US Contrarian InvestingIn the third instalment of our monthly contrarian investing feature, we chart the progress of our portfolio and check out the ‘Dogs of the Dow’ Things are starting to get interesting down on the contrarian patch. Our portfolio of deliberately-unfashionable stocks has been holding up sturdily against the major world indices, even despite the fact that the return of confidence among conventional markets ought to have depressed the prospects for further growth in contrarian stocks during April/May. Two of our five contrarian sectors, automobiles and non-ferrous metals, have rewarded our faith in fine style, bringing us capital appreciations of 15.4 per cent and 12.8 per cent respectively since the start of this year. And that isn’t bad at all, considering that our benchmark global index, the Morgan Stanley MSCI World index (including 48 countries) shrank by 5.8 per cent in the same period. US Contrarian Investing - Contrarian QualitiesBut we’ve had failures too. Our faith in the contrarian qualities of the health and personal care sector has taken a bit of a knock, with a 12.4 per cent drop in global healthcare stocks since January – though we still dare to hope that the mergers and acquisitions talk coming out of Switzerland will soon give a boost to the sector. Our choice of the airline industry as a contrarian investment sector has also looked a little ill-advised at times, with an overall 17.1 per cent capital loss being recorded since January – but here at least there are signs of a recent turnaround, with a strong 6.3 per cent improvement being recorded across the world in the five weeks to May 11. Overall, our contrarian portfolio has suffered a 5.1 per cent capital loss since January - which means that it’s given us some protection from the very worst that the bear market has inflicted on us. But, as we’ve said in previous issues, the real value of a contrarian portfolio only comes through in the long term. And we reckon there might be some pleasant surprises coming in the short term as well, if the present rate of M&A consolidation continues.
In case you haven’t seen this column before, let’s recap briefly on what we’re trying to achieve at Investment International with our contrarian portfolio. US Contrarian Investing - Outperform The MarketWe’re exploring the idea that you can outperform the market in the long term if you seek out only those stock market sectors that seem to be out of favour for no particularly good reason. Investors like Warren Buffett have made fortunes out of applying these principles to individual stocks. What we want to know is whether you can back an entire neglected stock market sector, diversified across the entire developed world, and get similar results. If so, then we’ll have learned something pretty important about the way that investment sectors behave. In an age where cross-border stock trading is becoming commonplace and where globally themed investment funds are all the rage, it shouldn’t be too hard to turn our eventual findings into a practical strategy. Our tip for the next three months? Automobiles. There’s been bad news coming in from DaimlerChrysler, where quality problems have coincided with a lack of new models. But European car sales are generally doing fine (Volkswagen recently announced a 57 per cent increase in profits, and PSA/Citroen are storming ahead). More to the point, many analysts predict that quite a lot of President Bush’s tax cuts will be spent on new cars – good news, surely, for the embattled Ford and GM? Incidentally, don’t forget those automobile dividends: 6 per cent and more is not unusual. 
|
RSS Feed