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The lyrics from the traditional Christmas song “Do You Hear What I Hear,” specifically “do you see what I see,” have been replaying in my head during the last month as we continuously see opportunities and monitor our portfolios daily. The current market activity has naturally spurred many conversations with clients regarding specific holdings and overall portfolio construction. Therefore, I thought it would be helpful for me to take time to review our portfolios and provide a snapshot of some current FIM Group holdings. If I ever start to worry about our investments, I simply run through each and every one. Before bed, I typically review the key components of the news stream that could impact the portfolios and potentially cause us to take action. Analyzing the investments and their characteristics better prepare us when responding to market fluctuations and media mania. Clients hire us because of our “manager must manage” philosophy and our history of being on the right side of the “making money by effectively managing investments” practice.
At FIM Group, our current strategy is built around a muddle through, lowgrowth overall economy. So you will notice that there are few banks, retailers and manufacturers in your portfolios. Those industries are highly affected by the hyper-competitive environment we now live in, especially because of consumers’ desires to “just say no” to a new TV, pair of shoes, bigger house or La-Z-Boy. There are pockets of strength, like telecommunications, food, energy, entertainment and technology, but it’s not easy for any industry. We can’t just buy windmills or an energy company. Nuclear energy is on its way out, and renewable energy is in, but as any seller or manufacturer of solar panels or windmills will tell you, the “permitting process” of a project (i.e., sourcing, manufacturing and logistics, and design) can take years and experience tremendous delays. To be a successful investor, patience is mandatory; it is required even if you’re right on the money, because markets are volatile and consumers are unpredictable.
When we review our portfolios, we certainly find comfort in the fact that we have constructed solid portfolios that should perform well in the long term. Currently we see slow to no growth (+/-2%) in the U.S. and throughout most of the developed world. This will affect both the emerging economies and the hyper-exporting economies – as all statistics indicate they will not have the torrid growth of the past. We realize that investing under a slow growth assessment and not a bullish stance has consequences. We believe now more than at many times in our history it is time to prudently and realistically look at the downside twice and upside once on each investment. Today is a time to balance opportunity-seeking with prudent risk management. We do not believe that the world will break into prosperity for all, and shrug off the banking, debt, deficit, regulations, wars, governance, poverty, unemployment, underemployment, distribution inequalities and entitlement issues that are worldwide. When it comes to the “how-to” of investing in a low-growth economy, you simply need to look for five things represented in any company’s stock:
1. Hard-working, ethical and strong management
2. Quality (perhaps even great) products or services
3. Solid financials
4. Excess returns (lots of free cash flow/profits)
5. A “million” other things to fall into place depending on the specifics of the investment – which is why you hire a qualified portfolio manager
A Tour Around a FIM Group Portfolio
First, let’s travel to India, the home of Bollywood and a place where much of the world’s high-tech industry takes place. We own a Singapore-based real estate trust that owns properties in the corridors of India’s thriving hightech industry. Ascendas India REIT pays a cash dividend of more than 7%, which we expect to grow over time. Ascendas India REIT has good, skilled management, a solid balance sheet, strong growth, is located in a sector where there are barriers to entry, and can accommodate the need for infrastructure to serve the high-tech and quality needs of domestic and foreign companies. From India, let’s take a walkabout to Australia. Nearly all our Australian investments are paying well in excess of 4% current cash dividends. We own the main phone company, Telstra, which pays a nice cash dividend of 9%, Westfield REIT, which has a global
