Will the Ukraine crisis bring down the bull? For a few hours Monday morning, you could have made a plausible argument that a Russian torpedo was about to blast Wall Street. But those fears evaporated overnight—proof again that it seldom pays to make radical portfolio changes in response to one day’s news. On Tuesday the S&P 500 index closed up 28 points (another record high!), repairing Monday’s 14-point loss twice over.
We seem to be living in an era of raw nerves, where every incident, economic or political, calls forth exaggerated pronouncements from people who ought to know better.
Putin has behaved like a gangster in Ukraine, and the civilized world is entirely within its rights to push back. However, British foreign secretary William Hague is labeling Ukraine “the biggest crisis in Europe in the 21st century.” The Wall Street Journal, which never met a war it didn’t like, puts it even more baldly: PUTIN DECLARES WAR, a weekend editorial roared.
Small wonder investors around the globe overreacted when the financial markets opened Monday. People hear the shrill rhetoric around them, and take it literally. More’s the pity, because any investor who sold into Monday’s weakness already has reason to regret it.
There’s a wider lesson for us here, too. Beware of getting caught up in any media frenzy, even if it only relates to a single company, industry or market sector.
Think of the panic Barron’s sparked a week ago with its ill-founded attack on the Kinder Morgan family of companies. Yes, it will take time for the damage to heal.
In the end, though, I’m confident that cold, hard numbers will draw investors back into Kinder Morgan Energy Partners (KMP) and its clone, Kinder Morgan Management (KMR). KMP is yielding 7.3% in cash, and KMR 7.7% in stock.
Add in an estimated 5% long-term growth rate for the pipeline partnership’s distributable cash flow, and you’ve got a total return over 12% a year. Very few domestic equities, and almost none of Kinder Morgan’s stature, come close to that projection.
In other company news, Qualcomm (QCOM) boosted its dividend 20% and increased its stock-buyback program by $5 billion. I’m pleased, of course—although at the current share price, I much prefer the dividend hike over the buyback. In any event, it’s clear QCOM boasts one of the most investor-friendly managements in the technology space.
With the stock trading at a fresh 52-week high, QCOM’s near-term appreciation potential looks modest.
Among ETFs, WisdomTree Emerging Markets Equity Income Fund (DEM) bounced back strongly today, almost—but not quite—erasing Monday’s Ukraine-related losses. I continue to believe that on a long-term view (three to five years), emerging-markets stocks will easily outperform the headline U.S. indexes. Value benchmarks certainly point in that direction.
Bear in mind, though, that a fund like DEM will typically experience month-to-month swings about 50% greater than those of an S&P 500 index fund. Keep your exposure within sensible limits, especially since 18% of the fund’s portfolio consists of Russian companies.