The energy infrastructure sector enjoyed a banner year in 2011 and significantly outperformed the broader market. These “boring” infrastructure businesses, which includes utilities, pipelines, and energy storage and processing, posted total returns of 20 to 40 per cent for the year.
As our client, we want to share with you our concerns about aspects of market activity that suggest that exposure to securities lending may be imprudent for the next several months.
We believe that we are in year eleven of a sideways or range bound market. Range bound markets are characterized by volatility and historically have lasted a minimum of 15 years.
On April 25, 2011 the world’s largest gold producer, Barrick Gold (market value $44B), announced their intention to buy the copper producer Equinox Minerals for $7.3B.
Sub-prime resets (mortgages that were initially sold with low “teaser” rates, after a set period of time then rise to market levels, leading in some cases to significantly higher monthly payments) will remain high until March 2008, and then defaults will set in a few months later as it takes time for borrowers to finally throw in the towel. We suspect that the magnitude of global credit problems will be better known by June 2008. We believe it is prudent and cautious to modestly underweight financial services and banks until the full magnitude of the challenge is better understood.