Markets Correct, Japan Continues to Soar

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

The relentless rise of the markets abated this past week as the S&P 500 dropped 0.27%. The MCSI Emerging Markets Index tumbled 3.23%.

Japan continues to be the star of your Alpha Investor Letter portfolio, with the WisdomTree Japan SmallCap Dividend ETF (DFJ) soaring 4.26% and Wisdom Tree Japan Hedged Equity (DXJ) rising 1.24%.

Visa (V) dropped 2.38% and moved to a HOLD. With U.S. markets overdue for a correction, and Visa unable to breakthrough the $160 level, tighten your stop to $153.50 to lock in a 59.1% gain in the stock.

All of your other positions remain BUYs.

This week, there was some important news about Two Harbors (TWO).

TWO shares dropped yesterday after pricing its public offering of 50 million common shares at $13.46 a share. The company aims to raise total gross proceeds of approximately $673.0 million. The offering will be dilutive to the company’s current 300 million shares. But the $13.46 should act as a floor of sorts to the price.

In addition, TWO also announced the distribution of all 17,824,647 of the shares of common stock of Silver Bay (SBY) held by Two Harbors, by way of a special dividend from Two Harbors to its stockholders. Recall that Two Harbors received the shares in exchange for a portfolio of single-family properties as part of the formation transactions that closed simultaneously with Silver Bay’s initial public offering on December 19, 2012. You will receive this special dividend on or about April 24, 2013, if you are a Two Harbors shareholder of record at the close of business on April 2, 2013.

As a result, you can expect to see some volatility in TWO during the coming weeks as the market digests this news.

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Finally, I am writing you this morning from The CFA Society Middle Eastern Investment Conference in Dubai.

Dubai challenges all stereotypes of a chaotic, poverty-wracked Middle East. I thought it would be like Las Vegas, without the casinos.

Alas, as this shot from my hotel window — with the world’s tallest building, the Burj Khalifa, in the background — confirms, Dubai is much, much more impressive.

I’ll reflect on what I’ve learned in next Tuesday’s issue of the Global Guru.

Portfolio Update

Berkshire Hathaway (BRK-B) dipped 1.20% last week, just off of its 52-week high. BRK-B also came to rest on its 20-day moving average (MA) — a level not breached since October 2012. BRK-B has managed to gain each of the four times it’s touched the 20-day MA since then. BRK-B is a BUY.

Visa Inc. (V) lost 2.38% last week. Visa Europe is a wholly separate entity that pays royalties to, and is operated under license from, U.S.-based Visa Inc. Visa Europe’s board is currently exploring an option to sell the entity back to Visa Inc. for a price in the neighborhood of $3 billion. Visa Europe processed 30.1 billion transactions in fiscal year 2012, with fee revenue of $1.43 billion — an 11% year-over-year increase. V fell below its 50-day MA last week and is now a HOLD.

WisdomTree Japan SmallCap Dividend ETF (DFJ) climbed 4.26% last week after taking a slight dip the week prior. With Japan as a whole on the upswing, and the small cap sector generally more volatile than the broader market, DFJ may make a significant move upwards in the coming weeks. Buy the next dip. DFJ is a BUY.

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PowerShares Global Listed Private Equity Portfolio ETF (PSP) dipped 1.66%. PSP is another position in your portfolio that has shown long-term respect for the 20-day MA. Since moving above this line back in October 2012, PSP has maintained its position above it to date. Its current, slight pullback may mean yet another leg up for private equity. PSP is a BUY.

Vanguard Global ex-U.S. Real Estate Index Fund (VNQI) ended the week flat. Vanguard is well-known as an industry leader for low-cost exchange-traded funds (ETFs) and mutual funds — and Vanguard recently made your global real estate investing a bit cheaper. VNQI’s fees just went down three basis points, bringing annual ownership costs from 0.35% per year down to 0.32%. VNQI is a BUY.

S&P Global Timber & Forestry Index Fund (WOOD) was flat last week. As global economies around the world emerge from their economic woes, years of printing money and rising inflation loom as a potential threat in the near future. The good news is that timber stocks have historically been excellent performers during inflationary times and should hold up well. WOOD is a BUY.

Two Harbors (TWO) also ended the week flat after a good run upwards over the past two weeks. TWO announced a capital increase, as the company offered the new shares at a price slightly below market yesterday. That move caused a bit of a dip in its share price. TWO is a BUY.

Wisdom Tree Japan Hedged Equity (DXJ), your other bet on the Japanese recovery, gained 1.24% last week to hit another 52-week high. The yen has fallen nearly 24% against the dollar over the past six months, making DXJ’s “hedging” strategy work well for your position. In fact, DXJ is up over 38% since the yen started its downward slide. DXJ is a BUY.

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WisdomTree Emerging Markets SmallCap Dividend Index (DGS) dipped 1.73% last week, coming to rest right at its 50-day MA yesterday. This healthy pullback from its recent 52-week high sets your position up nicely to profit from a resurgence in emerging markets. DGS is a BUY.

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