Strategy meeting held on September 21, 2015

The US market opened very strongly this morning following weak starts in the Pacific and Europe. This follows on from Friday’s dramatic sell-off, which left global stock indices virtually flat last week.

From our perspective the delay in a hike in the Fed Funds rate is good for equities markets; however, the reason for delaying the hike highlighted the turmoil in global financial markets. Further the Empire State Manufacturing Index contracted for the second month running, while the Philadelphia Fed’s Manufacturing Index showed a sharp decline in the headline number of -6.0. The underlying numbers of the latter do show a more positive picture with employment improving and order backlogs being depleted. Forward-looking components of the Philadelphia Fed report are much more robust and suggest that business investment should contribute more to economic growth in 2016.

Certainly these reports suggest a souring of US domestic business sentiment in response to recent difficulties in overseas financial markets.

US investors are far less myopic than previous generations and much more aware of what takes place globally. Certainly for a time, China assisted economic growth through its import of hard commodities, but this has curtailed tremendously as it tries to orchestrate a soft landing in its economy. So concerns about events overseas do impact the American psyche and can affect the performance of US financial markets.

Last week our Global Equities Growth fund was flat along with the markets. However, our Dividend Income fund was well ahead of the S&P Global 1200 Stock Index as high dividend payers rallied to the top of our stock performance lists. Many of our dividend-paying stocks are yielding in excess of four or five per cent and one was yielding well over 10 per cent when we last purchased it. As dividend yields rose, we have been buying. High quality dividend payers consistently outperform in falling markets and prove to be an excellent cushion for client portfolios during times of financial market turmoil.

Our favoured stocks are in cyber security, life-changing tech, life-sciences, healthy living, and home construction. Tesla, historically a volatile stock, has been surprisingly consistent although news that Apple will also produce an electric car as early as 2019 has brought some sellers out.

We still love Apple, Facebook, and Skyworks. Don’t forget Microsoft which we think of as “old tech.” Its Surface laptop/tablet is gaining ground and recently forced Apple to produce a larger tablet to compete in enterprise applications. Microsoft has $96 billion of cash and recently announced a 16 per cent increase in its dividend to 3.3 per cent.

Why leave money in the bank earning very little when you could own a company like Microsoft, which undoubtedly has more cash than your bank, paying you 3.3 per cent?

• Robert Pires, MBA, CFA is the chief executive officer of Bermuda Investment Advisory Services Ltd, which is licensed to conduct investment business by the Bermuda Monetary Authority. He can be contacted at rpires@bias.bm.