Author: Andrew Fletcher, Fletcher Wealth Management
Covestor model: Dollar Hedging
It appears to me that the market established its bottom in September 2011, as the overall market screamed higher through October. Volatility was somewhat lower last month, as strong earnings reports were not drowned out by news from sovereign fiscal struggles, both at home and abroad.
At month’s end, the S&P 500 had gained 10.77%. Continued issues with the credit of Euro zone countries made international exposure, particularly in Europe, not as attractive as a U.S. Equity alternative in October. The Dollar Hedging model closed out its month with a 6.70% gain, according to Covestor calculations.
Trades
Combining the price drop in the overall market and a volatile dollar over the past several months, many ADRs and currency ETFs have become more attractively priced. However, with such uncertainty in the air, we have been hesitant to make any purchases. The overall market appears to have somewhat stabilized, so we will consider making some purchases over the next few months.
No holdings met their target sell prices during October.
Update on some holdings
The iShares Silver Trust (SLV) stabilized and partially recuperated after suffering a horrendous decrease in September, caused mainly by raised margin requirements. SLV appreciated about 16% in October 2011.
Coviden (COV) unveiled a new product in October – the world’s first non-absorbable, uni-directional barbed suture. It is expected to have a particularly major impact on bariatric surgery, but will also be used in general surgery.
Late in October, Orange Business Services, the business to business branch of France Telecom (FTE), announced the start of a contract with Gemalto for communication and collaboration services.
Thanks to a weakening dollar, the CurrencyShares Swiss Franc Trust (FXF) was able to start its recovery from the drop it encountered when the Swiss central bank announced that it would set a minimum exchange rate from the franc to the euro in early September.
The WisdomTree Dreyfus New Zealand Dollar Fund (BNZ) was absorbed into the WisdomTree Australia & New Zealand Debt Fund (AUNZ) on 25 October 2011. There was a special distribution of $3.04797 paid per share of BNZ to clearly show that the new fund is a bond fund, not a currency fund. We will not divest this new position at the current time, since it offers broad-based exposure to local currency debt of Australia, as well as New Zealand.
China Gerui Advanced Materials Group Ltd. (CHOP) continues to be a volatile stock, with large price swings, both positive and negative, occurring frequently. Much of this volatility is related to the stigma that has been attached to Chinese companies listed on U.S. exchanges. On 28 October 2011, an individual with a short position in CHOP presented concerns about the company, and the stock dropped suddenly, only to recover in coming days. We will continue to closely monitor this situation, and act as we think appropriate.
Conclusion
We will continue to capitalize on discounts to our assessment of fair value and net asset value in international stocks, precious metal ETFs, and foreign currency ETFs.
As long as the overall portfolio moves with its benchmarks, we do not worry when quality holdings drop in price, as that helps move companies on our watch list onto to the buy list. When a rebound does occur, we expect a stronger positive response from our individual holdings than from the index itself.
