Investing in US Exports, A Study in Forward Thinking.

  • Written by David
  • July 28, 2008 at 8:29 am
  • 0
  • It was an interesting morning catching up on financial news over the past few days. I came across two separate articles touting the benefits of investing in US companies that export their goods and services abroad.

    One such column suggests,

    Could the stocks of U.S. exporters be the next asset class to invest in — as the typically delayed impact of falling real exchange rates is felt?

    An additional source put it this way,

    this country is in the midst of an export boom..

    It’s great to see more attention placed on this bright area of the US economy, domestic exports.

    Domestic export is a twofold story; first, there continues to be a growing demand for US goods and services by countries around the world, both developed, and developing.

    Second, the fall of the US Dollar may make your next European vacation much more expensive but Caterpillar tractors, Microsoft software and Boeing airliners are just a few items that are ‘on the cheap’ to foreign buyers due to the falling dollar.

    Clients of DGIA, LLC have been investing in US exports (we call it Domestic Export) since the early 2000′s via my relationship with Genworth Financial Wealth Management (GFWM). GFWM is one of my principal strategists I employ in the construction of asset allocation and asset manager selection. Genworth is ranked 223rd in the Fortune 500 listing.

    There are many reasons for choosing and partnering with a certain strategist as I discussed in my July 11, 2008 blog, “How I Construct Portfolios“. One key reason for me to select GFWM as a partner has been their ongoing ability to employ forward thinking when constructing and selecting asset classes for clients. Genworth was early in recognizing the benefit of domestic export as an investment theme for investors.

    We now see others just joining in on that ‘conversation’ some three to four years later. Genworth approached one of their independent money manager relationships regarding this idea of domestic export back in the early 2000′s. What grew from that conversation was an asset class for the client’s DGIA to invest, domestic export.

    Why Forward Thinking Matters

    Many investors have great asset allocations. It’s just that those asset allocations are still from past decades which presently don’t work in the current investment environment. Their strategy (if they have one) has not changed.

    Case in point. A very traditional asset allocation is a 60% S&P 500 equity investment along with a 40% bond index investment. This strategy was tremendously successful during the 1980’s and for most of the 1990’s. But looking back now to construct tomorrow’s portfolio based upon a then, unique economic time period of falling interest rates from the early 1980’s ‘Paul Volker’ days to the near ½ percent rates of the early 2000s Alan Greenspan days is not a repeatable pattern any time soon. To base one’s current investment strategy on the past is not sound. An investor’s strategy must change with the times, and I am not talking about market timing; buying your stocks after breakfast and selling them before lunch!

    I remember when I first heard about domestic export a number of years ago. I was a bit skeptical at first but no longer of course. Chart below US Dollar verses EURO.

    Our ‘domestic export’ portfolio is managed by the thoughtful people of Epoch Investment Partners, LLC. Epoch was created in 2004 when Bill Priest, CEO of Credit Suisse Asset Management reached mandatory retirement age. Credit Suisse assisted Mr. Priest in setting up Epoch. (A very rare event on Wall Street-note that!) Epoch is also the manager for other investment mandates within my client portfolios as well.

    Here’s what others are currently saying about investing in the US export market.

    For the full articles, click the links below:

    Milton Ezrati, Partner, Senior Economist and Market Strategist

    U.S. Export Boom – July 25, 2008

    Larry MacDonald, Seeking Alpha

    U.S. Exporters Benefit As Dollar, Trade Deficit Declines

    UPDATE: 9/2/08: Stocks reacted with enthusiasm when it was reported that our economy grew by a surprising +3.3% in the 2nd quarter, a result that is just below the quarterly growth average of +3.4% from the last 50 years.  US exports sold to foreign buyers accounted for +3.1% of the +3.3% overall growth rate (source: Commerce Department).    

 

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