Market Collision affecting Dividend Investors – Concluding Part


The third theme in the El-Erian’s market collision commentary is the money flow due to sovereign wealth funds. As per an article on Wikipedia, the top 20 sovereign wealth funds have a total of approximately 2.7 trillion dollars (and up to 3.3 trillions including all SWFs). A major portion of this money, if not all, is invested in safest and most liquid US government treasuries. This is a very large amount of capital and depending upon how it is deployed it can create disruption in world markets. As per author, investors need to understand and watch where this SWF money is flowing. In their quest for higher returns, it is likely that (1) the money will flow in emerging economies; and/or (2) money may be deployed in well know companies with strong footholds in the multiple markets. Unfortunately, this theme does not have a direct bearing on dividend focused investing. This again brings us to the same observation that revenue growth is most likely going to come from emerging markets. Being a long term dividend investors, we will need to figure out how to position ourselves to harvest this dividend for next 25 to 30 years.

To Summarize……

Reflecting back on all three major themes (including Part I and Part II), the message from this book is:

  • Risk management is a must. In my dividend portfolio, the risk to dividend (or passive cash flow) is something that I must take into account. I must provide myself a mechanism to measure this risk (infrastructure!) in my dividend portfolio.
  • I need to position myself and invest in emerging markets. All of the existing S&P500 dividend aristocrats started raising dividends in 1970s and rode at the back of US economic growth. Similarly, if I can sow dividend seeds in emerging markets now, I can possibly ride the growth story. The challenge is to find the right investment vehicles from a small individual investor perspective.
  • The asset allocation model in this book is not oriented towards individual investors. But if I understand the fundamental basis on which it is build, I believe it will provide me good guideline to frame my individual portfolio.

I believe the book was worth a read for these three messages alone. Now the challenge for me is to see, if over a period of time my portfolio reflects these themes. We will see how it goes…

2 Responses to “Market Collision affecting Dividend Investors – Concluding Part”

  1. Dividend Tree says:

    Anonymous: I have not yet read the book. If I read it, I will post it. But do not know when.

    Thanks for stopping by!
    DT

  2. Anonymous says:

    Good summary review. Can you post similar review for Swensen’s unconventional success?
    Thank you.

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