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Sam Subramanian
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Sam Subramanian edits AlphaProfit’s investment newsletter and investing blog. The newsletter frequently rises to the top of the Hulbert Financial Digest’s performance rankings and features among MartketWatch’s top 10 investment newsletters. Sam researches a wide range of securities... More
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  • Rise in gold sector M&A raises eyebrows
    Quoted in MarketWatch article that talks about M&A activity among gold miners. Here is the link

    Disclosure: No positions in securities discussed
    Sep 17 10:11 AM | Link | Comment!
  • Emerging Markets: Investment Choices and Risks

    During the global recession, equities in emerging nations declined more than those in developed nations. From its high in 2007 to the low in 2008, the iShares MSCI Emerging Markets Index Fund (NYSEARCA:EEM) declined 67% compared to the 62% decline in iShares MSCI EAFE Index ETF (NYSEARCA:EFA).


    Since then, a large number of emerging nations have quickly recovered from the recession. The iShares MSCI Emerging Markets Index Fund needs to gain 22% to reach its 2007 high. In comparison, the iShares MSCI EAFE Index Fund needs to gain 39% to get back to its 2007 high.


    The factors that have spurred the emerging markets recovery include their lower external debt, higher GDP growth prospects, and superior profitability of publicly traded companies. According to Invesco’s (NYSE:IVZ) PowerShares Connection March 2010 Report,


    External Debt: The external debt burden of the emerging nations in the G20 group is 36% of their GDP while it is 327% of GDP for the developed nations in the G7 group.


    GDP Growth Prospects: The GDP of emerging nations in the G20 group of nations is expected to grow 4.5% in 2010, while the GDP of the developed G7 group of nations is expected to grow 1.7%.


    Company Profitability:  Companies in the MSCI Emerging Markets Index have a Return on Equity (ROE) of 17.4%, which is well above the 12.2% ROE for companies in the MSCI EAFE Index.


    Emerging Markets Investing Categories


    Investors have four categories of ETFs to invest in emerging markets:


    Broadly Diversified: The broadly diversified category includes large ETFs like Vanguard Emerging Markets Stock ETF (NYSEARCA:VWO) and iShares MSCI Emerging Markets Index Fund. PowerShares BLDRs Emerging Markets 50 ADR (NASDAQ:ADRE) offers a convenient means to invest in a basket of ADRs of emerging nations companies.


    Regional: ETFs are available for investing in specific regions. Examples of regional ETFs include iShares MSCI Pacific ex-Japan (NYSEARCA:EPP) and iShares S&P Latin America 40 Index (NYSEARCA:ILF).


    Thematic: Claymore/BNY Mellon BRIC (NYSEARCA:EEB) is an example of a thematic ETF focusing on the fast growing emerging markets of Brazil, Russia, India and China.


    Country: iShares FTSE/Xinhua China 25 (NYSEARCA:FXI), iShares MSCI Brazil (NYSEARCA:EWZ), and iShares MSCI Mexico (NYSEARCA:EWW) are examples of ETFs available for investing in larger emerging markets. ETFs like Market Vectors Vietnam (NYSEARCA:VNM) are also available for investors seeking exposure to frontier markets.


    Risks of investing in Emerging Markets


    Investments in emerging markets carry risks, the important ones being political, economic, and concentration risks.


    Political: Political crises arising from internal or external sources are not uncommon in many emerging nations. The current political unrest in Thailand highlights this type of risk. Such unrest can potentially disrupt the orderly functioning of Thailand’s financial market and impair the performance of iShares MSCI Thailand Index Fund (NYSEARCA:THD).


    Economic: While the stimulus measures have helped economic recovery, nations like China and India are voicing concern over inflation. China has started to pare stimulus measures while India has raised interest rates. As pointed out inMSCI Emerging Markets Index: Eastern Europe Ain't China or India, economies in Eastern Europe have been scathed by the global financial crisis and modest growth is expected in countries like the Czech Republic, Hungary, and Poland.


    Concentration: The market-cap weighting methodology exposes some country ETFs to a high degree of sector or company concentration risk as stated in ‘ETF Holdings, Performance, and Risk: Will Your ETF Be Next to Blow Up?’. As an example, the iShares MSCI South Korea Index Fund (NYSEARCA:EWY) has invested nearly 19% of its assets in Samsung Electronics (OTC:SSNNF).


    Investment Strategy


    Considering the reward and risk profiles of the different investments described above, most individual investors would do well by limiting investments in emerging markets to about one-seventh of their total investable assets.


    Investors can also use a core-satellite strategy with a broadly diversified ETF serving as the core to control volatility and a regional or country ETF serving as the satellite to enhance return.

    Disclosure: I have long positions in EEB, EEM, EWW, and EWY. I do not have any positions in the other securities discussed.
    Apr 28 3:20 PM | Link | 1 Comment
  • Financial Services Firms Exiting Asset Management
    As confidence in the economy and financial markets improves, the tempo of corporate transactions is picking up. Recently, information technology consulting firms Affiliated Computer Services (ACS) and Perot Systems (NYSE:PER) received buyout offers for $6.7 billion and $3.9 billion respectively.
    The pace of initial public offerings is increasing as well. Companies have raised more than $11 billion through IPOs since the turn of the month. Spanish bank Grupo Santander (ES: SAN) sold a 16% stake in Banco Santander Brasil (NYSE:BSBR) to raise a whopping $8 billion. Actuarial data provider Verisk Analytics (NASDAQ:VRSK) raised $1.9 billion through an IPO.
    Large financial services firms are taking advantage of robust capital markets and busily shedding their asset management businesses.
    Barclays (NYSE:BCS) kicked off this trend selling Barclays Global Investors to BlackRock for $13.5 billion in June.
    In the third quarter, Bank of America (NYSE:BAC) sold most of Columbia Management for $1 billion. Citigroup (NYSE:C) sold its interest in Nikko Asset Management and Lincoln National (NYSE:LNC) sold Delaware Investments.
    In Europe, the old Julius Baer (JBHGY.PK) separated its asset management business to form GAM Holdings.
    Additional transactions are in the pipeline with Morgan Stanley (NYSE:MS) reportedly looking to jettison Van Kampen Fund.
    So, are diversified financial institutions right in selling asset management businesses?
    A rising stock market coupled with surging capital market activity is often good for asset management businesses. While certain diversified financial firms have been compelled to sell such businesses due to losses in other lines, others have cited the need to focus on strengths.
    Only time will tell if the timing of such sales is truly opportune. If stock prices continue to rise and volatility continues to fall, sellers may well regret their decision to get rid of asset management businesses.

    Disclosure: I do not hold long or short positions in any of the securities discussed.
    Oct 09 2:01 PM | Link | 1 Comment
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