Research
Successful Investing in a Low Growth Economy: A Historical Perspective
The U.S. economy has grown about 3.5% annually from the 17th century until the late 20th century. Most of American industry and wealth can be attributed to significant technological advancements starting in the Industrial Revolution. Over recent decades, productivity has significantly dropped off with some estimates of the economy growing at 1.8% annually. Returns from innovation appear to be entering a period of stagnation. Although the causes and implications of such events remain in question, it has become increasingly vital for investors to analyze performance across similar environments in history to successfully navigate uncertain markets. Read Full Report
Potash Market Snapshot
Long term projections for Potash demand are stable and likely to moderately increase year-over-year. The quantity of high-quality arable land is decreasing. Human population is expected to increase by 3 Billion people in the next 37 years. There are no precise substitutes for potash. It is proven to considerably increase yield quantity and quality on almost all crops. The cumulative effects of the above factors will drive demand. Read Full Report
Mineral Royalty Stream Financing
Resource streaming, also known as volumetric production payments (VPP) or metal purchase agreements, provides commodity exploration and production companies the necessary financing to bring projects into production. This has become an attractive financing option due to the fact that VPP’s are cheaper than equity (no shareholder dilution) and safer than debt, making this a “win-win” for both the mine operator and financing company. Streaming agreements allow the mining company to capitalize on proven reserves before the operation becomes productive.
These diverse agreements are crafted to emphasize each party’s strengths and protect against the others weaknesses. The underwriting financier enjoys the resource upside while avoiding the downside risk associated from operations. Stream financing allows the mine operator to leverage proven reserves to fund production or expansion, while avoiding many negative side effects associated with traditional financing methods. Read Full Report
Hybrid Solution to Portfolio Management
Most active fund managers fail to beat their desired index. John Bogle, founder of the Vanguard Group, testified before the Senate Subcommittee on Financial Management, the Budget, and International Security on November 2, 2003 stating from 1984-2002 the S&P 500 index annualized a return of 12.2% while the average mutual fund annualized 9.3%. Over multiple decades only about 10% of mutual funds managers have been able to beat the S&P 500 index[1]. Investors compound manager’s underperformance by chasing high performing managers, investing only after the manager has racked up impressive gains, then watching their account underperform as the manager regresses to the mean of all managers. Morningstar Inc. frequently cites examples of mutual fund investors doing much worse than the fund itself by trying to time well performing funds. Morningstar often highlights this problem with Star managers that fall from grace citing examples such as the Legg Mason Value Trust, the CGM Focus Fund, and the Fairholm Fund. But even Morningstars’ own fund selection process has failed to add value; in fact, their fund selection process has done worse than the average actively managed mutual fund which we already discussed (see Exhibit 1). It is the blind, leading the blind, leading the blind. Read Full Report
Recommended Research
Minimum-Variance Portfolio Composition,
Journal of Portfolio Management, Winter 2011
Minimum Variance Portfolios in the U.S. Equity Market,
Journal of Portfolio Management, Fall 2006
Know Your VMS Exposure,
Journal of Portfolio Management, Winter 2010
Risk Parity, Maximum Diversification, and Minimum Variance: An Analytic Perspective,
Analytic Investor, Summer 2012
Risk in International Equity Markets,
Russell ETFs, Winter 2011
Measuring and Managing Risk Exposures,
Russell ETFs, Summer 2012
Murder on the Orient Express: The Mystery of Underperformance,
Financial Analysts Journal, Summer 2012
Related Information
Strategy Indices,
S&P 500 Low Volatility Index, Winter 2011
MSCI Global Minimum Volatility Indices,
MSCI Barra
