Capital Ideas investment strategy involves using ETF’s as core holdings. One of our most basic strategies involves allocating capital between small medium and large capitalization market indexes.
The advent of the Global X Brazil mid cap fund (NYSE:BRAZ) has allowed us to finish out this market cap indexing strategy, which we have used in the US as well as in China, in Brazil.
We index a portion of our portfolios, the core holdings, and determine portfolio weight by expected potential growth. In the case of Brazil we were able to own iShares MSCI Brazil (NYSE:EWZ) and benefit from the large capitalization export oriented nature of the companies in the index. This has worked well as a second derivative play on China. We have also been able to participate in the internal growth of Brazil with small cap Market Vector Brazil (NYSE:BRF). While fast growing small capitalization companies are quite volatile they are subject to different risks than the larger capitalization EWZ. We believe the sweet spot for Brazils growth will be the mid cap companies. Until recently this part of the index was not available as an ETF. This week the mid cap index BRAZ was introduced. We added it to the portfolio on day two of its trading. We believe it gives us exposure to those Brazilian companies in the sweetest spot of one of our favorite developing countries.
Another recent investment is Roche ADR’s (OTC:RHHBY). Our idea is based on several potential positives:
First are their recent acquisitions. Ventana increased Roche presence in the professional diagnostics market. This should become more valuable with the growth in lower cost medicine. The recent acquisition of Genentech with its strong presence in oncology is another impressive move on management’s part.
Secondly, we are macro investors and continue to believe the US dollar has had its rally. Thus we prefer to invest in companies that will benefit from a weaker dollar.
Last we think the company is historically cheap. It is trading near its 12 month low with a P/E of 17 a P/CF of 8 and a yield of about 3.3%. With estimated earnings growth of 10% and a past policy of increasing dividends the company fits our requirements for growth of both principal and income.
