AAII Orange County Chapter

Monthly Meeting, September 17, 2011

Balearic Community Center

1975 Balearic Dr.

Costa Mesa, CA  92626


President Bob Welge brought the meeting to order shortly after 9 am. Beginning with preliminary announcements, Bob drew members’ attention to the availability of Chapter contact information and minutes for the August meeting on the side table, and of coffee at the back table. Bob reviewed the chapter's mission statement and acknowledged the efforts of the Chapter’s leaders: Facilities Chair Craig Stoddard, and Treasurer Dave McMillin. Bob also asked for volunteers to fill the currently-vacant Hospitality Chair position.

Bob next announced the schedule of future chapter meetings. October and December will be byes. On November 5th, Herb Farrington will present Federal and State Income Tax Law Update. In January, Jonathan Lansner will tentatively present on January 21st. Further details on these future events, minutes of previous meetings, and other Orange County Chapter information can be viewed on Bob’s website http://www.robertsgeneral.com.

Bob then introduced today’s speaker, Mathew McCall and his presentation Building a Portfolio for the Next Five Years. Mathew is President of the Penn Financial Group and Managing Editor of NicheETFInvestor.com. Mathew has a top-down approach to investing, but he perceives there is a disconnect between media headlines and the stock market.

He offered four reasons for buying stocks now:

1. Good earnings, as reflected in the current S&P 500's P/Es of 12.2 (for 2011) and 11.6 (for 2012), especially in comparison with the notably higher historical average P/E of ~15.

2. If now isn't the time to buy, when is?

3. Levels of short interest are now the highest they've been in over 2 years

4. He favors taking a contrarian view.


Matt favors investment in emerging markets because of the following:

·         good growth

·         while they have greater political risk, it's not much greater than ours

·         their growing middle class

·         they enjoy advantages as producers of commodities

·         but beware of the BRICs (Brazil, Russia, India, China), and

·         favor Indonesia (investable with Market Vectors Indonesia IDX)


Matt mentioned two additional emerging market investment possibilities: (1) IShares EEM, with its 46% investment in BRIC securities and  0.69% expense ratio, and (2) EG Shares Brazil Infrastructure BRXX, which should benefit from the ~$1 trillion investment needed for the World Cup Soccer Games in 2014 and the Summer Olympics in 2016 (0.7% expense ratio).

Matt recommends that one have diversified investments in commodities, in anticipation of future inflation or hyperinflation. He favors gold as a momentum play as currencies decline in value. He has a large holding of Yen (FXY) and mentioned DBB for obtaining exposure to the base metals copper, aluminum and zinc, KOL for coal, FCG for natural gas, and CUT for timber (70% of which is outside the US).  Specifically to protect against inflation, he mentioned SPDR Inflation Protected TIPS (US) and WIP (foreign -- UK, France, Turkey and Germany). Because Mattew predicts that interest rates will rise, he is interested in the ProShares Short 20 Year Treasury Bond ETF (TBF) and TBT, the leveraged version of TBF. Finally, Matt recommended some water-related investments -- (1) a waterpipe manufacturer Northwest Pipe (NWPX); (2) PICO Holdings, a large Nevada land owner (presumably with water rights); and (3) water resources ETFs PHO (domestic) and PIO (foreign).

As a play on increasing demand for health care by baby boomers, Matt recommended (1) HCP, a REIT holding healthcare-related properties and sporting a 5.4% dividend, (2) Allergan, and (3) NuSkin, NUS.

There are a number of small, overlooked, niche ETFs that Matt feels are worthy of consideration because they have very low correlation with US stocks, they add diversification, and help remove single-company risks. Examples include the aforementioned BRXX; CROP, the IQ global smallcap agribusiness ETF with a 0.75% expense ratio; SKYY, an ETF focused on cloud computing with a 0.6% expense ratio; and  Wisdom Tree's ALD, an ETF investing in Asian local debt, with a 0.55% expense ratio.

For investors whose first priority is capital preservation, Mr. McCall strongly counseled against buying US Treasury bonds. Instead he recommends ETFs that invest in corporate bonds (JNK, LQD), municipal bonds (HYD, MUB), or international bonds (PCY, EMLC).

Matt emphasized the need, once a stock has been purchased, to set stops, opining that for the typical investor, "selling is the hardest thing to do."

Finally Matt listed 5 stocks on his currently recommended watchlist:

·         Brookfield Infrastructure Partners (BIP) is involved with ports in Australia, China and Europe, electricity transmission in Chile and timberlands in North America; it has a 5.3% yield.

·         Phillip Morris International (PM) sells tobacco products outside the US, has a 3.9% yield and a PEG ratio of 1.1.

·         IAC Interactive (IACI) is an internet company that owns a number of websites, such as Ask.com, Match.com and Evite.com, but with a PEG of only 0.5.

·         EG Shares Emerging Markets High Income, Low Beta ETF (HILO) invests in Malaysia, South Africa, Brazil, China and Thailand; it yields 5.5%, with an expense ratio of 0.85%

·         IPath Grains ETN (JJG) invests in corn, soybeans and wheat, with an expense ratio of 0.75%


Investors with further questions may want to visit Penn Financial's website www.pennfinancialgroup.com, or Mathew's website www.MathewDMcCall.com, or call 877-383-7366.

Following the conclusion of Mr. McCall’s presentation, President Bob Welge adjourned the meeting at 11 am. As a bonus, interested members were invited to continue discussion with Mr. McCall over lunch.



Recorded by Ed Sharman