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Analyst View / Management Talk Q&A: 
Three Global Investment Trends
Author: 123jump.com Staff
123jump.com
Last Update: 1:46 PM ET August 19 2011


 

A swiftly expanding middle class in Asia and the overall surge of emerging markets has been fostering additional demand for consumer products offered by multinational companies. These trends are developing along with an infrastructure boom in these nations that are powering the demand for commodities and hard assets. Paul Dietrich highlights the methods that Foxhall Capital Management employs for its ETF Series in order to benefit from these major global trends.

 
Q: Would you tell us about the history and goals of Foxhall Capital Management?

A:
Foxhall Capital Management, Inc. is a SEC Registered Investment Advisor founded in 1986. Currently, we oversee a bit less than $1 billion in assets under management. We manage investments for private investors, religious institutions, union pension funds, mutual funds and large private institutions.

I serve as the CEO and Co-Chief Investment Officer of the company, our primary investment goal is to first try to limit the loss of our client’s principal during long-term bear markets and to invest in a globally diversified portfolio that includes an asset allocation in commodities like gold and oil, during long-term bull markets.

Q: What is your investment strategy?

A:
We have always been tactical investment managers. Our investment team utilizes, what we call, the Foxhall Dual Investment Strategy. This dual methodology keeps investors largely invested during long-term bull markets, and once a long-term bear market is identified, the strategy moves investors out of stocks and into cash, treasury bonds or other investments with the aim to protect investor’s principal.

In addition, we use a range of trend-following techniques to identify both bull or bear markets through a combination of long-term moving averages, such as two-year moving averages and other trend channel technical indicators.

During a long-term bear market, even in our ETF strategies, we can go up to a 100% into U.S. Treasuries or cash to protect our clients from any significant loss of principal.

During long-term bull markets, we try to stay fully invested in global stock markets and commodities.

Q: How would you describe your research process?

A:
In bull markets, we first try to provide a globally diversified portfolio. We believe a globally diversified portfolio is the safest and most conservative asset allocation available today.

When looking at underlying holdings and stocks, we like companies that have the best fundamentals, namely, low or moderate price-to-earnings ratios, a minimum of 18% return on equity, high cash flow, and great management. Furthermore, we prefer companies that are outperforming the S&P 500 index over the past 12 months.

With regard to developed markets, we primarily focus on those companies in the United States that have major global brands and are participating in the growth of Asia and emerging markets. For example, Coca-Cola, Wal-Mart, Johnson & Johnson, McDonalds or General Electric Company are companies with spectacular earnings, but when we drill down, we find they are either losing money or not making many profits here in the United States while generating 50% to 80% of their profits from international sales.

Q: What is the main difference between investing in exchange-traded funds and in stocks?

A:
The best thing about ETFs is they are broadly diversified and have a lower volatility than investing in individual stocks.

In contrast, stock portfolios tend to be more volatile simply because they comprise individual stocks, even if they are globally diversified. We try to limit volatility in our individual stock portfolios with our conservative value-oriented stock picking strategies that combine both a value and growth approach to investing.

Moreover, all of our portfolios maintain an exposure to commodities and hard assets, Asia and emerging markets, as well as the consumer stocks from developed markets like the United States. That is actually the only difference between our ETF and stock strategies.

We still maintain our overall dual investment strategy for ETFs and stocks of exiting the stock market during long-term bear markets.

Q: How do you build your portfolio?

A:
In addition to being 100% invested in equities during long-term bull markets, we allocate our holdings in developed markets and pick investment opportunities in Asia and emerging markets along with physical commodities and commodity producing companies.

Our base line asset allocation is 60% in developed markets, 24% in Asian and emerging markets and 16% in global hard assets like gold, oil and other commodities and commodity producers.
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