An Alternative To Money Market Funds
March is behind us with clear signs the economy is slowing. The Federal Reserve Bank of Atlanta’s research showed the US economy grew at a scant 0.2% during the first quarter. Meanwhile, China’s economy is stalling. Its growth rate is now expected to fall well short of the targeted 7% rate. The impact is being felt globally. The recent plunge in metal commodity prices and energy prices is not a coincidence.
To stimulate its economy, Mario Draghi’s European Central Bank launched its own version of Quantitative Easing. Its currency, the Euro has weakened against other major currencies while also driving interest rates to historic lows. The German 10 year Bund has often traded below 0.2% during this quarter.
The weak Euro has its drawbacks. French resort operator Club Mediterranee was recently sold to Fosun, a Chinese conglomerate. Italy’s tire maker Pirelli has agreed to sell to another Chinese company, CNCC. This recent string of European companies acquired by Chinese firms is strongly resented in Europe.
It is prudent to now focus on the defensive sectors in the S&P 500. Companies with a history of increasing their dividends with revenues generated predominantly or wholly within the US are desirable. Consumer Staples, Telecom, Utilities and Banks are companies we have targeted.
2014 was a solid year for our clients with several receiving double digit returns. However, past returns are no guarantee of future success. We do believe our conservative, income oriented approach is a winning strategy. We are happy to meet with you to demonstrate how our strategy can provide strong returns as compared with money market funds. Low interest rates will likely be here a good deal longer.
For example, in August we purchased shares of Lorillard @ $60.20 per share after it agreed to be acquired by Reynolds American. We sold in late March @ $68.20 per share and also collected three quarterly dividends providing an additional $1.89 to our investment. The return of 16.4% on this transaction, including dividends, has helped me remain in the good graces of my clients! We are up over 9% so far in 2015.
We recently purchased shares of AT&T @ $32.85 per share. AT&T’s Board has declared a 47c quarterly dividend payable May 1 to holders as of April 10. AT&T’s 5.72% yield at the time of purchase, 31 consecutive years of increasing its dividend and revenues predominantly in the US made AT&T a desirable investment in the current slow growth economy.
I now host a weekly radio show on WWPR 1490 AM in the Tampa Bay region. The show airs from 2pm - 2.30pm EST every Friday. The show can also be heard live on WWPR’s website (1490wwpr.com). Taped broadcasts of each show are also available on my firm’s website (www.amescapmgmt.com). Enjoy!If you are unhappy with the returns offered by money market funds, feel free to contact us.