Fundamental Investing

The Belpointe Fundamental Investment team offers a number of different products based on thorough analysis of countries, industries and companies' long term prospects.

Each portfolio is managed by a highly experienced manager with support from a team of global experts who strengthen the strategy through their cross-country analysis.

When looking for long term investment opportunities, we focus on the strength of the underlying business. Then we look at the shares’ valuation in relation to that potential.

Menu of Fundamental Portfolio Styles

Sumner Total Return

looks for stable returns, including capital gains and dividends. Sumner’s management team invests primarily in domestic equities, both stocks and bonds, while keeping overall risk level low.
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Connective Global Portfolio

Comprised of companies that in management’s view have reached a positive inflection point in their development. The manager identifies these opportunities by screening industries and companies from around the world.
For info: link

Belpointe’s International Opportunities’ Portfolio Management

Invests solely in the stocks of foreign companies. Typically these companies have superior growth and trade at a reasonable price. The portfolio also invests in “bombed out”, neglected, deep value stocks.
For info: link

Syena Emerging Markets Portfolio Management

Invests in emerging market companies benefiting from long-term global trends.

The Efficient Market Hypothesis

Fundamental investors do not believe markets necessarily reflect value right away. We believe in delayed market efficiency. Markets get it right over time, but investment opportunities arise from seeing future value the market has not yet recognized.

Stock prices do not reflect available information. They merely reflect the consensus opinion of what that information means.

Consensus is often wrong and in the short run, so are markets. Furthermore, markets are more and more dominated by traders and software programs that have very short term perspectives. So, their consensus focuses on the short term implications of whatever information is out. Long term investors can take advantage of such inefficiency.

For example, stock prices often go down on news that a company or sector must make investments in order to grow. Spending on investments puts pressure on short term earnings forecast, which more often than not will trigger sell orders from traders.

Think of all the times Amazon sold off because of Jeff Bezos’ obsession with reinvesting whatever profits he can generate. Yet, Mr. Bezos has clearly created a lot of value for patient shareholders.

Seeking Value

Value exists when there is a discrepancy between a company’s future and the market’s perception of it. Because market participants are better at predicting short term prospects of a corporation, most investment value lies in the mis-pricing of la company’s long term potential.

A particularly overlooked element in assessing long term value is the compounding effect of returns. Just buying low PE stocks is not the best way to assess value. Valuations based on price earnings ratios, EV/EBITDA or EV/Sales all need to be viewed in relation to a company’s sustainable growth rate.

In that sense, we believe we are value investors and reject the prevalent distinction between “value investors” and “growth investors”.

Setting Clear Goals

When putting together a portfolio, an adviser’s first step is to clearly define one’s objectives. Using that knowledge, he or she will then put together the best possible combination of portfolios.

At Belpointe, our portfolio managers too have clearly stated goals and mandates. These vary from generating reasonable income at low risk to aggressive growth and capital gains.

Nominal GDP IMF WEO 2015

(Source: IMF)

Why Fundamental Investing Now? Why Not Buy Index ETFs?

Market efficiency is a popular concept based on the idea that stock prices reflect all information made available to investors.

If stock prices accurately reflect market participants’ shared knowledge, one can reasonably question a manager’s added value.

This skepticism is reinforced by the poor relative performance of active managers and explains the recent explosion of demand for index funds and ETFs. In turn, the flow of cash into these indexed instruments produced a kind of self-fulfilling prophecy. By blindly allocating money to all the stocks in an index without regard for fundamentals, ETFs have indiscriminately supported the price of all stocks, good or bad.

Increasing World Trade

Ratio of goods and services imports plus exports to GDP (Source: IMF)

Stock Picking is Back

The Federal Reserve Bank’s multiple quantitative easing programs (QE) have further contributed to the diminishing discovery role of markets. Along with the river of cash flowing into stocks from index funds and ETFs, QE policies have pushed asset prices up indiscriminately.

This is now coming to an end. The Fed is slowly reversing its historic loose policy, which implies that asset prices will no longer be supported across the board. For the stock market, this means that fundamentals, i.e. a company’s earnings power, will again be the driving force behind valuations.

World Gross Domestic Product (GDP) by Region Expressed in Purchasing Power Parity

Reference Case, 1990 – 2030 (Source: IMF)