Three Investment Themes for 2013
- Joshua M Brown
- December 20th, 2012
Before we get started with my predictions for 2013, I’d like to take a quick victory lap for the stellar predictions I made for 2012 – I somehow managed to go 3 for 3 this year! To be clear, when I do this each year, I’m trying to give you some sense of what areas of the investing world will prove popular, I’m not telling you what to buy or sell.
OK, back to my told ya so….
The return of emerging markets ex-BRIC was my top theme for 2012 – Nothing could have been more spot on as the top performing markets in the world were the non China, Brazil, India, Russia EM nations after a horrendous 2011. Non-BRICs all handily outperformed the traditional EM index (up 11%). Below you’ll see their 2012 performance with their 2011 performance in red parentheses for some perspective:
Country ETF 2012 Return 2011 Return
TUR (Turkey) +53.25% (-38.2%)
THD (Thailand) +30.5% (-8%)
EPOL (Poland) +28.31% (-35.9%)
EWT (Taiwan) +15.8% (-25.4%)
EWY (South Korea) +14.12% (-15.25%)
I also told you the world would become obsessed with income and dividend stocks / funds. Obviously, the obsession with equity dividends ruled the airwaves and the newspapers all year. The trend got so out of hand, we took the utility sector to a massive premium earnings multiple over the SPY and even no-growth telecoms managed to trade at a 17 PE – anything for yield. Dividend-oriented funds were among the few bright spots for equity fund flows this year.
My third theme was the mass acceptance of actively-managed ETFs, which is exactly what happened in 2012. Nine fund families are now offering these products, the largest active ETF launch happened this summer when PIMCO launched Total Return in the new wrapper, raised billions out of the gates and then outperformed his like-titled mutual fund vehicle by quite a bit. Fidelity has just announced the launch of a new suite of active ETFs and State Street IPO’d a couple of them of them earlier this year. 2012 was the Big Bang year for these products – but get used to them, they’ll only get bigger and siphon more cash from their elders in the mutual fund world.
OK, my hand hurts from patting my own back so hard. I fully expect to go 0-for-3 this year thanks to the magic of mean reversion
My 2013 Investing Theme predictions are here:
I’ve been asked to look out into 2013 and offer some ideas as to what may become the dominant themes of 2012. Here are three themes that I think could be big ones for investors next year…
1. Emerging Markets Debt is the year’s hot asset class – On the heels of successful launches like WisdomTree’s Emerging Local Debt ETF (ELD), the rest of the fund complex is getting into the act this year. Already, PIMCO has plans to launch its first Go-Anywhere emerging markets debt fund, which will own sovereign emerging market bonds as well as corporate bonds denominated in both USD and local currencies. Emerging markets have an average debt-to-GDP ratio of 35% versus 100% for developed nations in Europe, Japan and the US. On top of that, they hold roughly 66% of all foreign currency reserves. EM nations have triple the fundamentals of the developed world, burgeoning ranks of middle class consumers and a yet – AND YET – they trade offer much better return potential, with higher yields and a less crowded playing field.
2. Bond Binge and Purge – Mass mis-allocation keeps a floor under the market – earnings will be soft in the first couple of quarters this year as drag from higher taxes and lower federal spending slam against a corporate firmament in which revenue growth is tame at best and peak profit margins continue to subside down to normalized levels. But even lackluster earnings cannot stop fund flows and with Bernanke leaning on the liquidity lever, the five-year stampede into bonds of every stripe (33 to 1 over equity inflows since late 2007) will mean more fuel for equities as it comes undone. Dips will be bought aggressively as the giant credit slush fund is slowly unwound. Whether or not we get over the hump and GDP growth starts picking up the slack into the second half is still unknown.
3. Weird Science – when we think about the Tech Sector, we tend to think about Apple, Google, Intel, Microsoft, Qualcomm etc, and its easy to forget that these firms are anywhere from 10 to 30 years old at this point. In 2013, the hot money will flock to new technologies and off-the-beaten-path growth stories like 3D printing, electric cars, automation and robotics, etc. The next generation of tech giants are now stewing in a cauldron of midcaps, this year will witness their emergence into the big leagues.
Please watch the video I did for Yahoo Finance highlighting these calls below:
What do you think the big themes will be this year?
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The Reformed Broker is a blog about financial markets and the economy. Joshua Brown is a New York City-based investment advisor for high net worth individuals, charitable foundations, retirement plans and corporations... More.