Worried about Trump failing to boost the economy? This money manager has a strategy for that (谈股论金)  565次阅读

作者: xiaosan , 发表于: 2017-06-01 (2735天前) @ 新东

DEEP DIVE
Worried about Trump failing to boost the economy? This money manager has a strategy for that
Jun 1, 2017 at 5:11 a.m. ET
By Philip van Doorn
MLVEX 0.42 VR 0.38
Ernesto Ramos of BMO Global Asset Management thinks the president’s economic projections are too high and that Republicans won’t cooperate with him
Brendon Thorne/Bloomberg
Apple is the second-largest equity holding of the BMO Low Volatility Equity Fund.
Some investors fear President Trump won’t be able to spur economic growth, a scenario that could hurt the stock market.

Ernesto Ramos, head of equities for BMO Global Asset Management, is all but sure the businessman-turned-politician will fail to deliver on his promise of 3% to 4% economic growth. That’s why he’s making a case for a weaker-than-expected economy, which plays into his strategy of selecting quality companies with stocks that have low price volatility .

Among defensive stocks he favors are Apple Inc. AAPL -0.59%, Baxter International Inc. BAX 0.20% (which makes pharmaceutical equipment) and American Express Co. AXP -0.19%.

Ramos, in a May 25 interview, predicted the Republican-controlled Congress would deliver on “very little” of Trump’s “ambitious agenda,” which includes reform or replacement of the Patient Protection and Affordable Care Act of 2010 (also known as Obamacare), a massive infrastructure-spending package and a radical overhaul of U.S. income tax rates and rules. Tax reform could include a “tax holiday” to spur the repatriation of up to $2.6 trillion in cash (an estimate by the congressional Joint Committee on Taxation) held overseas by U.S. companies.

Because of his low expectations for political developments that would support stocks and his belief that the expected 3% annual GDP growth that the Trump administration has baked into its budget proposal is unreasonably high, Ramos favors a somewhat conservative investing strategy.

A low-growth scenario means “there is no need to be aggressively positioned in a stock portfolio,” he said.

‘When Trump and his people say we should go back to growth of 3% and 4%, it is absolutely unrealistic and almost mathematically impossible.’
Ernesto Ramos, head of equities for BMO Global Asset Management
Ramos runs the BMO Low Volatility Equity Fund, which has $168 million in assets and the highest rating from fund-research firm Morningstar. He aims to “provide equity-like returns with downside protection.” The fund had achieved, on average, “70% participation in an up market, but only about half of the downside participation in a down market.” So an investor’s return may very well trail that of the fund’s benchmark, the Russell 1000 Index RUI -0.03%, but lower volatility means a higher comfort level for investors who worry about losing money.

The 3% growth pipe dream
“When Trump and his people say we should go back to growth of 3% and 4%, it is absolutely unrealistic and almost mathematically impossible,” Ramos said. This is because the growth of the U.S. labor force (that is, the employed labor force), has “trended to about 40 basis points.” he said.

In comparison, “we had in the ’90s labor growth of 1.25%. A lot of that was because of immigration,” he added. So the decline in net immigration, which began before Trump was elected, in the wake of the slow and long recovery from the 2008 credit crisis, works against overall economic growth.

“The easy answer to grow our labor force is to increase immigration,” he said, but that doesn’t seem likely anytime soon.

BMO Asset Management
Ernesto Ramos, head of equities for BMO Global Asset Management and portfolio manager of the BMO Low Volatility Equity Fund.
Looking beyond declining immigration, the aging of the U.S. population works against the growth of the workforce. And there are other social factors, including epidemic levels of addiction to pain medication among adults who are no longer part of the labor force. This problem was cited by Alan B. Krueger, an economist at Princeton University, in this study in October.

Fund and strategy
The BMO Low Volatility Equity Fund was established in September 2012, although the BMO Disciplined Low Volatility Strategy (which the fund follows), was started in January 2011. From inception through March 31, the strategy, net of expenses, achieved an average annualized return of 13.58%, which compares with an average return of 12.91% for the Russell 1000 Index.

The BMO Low Volatility Equity Fund was established on Sept. 28, 2012, and has two share classes. The institutional shares MLVEX 0.42% have a $1 million minimum investment, with annual expenses of 0.66%. The institutional shares have had a total return of 73% from inception through May 30, compared with a return of 85% for the Russell 1000.

The Class A shares BLVAX 0.42% have been available since May 27, 2014, and have a $1,000 minimum investment with annual expenses of 0.91%, which Morningstar rates “low.” The Class A shares also have a 5% sales charge. However, the fund has agreements with large brokerage firms that allow most investors to avoid paying any sales charge. The Class A shares, excluding sales charges, have returned 31% since they were made available, through May 30, compared with a return of 33% for the Russell 1000.

Stock selection
Ramos described “a very disciplined approach” to stock selection for the fund, with long-term investment decisions based in great part on valuation, fundamentals and sentiment scores generated by computer models.

Apple is the fund’s second-largest stock holding, and serves as a good example. The stock has a relatively low price-to-earnings ratio of 14.8, based on 2018 earnings estimates, lower than the S&P 500 Index’s SPX -0.05% 16.5 P/E. Apple’s valuation, based on nine measures, is “in the bottom 20%” for valuation among the Russell 1000, according to Ramos.

Then, even though Apple’s “fundamentals” score of 78% is “not so good,” according to Ramos, who said, “they just have too much cash,” the stock has a 12% “sentiment” score, and its overall score puts it “within the top 31% of all stocks,” he said.

“Tax reform and repatriation of earnings would be great for Apple,” he added.

Finally, here are the fund’s top 10 equity holdings as of March 31:

Company Ticker Industry Share of portfolio Total return - 2017, through May 30 Total return - 3 years Total return - 5 years
Everest Re Group Inc. RE 2.57% Property/ Casualty Insurance 2.3% 16% 67% 172%
Apple Inc. AAPL -0.59% Computer, Telecom. Equipment 2.2% 34% 80% 106%
Axis Capital Holdings Ltd. AXS 1.42% Multi-line Insurance 2.2% 0% 51% 123%
Johnson & Johnson JNJ 0.90% Pharmaceuticals 2.2% 12% 36% 136%
Allstate Corp. ALL 0.40% Property/ Casualty Insurance 2.2% 17% 55% 180%
Validus Holdings Ltd. VR 0.38% Property/ Casualty Insurance 2.1% -3% 56% 108%
PG&E Corp. PCG 0.72% Electric Utilities 2.1% 13% 64% 89%
AT&T Inc. T -0.05% Telecom. 2.1% -7% 27% 47%
Kroger Co. KR 0.07% Food Retail 2.0% -13% 30% 187%
PepsCo Inc. PEP -0.29% Beverages: Non-alcoholic 2.0% 14% 46% 98%
Sources: BMO Global Asset Management, FactSet
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