FINANCE AND INVESTMENT
By Don Freeman
2014 Financial Market Review / 2015 Outlook
Looking back at 2014 the S&P 500 posted a solid year. The S&P +11.4%,
Dow +7.5% and Russell 2000 +3.5%, see chart above , S&P500. The “buy the
dip” mentality began to take hold as any small correction saw buyers
step in and purchase equities. 2014 Summary:
• Soaring Treasury bond prices,
• Collapse in global commodity prices (oil)
• MH17 airline crash, Russia and Ukraine conflict
• The largest Ebola outbreak in history
• Utilities the best-performing U.S. sector and energy was the worst
Source: Wall Street Journal
Small cap stocks certainly lagged large caps but at the end of 2014
small cap growth stocks began to break out to new highs. International
stocks lagged U.S. equities as can be seen by the EFA ETF which tracks
the international market and returned -6%. The United States Oil ETF
fell 42% and the popular SPDR Gold Trust declined 2.2% for the full
The Shanghai Composite, above, is breaking the 6 year downtrend but
continues to lag the stellar performance of US stocks, see top chart
• US economic growth will likely continue to improve in a very low
interest and low inflation rate environment
• Labor markets are improving, strengthening of the US dollar and lower
oil prices will boost the recovery
• Quantitative easing is ending and the US monetary and banking system
(post 2008) is returning to a more normal healthy condition
• I am bullish long term for the US economy and stock market but short
term continue to see volatility and corrections likely as the market has
had a nice move up since Nov 2012 without much of a pullback.
US S&P 500 Long Term View (20 years)
I currently see the economic recovery continuing as we have not reached
a point where the Federal Reserve has over tightened the money supply.
Therefore the bull market will likely continue without a threat of a
bear market / recession as we saw in 2000 or 2008. It will be important
in the next 3-5 years to focus on individual stocks and leading Exchange
Traded Fund sectors. Over the past 14 years while the US stock market
digested the gains from 1982 to year 2000 we have had a technology
bubble, housing bubble, gold bubble, banking crisis and now the latest
oil bubble which has come back to normal levels (oil under $50). Cash
has built up as a result of all this fear (wall of worry) and will
eventually be redeployed back into equities and long term investments.
The upward trend of the stock market remains positive (see chart above)
despite all the fear built up over the past 12 years. My positive
outlook could change at any point depending on the actions of the
Federal Reserve, the economic numbers / earnings and sales reports.If
you have any questions please email or call me. Don Freeman. Freeman
Capital Management,LLC. : USA (503) 616-3850 I Fax: (503) 914-1954.
Thailand: +66 (0)89 970-5795. Skype: Don.freeman1 www.freemancapital.net
This Investment Is Perfect For Retirees
The headlines for the past few weeks have not been
pleasant. Stocks have been dropping, oil crashed, and if that wasn’t bad
enough, we had the Ebola crisis. For some people, they want to run and
hide. For me, I look at it as an opportunity to put money to work. I’m
never 100% invested all the time. I like to have cash on the sidelines
for when opportunity presents itself.
Most people don’t realize this, but the United States is the world’s
largest energy producer. This year, the US eclipsed both Saudi Arabia
and Russia as the top producer of both crude oil and natural gas. The US
now produces over 11 million barrels of oil per day. This is one of the
reasons why oil prices have dropped from over $100 to $80. The fact is
that the world is awash in oil. With so much oil out there, there’s no
need for high oil prices.
However, as oil prices drop, that’s bad news for oil companies. This
means that they are now getting less money for every barrel of crude oil
that they sell. That’s why I’m staying away from oil companies.
Instead, I’m focused on the energy infrastructure companies. These are
the companies that run the toll-roads that connect the oil that’s pulled
out of the ground to the refineries that refine it to the pipelines that
transport the finished products.
Right now, my clients and I are buying the Alerian MLP ETF. This is
being added to my long-term ETF portfolio. I see this ETF as the best
way to capitalize on the energy boom in the United States.
The Alerian MLP ETF is composed of the companies that own these assets.
As oil continues to be found in more formations, more pipelines, storage
tanks, and processing centers are required to connect oil reserves to
industrial regions. Over the next 25 years, an estimated $250 billion
dollars will be spent on energy infrastructure.
The best part about energy infrastructure assets is that they are not
dependent on the price of oil. Their business model is based on volume,
not on the price of oil or natural gas. This is why the Alerian MLP ETF
is so attractive.
The other thing that I like about energy infrastructure assets is that
they are their own monopoly. In other words, once a pipeline gets built,
there won’t be another pipeline built right beside it. As anyone from
the US knows, getting approvals for pipelines is not easy. The largest
pipeline planned, the Keystone XL which would bring crude from the oil
sands of Canada to the Gulf of Mexico, remains bogged down in political
wrangling between Republicans and Democrats.
For retirees, the Alerian MLP ETF is perfect because it provides
inflation protection. There’s nothing better than owning real assets
like pipelines, storage tanks, and processing centers. The income that
investors get is driven by the stable cash flows that these assets
generate. These assets don’t care what the stock or bond markets are
doing. They make money regardless.
Since the Alerian MLP ETF was formed in August 2010, it has delivered a
12.71% annualized return to investors. Had you invested $10k at
inception, you would have $16,338 today.
The Alerian MLP ETF has over $9 billion in assets. Its top holdings
include the premier energy infrastructure companies in the US. By buying
the Alerian MLP ETF, one holds interests in MLPs like Kinder Morgan
Energy Partners, Enterprise Products Partners, and Energy Transfer
Partners. One could buy these individually, but the Alerian MLP ETF does
all of that for you and gives you much broader diversification. All
together, the Alerian MLP ETF has 25 energy infrastructure MLPs in its
For US investors, there are no K-1s or complicated tax reporting
documents and there is no leverage. This is important and gives one
piece of mind. That’s why in today’s market, with fear starting to perk
its head up, I see the Alerian MLP ETF as a great place to park some
money. It’s certainly a much better investment than gold and one which
pays you a regular quarterly dividend. Now, that’s what I call sleeping
better at night.
Don Freeman is president of Freeman Capital Management, an independent
US Registered Investment Advisor. He has over 20 years experience and
provides personal financial planning and wealth management to
expatriates living in Phuket. Specializing in UK and US pension
transfers. Call 089-970-5795 or email: [email protected]