Question:
Gene once said that index funds are a great way to get instant diversification at a low cost, and pointed out that they are immune from managerial “style drift.” However, when it comes to overseas investing, especially in Emerging Markets, a manager might be well worth his fee. The MSCI Index contains some real “dogs,” which often consist of state-controlled entities. An index fund can’t avoid the dogs, but a manager can, putting the Emerging Markets investor well ahead of the game. What do you think?
Answer:
The average diversified emerging market fund is down 5.5% year-to-date. We believe in active management and that does not exclude emerging market investments. With proper research and allocation, fund companies can find great value in the smaller diamonds in the rough in the emerging markets arena. If you trust their strategy and philosophy, it might make sense to pay a higher fee for active international investments. Over the years, the emerging markets investment climate has become more transparent and more consistent with developed markets. The indices are more tied to larger, well-known companies with liquidity. Our goal is to invest in high quality, liquid companies.
Our strategy in emerging markets is to take advantage of long-term themes, such as, the building completion of infrastructure, increasing in per capita consumption of food, and increasing standards of living. Such long-term themes should benefit the larger, more well-known companies that make up the indices. Our strategy is a less labor intensive process and doesn’t open us up to managers taking an oversized position in one particular area.
So while you can be more focused on investing in emerging markets by buying active management, we believe that taking an index approach is more cost effective and gives us the country exposures that we want. Fortunately, with the advent of exchange-traded funds, we can be very specific in the countries and regions in which to invest. This gives us the ability to focus on the individual countries we want to be exposed to. For example, we own iShares S&P Latin America 40 Index (ILF), which focuses on Latin America, and iShares MSCI Pacific ex-Japan Index (EPP), which excludes Europe and Japan.
Question:
I’m a contract web designer/user experience specialist. Can I get disability insurance if I’m self-employed? Being a contract employee, I find that many places consider me unemployed rather than self-employed.
Answer:
Where credit is concerned, you may be considered unemployed if you have less than a year record as an independent contractor; however, as far as insurance is considered, you can certainly obtain a disability policy. In fact, a disability policy may be even more important for you as a sole-proprietor than an employee, who may have paid sick leave through his company. We recommend you work with an insurance agent to find a policy that should work best for your situation. We also recommend matching up your elimination period—the waiting period between your disability and when benefits begin—to how much you have saved in your emergency fund. For example, if you have three months of expenses saved in an emergency fund, you may consider a disability policy with a 90-day elimination period. Your policy considers your occupation, if you work from home, as well as any dangerous hobbies you may have outside work.
Question:
I own Elizabeth Arden shares. As this really isn’t a company that interests me, I haven’t been following its progress much. Is this one worth holding or should I trim? I’d say it’s about 4%-5% of my portfolio.
Answer:
When a holding becomes 4% to 5% of your portfolio, we highly suggest that you begin paying attention. Elizabeth Arden (NASDAQ: RDEN) is a cosmetics and perfume manufacturer that tries to ride the pop culture wave with fragrance launches from Taylor Swift, Nicki Minaj, Justin Bieber along with staples like White Diamonds. The company has had a bumpy ride and with a beta of 1.4, it is substantially riskier than the market. The average Consumer Staple stock yields 2.85% in dividends; however, Elizabeth Arden does not pay a dividend, which in our opinion is not good. It also does not meet our financial strength criteria. Elizabeth Arden also trades above the industry’s price-to-earnings. As you own it, it may be ok to hold, but we prefer Estee Lauder, Inc. (NYSE: EL), as it is a larger company with better earnings predictability. We do not recommend Elizabeth Arden as a buy.
Question:
I’m looking at Vectren Corp and/or Sempra Energy. What is your outlook for either of these for the next year?
Answer:
Both Vectren Corp (NYSE: VVC) and Sempra Energy (NYSE: SRE) are utilities that meet our investment criteria. Vectren is more established, covering Indiana and Ohio. It’s infrastructure services business should be healthy, as shale gas demand increases. However, its coal mining operations will likely be hindered by the Administration’s various energy policies and distain for coal power. The company pays a 4.3% dividend and is well positioned for solid earnings predictability. We would consider Vectren as a dividend play.
Sempra primarily serves Southern California. The company recently received approvals for rate increases, albeit well below its requested increases. As a utility in California, it has to hop over many regulatory hurdles. This is not something we want to own. Vectren operates in more business-friendly states. If you own Sempra, we recommend selling.
Question:
I’ve owned Illinois Tool Works off and on for many years. I bought it earlier this year at $60. Do you think it’s too early to sell and take my profit? I was considering that I would move the money into The Middleby Corp.
Answer:
We recommend you stop considering Middleby Corp (NYSE: MIDD). The company does not meet our investment standards. We also find it under diversified, as it only serves the restaurant industry. Illinois Tool Works (NYSE: ITW), on the other hand, is like a mutual fund of industrial companies. It owns and operates more than 800 businesses spread throughout nearly 50 countries. It has operations in manufacturing components, equipment and machinery for just about every type of industry from automotive and construction to food and beverage.
ITW has been a core long-term holding for Henssler Financial. We do not view ITW as a company you should hold “on and off” over the course of many years. We deem this company is a buy and hold.
At Henssler Financial we believe you should Live Ready, which includes understanding the companies you invest in. If you have questions regarding your stock or mutual fund holdings, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
