High Conviction Ideas

Idea initiated

April 01, 2015

Reference measure

Dallas Fed International House Price Index Database for Germany vs. cash*

Investment horizon

24 months+

Performance since initiation

n/a

Current monetary conditions are too expansionary for Germany. This situation usually leads to rising asset prices – particularly housing prices. Having stagnated for two decades or more, these are now starting to pick up. German construction activity is rising but at a moderate pace. The volume of mortgage debt is increasing, but only at a slow pace. These two indicators provide some reassurance that the recent rise in German housing prices is not leading to an unsustainable real-estate "bubble.“

Idea initiated

April 01, 2015

Reference measure

PowerShares Dynamic Leisure and Entertainment Portfolio vs. S&P 500 Index **

Investment horizon

3 - 12 months

Performance since initiation

n/a

The U.S. consumer is likely to gain comfort from improving payroll numbers, an expected acceleration in wage growth and low gasoline prices. Recent spending in restaurants has been strong and the number of global airline passengers is at its highest in many years. This apparent preference for leisure and entertainment spending – over that of goods – is reflected in higher consensus earnings expectations for this sector. Leisure is also lagging the S&P 500 Index, providing the opportunity for a catchup in this relative-return idea.

Idea initiated

February 24, 2015

Reference measure

Average of Barclays U.S. High Yield and Barclays Euro High Yield indices , weighted according to market size, in U.S. dollars vs. cash*

Investment horizon

3 - 12 months

Performance since initiation

High-yield debt – both U.S. dollars and euros – has rallied since its yield peaked in late December 2014. But, with default rates expected to remain low and oil prices stabilizing before gradually moving higher, high-yield looks set to continue to outperform in 2015. In the United States, new-issue volume has recovered, with recent new issues also well received in the secondary market. In Europe, strong fund inflows and a break in new issues has led to strong demand in the secondary market.

Idea initiated

February 24, 2015

Reference measure

CBOE/CME FX British Pound Volatility Index vs. cash*

Investment horizon

3+ months

Performance since initiation

The United Kingdom holds a general election on May 7. The outcome of this is highly uncertain, due in part to the growing power of minor parties, and could result in some potentially disruptive policy changes. Investor concerns about the United Kingdom are likely to grow in the runup to the election, and may remain high in its immediate aftermath, if coalition negotiations are prolonged. Such concerns are likely to be reflected in increased sterling volatility.

Idea initiated

February 24, 2015

Reference measure

MSCI Europe Banks Index vs. MSCI AC World Financials Index **

Investment horizon

3 - 12 months

Performance since initiation

After a difficult few years, the European banking sector is now getting back on its feet. Equity tier 1 ratios have been increased and there is room to raise payout ratios (with a clear focus on dividends). Return on equity is increasing, if slowly, and valuations appear quite attractive. European banks seem likely to offer superior earnings growth to other regions, being well geared to a European macro recovery through improving loan growth and falling loan-loss provisions .

Idea initiated

September 19, 2014

Reference measure

S&P 500 Consumer Discretionary Index vs. cash*

Investment horizon

3 - 12 months

Performance since initiation

We believe there are several reasons the U.S. consumer discretionary sector is likely to outperform. Crude oil is down more than 50% from its recent peak and a generally accepted rule of thumb is that every $0.01 fall in gasoline prices adds $1 billion in consumer spending power per year. Meanwhile, U.S. job creation has been strong and U.S. consumer confidence is now back to pre-crisis levels.

Idea initiated

September 19, 2014

Reference measure

Equal-weighted index comprised of the MSCI Indonesia, Malaysia, Philippines and Thailand indices vs. cash*

Investment horizon

3 - 12+ months

Performance since initiation

This attempts to capture the long-term gains from growing regional trade integration. The ASEAN Economic Community will be in place at the end of 2015, providing a single market for goods, services, capital and labor for a population of 618 million—greater than that of the United States or Europe. ASEAN economies are already benefiting from major regional trade and investment pacts. We would focus on the Indonesian, Malaysian, Philippine and Thai markets.