16 08/21 16/08/2021

Weekly Newsletter Week 32

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WEEK 32 | AUGUST
WEEKLY NEWSLETTER

 

OVERVIEW

  • Financial Markets & EconomiesSideways
  • Good to knowThe Next China?
  • Your portfolio highlightsBerkshire Hathaway, Brookfield Asset Management, Solar US Bond Fund Ltd., Methanex
  • In other news: Industry Analysts Upgraded Their Markel Corporation (MKL) Forecasts
Financial Markets & Economies

About the $1 trillion U.S. infrastructure bill we have been talking about, an amendment was recently made to the bill which expanded the definition of a cryptocurrency broker and proposed tax collection on cryptocurrencies as one way to pay for the bill. This will lead to tighter regulations of the cryptocurrency market which the Biden administration pushes towards. This amendment could raise about $28 billion in revenue in a 10-year period. Critics believe that such a move will stifle innovation and investments in the U.S. as it becomes less attractive for investors. The subject is still under debate.

The International Energy Agency (IEA) lowered their oil demand projection after concluding that the world will consume less oil this year than they previously expected. According to their new projection oil demand will not return to pre-pandemic levels until late 2022. This slower recovery is due to the new COVID-19 waves and the countermeasures several countries are facing/ implementing. This calls for patience from oil investors. U.S. markets were mostly sideways during the week while European markets were close to their longest winning streak since 1990.

 
Good to Know

Following the investments of majors corporations and sophisticated investors, one will come to find out that there is an increased attention towards India. For big names such as Amazon and Facebook to invest in India there must be something cooking. According to analyst Packy McCormick there are 5 main reasons investors should keep an eye out for India:
 

  • India is the world’s second largest country by population with 1.3 billion people
     
  • India is the 5th largest economy in the world by nominal Gross Domestic Product (GDP) at $2.9 trillion
     
  • India is the fastest growing trillion dollar economy in the world after China
     
  • India is expected to grow mobile users by 40% to 800 million in 2023
     
  • India has the same potential as China without the added risk (communistic structure, regulatory differences, trade tensions etc.)
     

It is no secret that China has been popular with investor this last decade when they opened op to the world. India is planning on doing the very same thing. Instead of only focusing domestically the country wants to expand their scope globally. Some believe that India will experience growth this decade just as China did in the last one. This will close the gap between the two countries as India takes more ownership and control domestically and export its products and services worldwide.

Looking at the India Nifty 50 index one can see that the index is hovering near its 52-week high returning almost 18% year-to-date and 46% in the last 12 months. As usual, we look for conglomerates meeting our set requirements that are greatly positioned to benefit from the spotted trend. The name is Reliance Industries. In our next publication you will get to know all about the Indian conglomerate.

 
Your Portfolio Highlights
 

Last week it was Berkshire Hathaway (BRK.B) that was all over the news. Berkshire’s Forest River entered into a partnership with Lightning eMotors to deploy 7500 zero-emission shuttle busses. The partnership was valued at $850 million. The Berkshire-backed Nubank, a Brazilian digital bank, hired Morgan Stanley, Goldman Sachs, and Citigroup to lead its U.S. initial public offering (IPO). The company is expected to be value north of $40 billion. Nubank’s IPO will become one of the biggest stock market debuts of a South American company. The IPO is expected to be filed later this year or in the beginning of 2022.

Berkshire reported its Q2 results last week, and they were outstanding. The company reported a 21.8% increase in operating profits, a net income increased from $26.3 billion to $28.1 billion, and $6 billion in stock buybacks. Their $324 billion investment portfolio had positive return for the period with Apple being the major contributor. Berkshire’s subsidiary, Burlington Northern Santa Fe (BNSF), also reported strong earnings for the quarter nearly doubling its operating profits before taxes. Other subsidiaries such as Berkshire Hathaway Energy, NetJets, and Dairy Queen all had outstanding performance. Geico on the other hand reported subpar performance as its underwriting profit fell almost 70% in the quarter.

 

Brookfield Asset Management (BAM) announced outstanding numbers for the quarter ending June 30th. The company recorded $1.2 billion of distributable earnings in the quarter and $6.3 billion in the first half of the year. Both net income ($1.6 billion) and fund from operations ($2.4 billion) increased significantly compared to last year’s quarter (-$1.5 billion and $1.2 billion). The three factors that contributed to this outstanding performance were: (1) asset management franchise growth, (2) steady returns on principal investment and (3) continued momentum on capital recycling.

The company raised $9 billion for its flagship real estate fund and $7 billion for its Global Transition Fund in Q2. Brookfield secured some profit in the quarter by selling $8 billion worth of investments returning $6 billion to clients and realizing $335 million of gross carried interest. Unrealized carried interest increased to $6.2 billion. The board declared a $0.13 dividend per share payable on September 29th.

Brookfield Asset Management Reinsurance Partners (BAMR) was also in the news this week after they agreed to buy American National Group (ANAT) for $5.1 billion. American National Group offers life insurance, annuities, health care coverage, credit insurance, pension products, and property & casualty insurance. The company is active in all 50 U.S. states. According to Brookfield Reinsurance’s CEO, Sachin Shah, American National Group’s management team has a strong track record of stable growth and disciplined underwriting. In such way Brookfield seeks to expand its insurance business.

 
 
The Solar USD Bond Fund (SUBF) is a bond investment fund investing primarily in high yield corporate bonds of U.S. issuers with a minimum S&P rating of CCC. The fund may also invest in USD bond funds. The Solar USD Bond Fund aims to generate a stable long term cash flow which will be 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 +1.13% year-to-date. One of the holdings in the SUBF is Methanex Corporation. Methanex returned +1% based on price movement alone and +2.125% based on its coupon payments for a total of 3.125%.

Methanex Corporation is a Canadian company that supplies, distributes and markets methanol on a global scale. In fact, Methanex is the world’s largest producer and supplier of methanol serving major international markets in North and South America, Europe, and Asia Pacific. Methanex is headquartered in Canada and operates production sites in Canada, Chile, Egypt, New Zealand, the United States, and Trinidad and Tobago. The company’s global operations are supported by an extensive global supply chain of terminals, storage facilities and ocean tankers.

Methanex has a disciplined investment approach and is a low-cost producer. This helps the company increase its cash flow generation capabilities. The outlook for the industry itself is positive seeing the growing demand for methanol. Since we hold a Methanol bond and not its stock, we are not really seeking capital gain but rather fixed income. Even so we look for stable companies with good prospects. The fact that Methanex is the industry leader combined with the growing demand for Methanol and its cash generating abilities makes it a good fixed income security.


*Please visit the Methanex Corporation website for more information or click on one of the images below for their latest presentation.

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