanded into six new markets. And they’re hungry for more.
That’s because e-commerce is driving demand for industrial warehouses that are, according to the WSJ, ‘becoming vital to retailers across Europe as their business models shift to serve the burgeoning number of online consumers expecting next-day delivery of their goods…Logistics properties are expected to be the best-performing real-estate sector in Europe over the next five years, a recent report from Deutsche Asset & Wealth management said.’
You can see that rising trend since the 2008 collapse here…
What’s interesting about this is that you can essentially see the same story playing out in US residential real estate right now. The GFC wiped out so many players that the sector was left for dead for years. Then suddenly everyone’s scrambling for their own piece of the action when growth returns.
It really is history repeating. So what happens next? Well, if you know the property clock, the thing to be watching, especially in the US and UK, is…the comeback of the banks. More on this next time. Until then!
for Markets and Money