Tag Archives: german

Investment Wisdom From The Original Global Guru

Sir John Templeton, who passed away at the age of 95 in 2008, was the original Global Guru. Templeton provided me with an introduction to the world of global investing when I picked up a book on Templeton’s investment philosophy many years ago in Amsterdam. While today you can buy a Brazilian or Malaysian or South African stock with a click of the mouse, the world was a very different place when Templeton began his global investing career. John Templeton: A Pioneer in Global Investing Born in 1912, Templeton hailed from the South (Winchester, Tennessee), graduated from Yale in 1934 and won a Rhodes Scholarship to Oxford. After studying law in England, Templeton embarked on a whirlwind grand tour of the world that took him to 35 countries in seven months. That tour exposed him to the enormous investment opportunities that exist outside of the United States. In the very first display of his famous contrarian streak, Templeton came to Wall Street during the depths of the Great Depression to start his investment career in 1937. Templeton soon borrowed a then-princely sum of $10,000 ($170,000 in today’s dollars) as a 26-year-old investor and bought shares of 104 European companies trading at $1 per share or less. This was in 1939, the year German tanks rumbled into Poland, launching World War II. Though dozens of companies were already in bankruptcy, only four companies out of those 104 turned out to be worthless. Templeton held on to each stock for an average of four years and made a small fortune. In 1940, he bought a small investment firm that became the early foundation of his empire. Templeton then went on to build an investment management business whose name became synonymous with value-oriented global investing. He launched the Templeton Growth Fund in 1954 – notably in Canada, which then had no capital gains tax. He made his company public in 1959 when it only had five funds and $66 million under management, and eventually sold his business to Franklin Resources for $913 million in 1992. Templeton focused his final years largely on philanthropy, endowing the Centre for Management Studies at Oxford. He also established the Templeton Prize in 1972, which recognized achievement in work related to science, philosophy and spirituality. His Templeton Foundation, which today boasts an endowment of $1.5 billion, distributes $70 million annually in grants to study “what scientists and philosophers call the Big Questions.” Past winners have included Mother Theresa, Billy Graham, Desmond Tutu and the Dalai Lama. John Templeton: Contrarian to the Core Templeton’s investment track record was impressive, although, given his deeply contrarian style, inevitably quite volatile. A $10,000 investment in the Templeton Growth Fund in 1954 grew to roughly $2 million, with dividends reinvested, by 1992. That works out to a 14.5% annualized return since its inception. Templeton was perhaps best known for investing in Japan in the 1950s when “Made in Japan” was synonymous with free toy trinkets found in cereal boxes. And like all great investors, Templeton was not afraid of big bets. At one point in the 1960s, Templeton held more than 60% of the Templeton Growth Fund’s assets in Japan. That kind of a concentrated position in a global fund would be illegal on Wall Street today. But Templeton also had the savvy to exit markets when they were overvalued, selling out of Japan well before the market collapsed in 1989. Central to Templeton’s investment philosophy was buying superior stocks at cheap price points of “maximum pessimism.” He diligently applied this approach across a range of countries, industries and companies. As Templeton noted in an interview in Forbes in 1988: “People are always asking me where the outlook is good, but that’s the wrong question. The right question is, ‘Where is the outlook most miserable?’ ” My favorite Templeton anecdote was his bet against the U.S. dotcom bubble in 1999. Templeton famously predicted that 90% of the new Internet companies would be bankrupt within five years, and he very publicly shorted the U.S. tech sector. I think it’s a terrific irony that John Templeton – a value investor known for sussing out little known global opportunities – made his quickest and possibly biggest fortune by shorting U.S. stocks. John Templeton: Lessons for Today’s Market With most global stock markets trading in bear market territory, you may find some comfort in John Templeton’s most famous piece of advice: ” To buy when others are despondently selling and to sell when others are greedily buying requires the greatest fortitude and pays the greatest reward .” This advice is simple – but not easy to implement. Templeton also added a small refinement to this approach. He recommended that you initially take a small position in your investment ideas before rushing in. If it’s a truly great bargain, there’s no need to hurry. Finally, what I found most refreshing about John Templeton is his relentless optimism. Templeton once asked a journalist to write about why the Dow Jones Industrial Average might rise to one million by the year 2100. At first blush, “Dow 1,000,000” sounds absurd. Yet, it turns out that thanks to the miracle of compound interest, the Dow would only need to rise about 5% per year to hit that level in 86 years.

International Treasury ETFs: Winners Amid Gloom

Recent developments in the domestic and global markets have led to a rise in volatility across all asset classes. None of the economies around the world are looking up with the most developed economies facing recessionary threats. The U.S. is also losing momentum and the emerging economies, mainly China, is facing hard-landing fears. Developed market inflation remains abysmally low while emerging markets, normally known for sky-high inflation, have also been seeing price level abating. The major reason behind this weakening in price level goes to the energy sector rout as crude prices lost around 75% in the last two years. Moreover, most of the commodities are slouching on lower global demand and ample supplies. Central banks across the board are striving to beef up asset values, charge up their sagging economies and boost inflation. Following the European Central Bank, Bank of Japan recently introduced negative interest rates. A reduction in rates would spur activities in economy which in turn should translate into higher growth. All these sparked-off a rally in international treasuries and the related ETFs. First, risk-off trade has led investors to flee the risky asset classes and seek solace in the so-called safer bond segment and then rock-bottom interest rates dragged down the Treasury bond yields giving a push to their prices. Yields on Decline Yields on Japan’s benchmark 10-year government bond recently slid to below zero ( negative 0.007% ) for the first time. The dropdown in yields mainly came in the wake of a negative interest rate policy adopted by BoJ. In fact BoJ chief indicated a slash in the Japanese interest rates – deeper into the negative territory if needed. However, as investors rushed toward a safe refuge following global market sell-off on February 8, which was triggered by the European banks’ sell-off, global government bonds came under the spotlight. The 10-year German and U.S. government bond yields also slid to multi-month levels lately. The benchmark U.S. treasury yields fell to as low as 1.75% on February 8, 2016, down 49 bps from the start of this year. More than $7 trillion of government bonds – accounting for 29% of the Bloomberg Global Developed Sovereign Bond Index – offered negative yields globally as of February 8, 2016. If the trend of negative interest rates continues, the negative-yielding bonds load is likely to increase. Given this, the International Treasury ETFs could provide investors with an opportunity of capital gains and safer bids. ProShares German Sovereign/Sub-Sovereign (NYSEARCA: GGOV ) The fund looks to track the performance of the Markit iBoxx EUR Germany Sovereign & Sub-Sovereign Liquid Index. The fund has a weighted average maturity of 5.86 years and a modified duration of 5.52 years. It charges 45 bps in fees and yields 0.17%. The fund is up 4.6% so far this year (as of February 8, 2016). SPDR Barclays Capital International Treasury Bond ETF (NYSEARCA: BWX ) BWX measures the performance of investment grade sovereign debt securities located outside the U.S. The ETF targets the longer end of the yield curve and has an average maturity of 9.48 years. The ETF is more sensitive to interest rate movements as indicated by an average duration of 7.77 years. From a holdings perspective, BWX allocates 23.32% of its total assets in the Japanese Government bonds. The fund allocates more than half of its assets in European nations. BWX is up 3.3% in the year-to-date frame. iShares S&P/Citigroup International Treasury Bond (NASDAQ: IGOV ) The ETF tracks the S&P/Citigroup International Treasury Bond Index Ex-US which measures the performance of foreign currency denominated treasury bonds issued by developed countries other than the U.S. Like BWX, IGOV also mostly places its bets on the Japanese government bonds which account for almost 22.6% of its total assets. The ETF has a weighted average maturity of 9.44 years and effective duration of 7.66 years. IGOV yields 0.1% annually and has added 4.3% so far this year (as of February 8, 2016). iShares S&P/Citigroup 1-3 Yr International Treasury Bond ETF (NASDAQ: ISHG ) This product targets the shorter part of the yield curve. Its weighted average maturity is 1.74 years and effective duration is 1.71 years. From a weightings perspective, the ETF holds 23.08% in Japanese short-term bonds and around 65% in the European nations’ near-dated securities. ISHG yields 0.09% annually and has added 2.6% so far this year (as of February 8, 2016). DB 3x Japanese Govt Bond Futures ETN (NYSEARCA: JGBT ) JGBT focuses on the triple-leverage performance of a long position in the 10-year Japanese Government Bond Futures. The assets of 10-year JGB Futures are Japan-government issued debt securities with a remaining term to maturity of not less than 7 years and not more than 11 years as of their date of issue and the futures contract delivery date. The fund is up 7.2% so far this year. Original post