Newsletter Week 27
WEEK 27 | JULY
Financial Markets & Economies: Short-lived
Good to know: An Uneven Recovery
Your portfolio highlights: Brookfield Asset Management, Solar US Bond Fund, Altera Infrastructure LP
In other news: European Central Bank sets inflation target at 2%, Fairfax Announces Potential Gains on Investment in Digit, Markel hires Kristin Towse as Executive Underwriting Officer
Financial Markets & Economies
The U.S. saw a high number of airline passengers passing through their airports in the 4th of July holiday weekend. The Transportation Security Administration (TSA) recorded 2.2 million airline passengers on Friday and 1.7 million on Sunday 4th itself. These numbers are higher than on the same dates of 2019. More traveling, more spending, more production. You know the drill! The black gold (oil) does not cease to amaze its investors. The oil price reached a 6-year high on Monday but retreated later in the week. The increase was spurred by production policy disagreements between the Organization of the Petroleum Exporting Countries (OPEC) and other oil-producing countries. Short-term up and down price movements are to be expected in investing. The oil trendline however is still upward. Stock markets in general has been mixed through midweek with technology stocks picking up steam. Later in the week the major stock indices declined due to concerns of global economic recovery slowdown seeing the magnitude of the Covid-19 Delta variant. As we have seen multiple times in the past, these concerns are often times short lived.
Crude Oil - 1 year price movement
Good to Know
We continuously speak about the global economic recovery and the impact it will have on stock markets. One thing that is not often highlighted is the fact that the recovery is uneven. We are not talking about being uneven per sector or asset class but on an individual basis. There are stark contrasts in certain figures. Unemployment level for instance is still relatively high (5.5%) compared to pre-pandemic levels (3.7%) while the U.S. household net worth is at its peak hitting $136.9 trillion thanks largely to the stock market gains and the increase in real estate values. The difference maker is clearly investing. The ones privileged (and wise) to have been invested throughout the period has reaped the benefit. There is much more to gain seeing the consensus on an extended period of economic growth. The recovery and boom of household net worth is not only limited to the U.S., however. The same is observed on a global level. The increased consumption we are seeing now comes mainly from high-income consumers. High-income consumer spending is now 11% above pre-pandemic levels in the U.S. The recovery moving forward is thus tilted towards the consumptions of the affluent.
Your Portfolio Highlights
Brookfield Asset Management (BAM) made the news again this week. The company announced that it signed 16 new leases for its ICD Brookfield Place.ICD Brookfield Place is a joined venture between Brookfield and Investment Corp of Dubai (ICD) located in the Dubai International Financial Center. The new tenants consist of multinational corporations in the luxury, lifestyle retail, and food & drink industries. Furthermore, Brookfield Business Partners, a subsidiary of Brookfield has signed an agreement to acquire DexKo Global for $3.4 billion. DexKo
manufactures high engineered components for recreational vehicles, trailers, and towable equipment providers and has 50 production facilities and 50 distribution centers around the world. The acquisition will involve around $1.1 billion of equity funding and the transaction is expected to close by the end of the year.
The Solar USD Bond Fund (SUBF) is a bond investment fund investing primarily in high yield corporate bonds and preferred shares of U.S. issuers with a minimum S&P rating of CCC. The fund may also invest in USD denominated fixed income funds. The Solar USD Bond Fund aims to generate a stable long term cash flow which is reinvested. The asset allocation is diversified into different asset classes, market sectors and maturities of industrial and consumer products and services companies. The Solar USD Bond Fund analyzes the credit quality of the issuer, the issuer's potential for success, the credit rating, the economic risks, and the current and potential future valuation. The fund returned +2.30% so far this year. One of the fund’s holdings we would like to highlight is Altera Infrastructure which returned +16.24% year-to-date and +50.84% since inception excluding its yearly 7.25% dividend payout.
Altera Infrastructure (ALIN'A), previously known as Teekay Offshore, is a leading global energy infrastructure services group primarily focused on the ownership and operation of critical infrastructure assets in offshore oil regions of the North Sea, Brazil and the East Coast of Canada. Altera Infrastructure has over 2000 employees, consolidated assets of approximately $5 billion, comprised of more than 50 offshore assets, including FPSOs, shuttle tankers, towing vessels and a unit for maintenance and safety. Altera provides critical infrastructure assets to the offshore oil and gas industry through three business lines: Altera Production, Altera Shuttle and Storage, and Ocean Towage and Offshore Services. Their vision is “leading the industry to a sustainable future”. The company develops solutions, business models and technology that will meet the changing demands of energy infrastructure and is driven by their commitment to be at the forefront of sustainability focusing on environmental, people, finances, and commercial factors. Altera Infrastructure L.P. is a limited partnership that was established back in 2006. The partnership is managed and controlled by the general partner, Altera Infrastructure GP L.L.C. In January 2020, global asset manager Brookfield Business Partners L.P. (subsidiary of Brookfield Asset Management) acquired Altera and now owns 100% of the general partner. As with any other holding in the fund, the company was scrutinized for its financial health (solvability, profitability, and liquidity), business success potential, and leadership quality while also considering macroeconomic factors that could be of influence on the company’s performance. *Please visit the Altera Infrastructure website for more information or click on one of the images below for their latest publication.
Altera Infrastructure Preferred Shares A - year-to-date stock price movement
In Other News