The devil you know...
Invest like Goldman Sachs
CONSPIRACY THEORISTS would suggest backing investment banking group Goldman Sachs in anything is much like making a deal with the devil. However, there’s no question it’s one of the most successful investment teams of all time. For this reason alone it makes sense to at least consider five of its “Top trades for 2011” if you’re planning to make money this year.
The primary area of concern for the firm is continued uncertainty about the Eurozone, as well as some indications that China may be over-heating and the response to the so-called “QE2” stimulus unveiled in the United States.
Our core view is that these issues can best be described as ‘aftershocks’ from the 2008/2009 crisis rather than the kindling for a fresh crisis. We wouldn’t be surprised if markets have to deal with periodic turbulence about those issues, but we don’t expect them to derail underlying improvements.
Trades one and three are difficult for South African investors to emulate, as there are limited tools available that allow them to participate in those markets.
Its bullish view on US banking groups indicates the world’s largest economy is coming out of recession more quickly than people expect and if you want to take a punt on specific US banking stocks most of SA’s stockbrokers now offer access to internationally listed stocks.
For trade number four, investors could look at the Deutsche Bank X-tracker, which follows the MSCI Japan index for exposure. But be aware that performance could be affected by the strength of the rand relative to the US dollar. Those traders who’d like to be more active participants but would like to eliminate some of the currency impact could look to trade index spreads through the likes of Global Trader.
Trade number five also needs to take into consideration the impact of the rand as commodities are priced in US dollars. A persistently strong rand will negatively impact investment returns in a rand-based product.
Standard Bank is rumoured to be about to unveil a commodity-based exchangetraded note (ETN) that will give investors access to a basket of commodities. Alternatively, there have been platinum and oil ETNs rolled out by Standard Bank and Rand Merchant Bank over the past few months. Or investors can participate via the spreads markets. However, with spread trading products, traders and investors must remember markets don’t move in a single direction and there may be volatility that can make for some hairraising moments for highly-geared traders. Exercise due caution if you do decide to follow the “vampire squid”.
Though Goldman Sachs may be talking its own book it’s hard to turn up your nose at potential 20% to 28% investment returns in the current climate. As usual there’s a caveat: buyer beware.