Retirement Advisors of America Comments on Corporate Valuations and Country Level Debt Burdens
Dallas, TX, April 1, 2010 - On February 9, 2010 the Dow Jones Industrial Average closed at 10,058. On this date, Retirement Advisors of America moved their portfolios from neutral to a 5% equity overweight posture. This posture was re-established after the firm spent most of 2009 overweighting equities and then moved the portfolios back into a neutral posture in late November 2009.
According to the firm, most of the rationale behind this adjustment can be found within valuations. Jeremy Merchant, Vice President of Investments and Operations at Retirement Advisors of America says, “We believe corporate earnings are improving, which should translate directly into higher values for most general equity indices over the next 2-3 quarters. Also, as the general economy improves, the average investor is expected to slowly increase their risk appetite, which will eventually set the stage for higher interest rates.
These higher interest rates are a near term (late 2010 and early 2011) headwind for intermediate and longer-term bonds in general.”
Stepping back from valuations and money-flow dynamics, Retirement Advisors of America is also monitoring general debt burden dynamics within countries. They point to a study by The International Monetary Fund (“IMF”) completed in late 2009 that shows the debt burdens in advanced countries (U.S., France, Germany, the U.K, etc.) continue to rise, while emerging countries (China, Brazil, etc.) are on a path towards decreased debt burdens.
One Chart(See Chart 1 link below.) in the study summarizes general government debt burden projections for advanced G-20 economies and emerging G-20 economies. Its summary provides a snapshot of the projections from a 2007 (pre-crisis), 2009, 2010 and 2014 viewpoint.
A second chart (See Chart 2 link below.) notes the disparity between fundamental projections of advanced G-20 economies and emerging G-20 economies.
Based on these developments, Merchant says, “In a portfolio’s equity posture, we recommend nearly 25% of exposure to foreign equities. Within this foreign equity exposure a heavy emphasis should be placed on emerging markets where fundamentals continue to improve relative to advanced countries as defined by the IMF.”
Retirement Advisors of America believes that the valuations and debt burden example above are just two of the many macro-economic factors that should be monitored, and over time as trends like the above continue to unfold, their effects should also be accounted for within portfolios.
ABOUT RETIREMENT ADVISORS of AMERICA
Retirement Advisors of America, A PHH Investments Company is a Registered Investment Advisor with national headquarters in Dallas, Texas. With assets of approximately, $1.6 billion, Retirement Advisors of America is dedicated to providing outstanding retirement planning, investment and wealth management to high net worth individuals. It is the oldest investment firm specifically focused on serving the retired airline market, and has a history that dates back more than 25 years. For more information about Retirement Advisors of America please visit, www.retirementadv.com.
The information in this commentary is for general purposes only. Each investor has specific circumstances unique to their investment situation and as such should consult with their personal financial advisor before making any investment decisions. Investments in securities are volatile, subject to change, and any past performance in securities does not guarantee future results. The above charts and graphs are not recommendations for the purchase and sale of any security.
Chart 1 Source: International Monetary Fund (IMF), Staff of the Fiscal Affairs Department. “The State of Public Finances Cross-Country Fiscal Monitor: November 2009.” IMF Staff Position Notes (2009): 35.
Chart 2 Source: International Monetary Fund (IMF), Staff of the Fiscal Affairs Department. “The State of Public Finances Cross-Country Fiscal Monitor: November 2009.” IMF Staff Position Notes (2009): 15.
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