Bulletproof REIT Bargains: How to Profit From the Inevitable Real Estate Recovery

by Robert Williams, Advisory Panelist, The Oxford Club Thursday, January 8, 2009: Issue #912

Editor’s Note: Our colleagues at The Oxford Club have been sorting through the debris from the mortgage and credit crisis. Robert Williams has found a company that’s been bucking the trend, profiting from mortgages and racking up a safe, consistent dividend. It fits in perfectly with our asset allocation portfolio, since we recommend holding 5% of your assets in REITs.

Dear Investment U Reader,

The U.S. housing market is walking the plank. Easy credit helped usher in an unprecedented period of rising home prices. But now those same lax credit standards have us caught in one of the worst slumps in recent memory.

According to the latest data, the inventory of unsold homes sits at 4.23 million, representing a 10.2-month supply at the current sales pace. For comparison’s

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Securities listed in this table as investable proxies for countries are:

FXI, EWJ, VPL, EWH, EWM , EWP, EWL, EWQ, EFA, EIS, VTI, VT, EWG, VGK, EWT, LIS, EWN, EWU, EWI, THD, INP, EWD, EZA, EEM, EWS, ECH, EWW, EWY, EPP, EWA, EWC, EWZ, IRL, IF, EWK, TR, EWO, and RSX.

click image to enlarge

Mutual fund money flows, which are a good indicator of overall retail investor market views, have been strongly negative in recent months. Global and international equity funds have experienced greater negative money flows than domestic US mutual funds this year. Until the 2008 market drops, US equity funds received lower money inflows than global and international funds.

Representative US equity funds include:

SPY, IVV, IWB, IWV, TMW, IYY, and VTI

Representative international and global equity funds include:

EFA, VEA, EEM, VWO, VEU and VT.

The data for the following charts is taken from Investment Company Institute publications.

click images to enlarge

Average Monthly Flows

3-Month Moving Average Flows

Aggregate Annual Flows

Richard Shaw QVM Group LLC

Mutual fund money flows, which are a good indicator of overall retail investor market views, have been strongly negative in recent months. Global and international equity funds have experienced greater negative money flows than domestic US mutual funds this year. Until the 2008 market drops, US equity funds received lower money inflows than global and international funds.

Representative US equity funds include:

SPY, IVV, IWB, IWV, TMW, IYY, and VTI

Representative international and global equity funds include:

EFA, VEA, EEM, VWO, VEU and VT.

The data for the following charts is taken from Investment Company Institute publications.

click images to enlarge

Average Monthly Flows

3-Month Moving Average Flows

Aggregate Annual Flows

Richard Shaw QVM Group LLC

We believe that the starting point for evaluating the allocation weight to be given US equities within the overall equity allocation in a portfolio should begin from the world weight of US equities.

It may well be that US equities should be overweighted or underweighted for any number of reasons, but we believe the world weight is the appropriate starting point.  It’s a bit like “zero based budgeting”.

We believe it is inappropriate to begin with old rules of thumb such as “80% to 90% US and up to 10% to 20% in foreign equities”.  At best, such rules were formed a long time ago, before the extensive globalization of commerce we have today. At worst, they were just narrow insular thinking.   You can arrive at an 80% US allocation, but you should not start at an 80% US allocation.

Currency Issues:

We are not overly concerned about the currency risk argument often posed

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Journal Communications (JRN) is a publishing company operating in the printing services, broadcasting and publishing segments. Its flagship newspaper is the Milwaukee Journal Sentinel and the company owns 49 community newspapers and shoppers throughout Florida and Wisconsin. The broadcasting segment operates 35 radio stations and 11 television stations in 12 states, as well as involves in the operation of a television station under a local marketing agreement. The Printing Services segment offers a range of commercial printing services, including printing of publications, professional journals, and documentation material.

As media transforms from print to digital, Journal Communications has shifted its focus toward broadcast enterprises, expanding its radio, television and Web offerings, while reducing its print footprint. The company shed publishing operations in Louisiana and Ohio last year and similar businesses in Connecticut and Vermont will also be shed. Broadcasting makes up about 35 percent of Journal Communications’ sales. Wisconsin-based Journal Communications

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Green Mountain Coffee Roasters, Inc. (GMCR) analysts have been increasing estimates since the third-quarter earnings announcement. The company has also announced an all-cash acquisition that will increase its presence on the west coast.

Company Description

Green Mountain Coffee Roasters, Inc is a prominent fixture in the specialty coffee industry. The company sells a wide variety of coffee blends commercially and direct to customers in addition to teas, hot cocoa, and Keurig brewing products. Green Mountain is a socially responsible company headquartered in Waterbury, Vermont and has a market cap of approximately $900 million.

Green Mountain Buys Tully's Brand

Green Mountain announced the purchase of Tully's brand name in addition to its supply chain and domestic wholesale business. The $40.3 million cash acquisition was announced on September 15th. While Tully's will continue to run its retail and international business, the deal will

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We believe that the equity allocation, large or small, of portfolio should reflect the global pattern of business development, following global growth and profits fundamentals.

Investing with a home country bias may be emotionally comforting, but it is becoming increasingly suboptimal.

We have written repeatedly that the tendency to massively overweight home country positions with a toe or a foot in other parts of the world fails to participate fully in world growth and opportunity.

A total world fund such as Vanguard’s Total World Stock ETF (symbol VT) based on the FTSE All-World Index is a good option to consider for those seeking simplicity in their portfolios, or as a core position to be supplemented by more specialized funds. Access fund webpage.

The Index includes approximately 2,900 stocks of companies located in 47 countries, including both developed and emerging markets. The fund holds 1,737 stocks and carries a 25 basis point expense

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Leslie Norton, Barron’s analyst/journaist recommended People’s United Financial, as a winner in the credit crunch:

Track her picks at:

http://trackthepros.com/categories.php?category_id=641

a.  The cash-rich Bridgeport, Conn.-based regional stands out for the strength of its balance sheet, lack of subprime-mortgage exposure and prospects for still-stronger returns. People’s is so well-capitalized that it’s hunting for acquisitions, as other lenders are watching their share prices and franchises shrink.

b. The stock slid as low as 14.58 after the company bought a Vermont bank, Chittenden, for $1.9 billion. That purchase made it the largest New England regional, with $21 billion in assets and 300-plus branches.

c. People’s has one of the highest capital ratios around; Tier One capital (equity and unredeemable preference shares) was a whopping 16.5% of assets — 2.75 times what the Federal Deposit Insurance Corp. deems “well-capitalized. This puts the bank’s total cash holdings at $2.5 billion, or

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Green Mountain Coffee Roasters, Inc. (GMCR) is a specialty coffee company known for its various types of coffee, innovative brewing technology and socially responsible business practices. Green Mountain manages its operations through two wholly owned business segments: Green Mountain Coffee and Keurig. The company’s Green Mountain segment sells more than 100 high-quality coffee selections, such as Fair Trade Certified™ organic coffees and Newman’s Own® Organics brand, through wholesale, direct mail and Website. The company’s Keurig segment produces coffee as well as hot cocoa and tea in K-Cup® portion packs for Keurig single-cup brewers.

Green Mountain recently chose Knox County, Tennessee as the future home of a new manufacturing and distribution facility for the Green Mountain Coffee segment. The company has closed on the purchase of a 334,000 sq. ft. building on a 31 acre parcel of land in Knox County for approximately $10.4M. The new site

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