Reality set in for investors last week: Tremors are shaking up the global markets.
A “no” vote from the Greek referendum last Sunday, the vast stock market selloff in China, and the volatile movements in the price of U.S. crude oil have made it clear the worldwide economy is collectively riding the brakes. The 3.5-hour halt in trading on the NYSE also added to investors’ unease.
Last week on BNN TV, Canada’s leading business station, I explained that an important forward-looking economic indicator we closely monitor at U.S. Global Investors can help make sense of this slowdown: the global manufacturing purchasing managers’ index (PMI), which we've written about many times. Coupled with this, our portfolio managers recognize that during highly volatile markets adjusting cash levels in our funds is key.
In addition to our own macro models, BCA Research , a highly respected independent research company, pointed out that PMIs in developing economies have plunged to new lows. The International Monetary Fund also revised downward its global growth forecast for 2015. On this account, bad news is good news, as central bankers are scrambling to stimulate economic growth.
As active managers, we have raised our cash levels looking for opportunities in a sloppy market, particularly in our China Region Fund (USCOX). This allows us to mitigate risk and deploy that cash when stocks look attractive per our model, which focuses on factors like high returns on invested capital, sales per share growth and dividend per share growth.