Got a question on a high-growth investing strategy, commodities or emerging markets? Here's something different: Ask a hedge fund manager.
Rohit Sehgal, chief investment strategist at Goodman & Co. Investment Counsel Ltd., took your questions online. He also runs the $596-million Dynamic Power Hedge Fund, which plunged 72 per cent in 2008 and then gained 159 per cent last year. The fund has returned 25 per cent annually over five years.
To see the discussion, click on the live blog box below.
Read more about Rohit Sehgal:
With over 40 years of experience, Mr. Sehgal's growth style uses both top-down macroeconomic analysis and bottom-up fundamental research to capitalize on early stage growth opportunities and protect capital in down markets.
Mr. Sehgal joined Goodman & Co. in 1998. He received an honours degree in economics from Delhi University and earned his Chartered Financial Analyst designation in 1974.
Views expressed regarding a particular company, security, industry or market sector should not be considered an indication of trading intent of any mutual funds managed by Goodman & Company, Investment Counsel Ltd. Any reference to a particular company is for illustrative purposes only and should not to be considered as investment advice or a recommendation to buy or sell, nor should it be considered as an indication of how the portfolio of any mutual fund managed by Goodman & Company, Investment Counsel Ltd. is or will be invested.
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Leslie Erdosy writes:
What is your take on inflation and its effects on gold?
There are many ways to look at inflation. If you look at inflation driven by wages, I don't see any serious threats because of high unemployment. We could see inflation in commodities, like foods and other basic commodities because we see very strong supply and demand fundamentals on a long term basis.
Gold may also benefit from this.
David Gillanders writes:
my question is regarding the Emerging Markets. We've been hearing lots in the news over the last few months about the incredible tear the economies of (especially) the BRIC countries have been on. Lately they seem to be having a hiccup. What are your thoughts about these markets and what they might be doing between now and, say, five years down the road? Also, what about Japan? Is it getting back on it's feet? How is it's outlook?
Yes, we are seeing a correction in the equity markets in emerging countries. More recently, China preempted the very fast growth in loans by raising bank reserve requirements. We think this is positive because economies in those regions have been accelerating and there is a risk the growth could become unmanageable.
So, the risk in those economies is more in the management of growth, particularly as the central banks have an eye on their domestic inflation rates.
Secular growth trends for emerging economies remain very strong. BRIC economies, we believe, will have a much larger share of world GNP.
Japan is not our focus, but a weaker Yen may help their economies in the short term.
Alex Lee writes:
With the world having a larger population year by year, how long can commodities keep up with this growth?
We think it will be a challenge for some commodities to keep up with the demand, which makes a bullish case for commodities generally, in the long term. We like energy and some bulk commodities, like fertilizers, coal and iron ore.
[Comment From Robert Graham]
I am curious as to why Petrominerales, Petro Rubiales, and Alange are favourites from Colombia, and Gran Tierra isn't? What is it about GTE you don't like?
I'm not as familiar with the GTE management team.
[Comment From chris]
In light of the recent weekness in the equity marekts, have you been lightening up on positions, holding, or adding?
We see this weakness as an opportunity and we remain convinced that the world economies, including the US, are recovering. The recent correction is healthy and allowing us an opportunity to upgrade our porfolios. We remain fully invested.
[Comment From Ryan: ]
Where do you see RIM stock going from here?
The smart phone market is growing rapidly and we believe RIM, along with Apple, will be the leaders. We see RIM's earnings growing at a rapid pace and the stock is reasonably priced.
Richard Wagner writes: Where do you see the Canadian $ versus the US $ over the next 3, 6 months and year?
[Comment From James Michie: ]
What is your longer term outlook for the American dollar
As the US economy shows strength, we believe it will be reflected in the US currency. Short term, we believe the US dollar will strengthen as the economy recovers. Longer term, we think the range will be $0.90 - $1.00.
[Comment From Wilf Gour: ]
You are bullish on fertilizers, coal and iron ore. What about the price of copper and zinc over the next 3-5 years and how will the miners of these base metals fare?
Longer term, copper prices will probably be in the range of $2.50-$3.00 per pound. At current levels, copper might be somewhat overextended.
Companies with large reserves, good infrastructure, low cost and the ability to increase production should do very well in this environment. We own Freeport.
[Comment From Raman: ]
With short term focus of investing (within 6 months), which commodities or sector would your recommend?
[Comment From chris: ]
What do you see as the best opportunity today and is there a particular company you have been adding to recently
Short term, we like oil and we do not like natural gas. Also, we think fertilizers, like potash, are going to show some good recovery, both in volume and prices.
[Comment From Brad: ]
I keep hearing that potash is expected to rebound this year. How do you expect this to affect companies such as Allana Potash, who has a project that will not start operating until 2013?
We don't follow Allana Potash. We do own larger, established companies like Potash, Mosaic and Agrium in the Dynamic Power Canadian Growth Fund.
[Comment From Rain_cheque: ]
Is Viterra over-hyped?
I don't own Viterra in my mutual funds.
[Comment From David Miller: ]
Rohit, long time investor in your Dynamic fund and I was very pleased with 2009 performance. Can you provide your thoughts on the banking sector, in particular to Canada, and what risks you see for it this year (both economic and political ie. the Obama administration's recent banking comments).
[Comment From Ryan: ]
Thanks for your answer, I agree. What's your view on the banking industry?
We have a positive view on Canadian banks. We believe there are several earnings drivers that will result in higher than expected earnings growth: net interest margin improvement, mid-high single digit loan growth, higher wealth management and investment banking fees, improving efficiency ratios and declining loan losses in the second half of the year and 2011. Valuations at Canadian banks are attractive, with 4.5% average yield.
Risks are mostly on the regulatory side. We believe Canadian banks are well capitalized, even if the new regulatory capital rules are implemented. But, there will be pressure on banks to contain dividend increases over the next 12-24 months.
Obama's recent proposal for regulation of financial institutions has created buying opportunities in select high quality companies in the US, as a result of a sharp pull back in stock prices. We expect the impact of the proposal will be softened before implemented.
[Comment From James Diamante: ]
What are the prospects of the Indian economy?
The growth in the Indian economy has picked up. More importantly, this has been domestically driven and broad. Consumer spending is strong and we are seeing more construction projects being developed. We are looking at GNP growing at about 7.5% - 8%.
Short term, risks are related to pick up in food inflation. India has a conservative central bank, which could start raising interest rates in the next three months.
Long term, we think India is the best investable market among emerging economies because it provides exposure to broad sectors, better regulation and transparency. We give investors the opportunity to get exposure to this market through the DPF India Opportunities Fund, which is trading at an attractive discount to net asset value.
[Comment From Terence: ]
Keep up the good work Rohit! Terence
[Comment From jay b.: ]
the performance of dynamic mutual funds in 2008 was very poor. just wondering why you didn't go to cash instead of letting the postition values fall so much. do mutual fund regulations prevent you from holding too much cash ?
Thank you, Terence!
2008 was a very unusual year. Even though the liquidity crisis made it tempting to raise cash, we decided to stick with our positions because of the strong fundamentals of the companies. That was the right decision - we were well rewarded in 2009. I tend to take a fully invested position in my funds and manage risk more by stock and sector selection.
[Comment From Bob: ]
Could you comment on the future of the Dynamic Power Emerging Markets Funde.
The Dynamic Power Emerging Markets Fund provides good diversification to investors looking for exposure to those countries. We believe emerging markets, in the long term, will continue to outperform more developed markets. This fund represents our best ideas in the emerging markets.
[Comment From Varun Goel: ]
What is your view on Vale? Where do you think metals and iron ore prices are headed long term?
As discussed earlier, we do like iron ore and Vale is one way to participate in that. We have preferred to invest in this space through emerging names like African Minerals, which has the potential to become one of the largest iron ore producers in the world.
Most recent contracts have been signed at significantly higher prices than a year prior. We believe prices will remain firm for the next two years.
[Comment From Bill: ]
Where do you see the price of oil in the next year? 2 years?
I think the price of oil will stay in the range of $70-$85, a price range we believe both consumers and producers are comfortable with. Because of the potential for supply shocks, we believe price risk will be more on the upside than the downside.