investment

This will be our last Inner Circle Q&A for 2014. Our next issue will go out on Tuesday, January 6, 2015. Now is a good time for me to say “Thanks!” to all our Inner Circle members. It’s a pleasure to read and answer your questions. I take great pleasure and pride from the many compliments and expressions of gratitude you send every week. That’s especially true when I hear from a member who I recognize from decades ago—from the early days after the 1994 launch of The Successful Investor, or from the two prior decades that I spent at The Investment Reporter and MPL Communications....

KKR & Co. LP (formerly Kohlberg Kravis Roberts & Co. LP), $22.65, symbol KKR on New York (Shares outstanding: 428.6 million; Market cap: $18.3 billion; www.kkr.com), is an asset manager with 14 offices across North America, Europe, the Middle East, Asia and Australia. The company serves three main markets: private (investment funds); public (leveraged loans, high-yield bonds, special situation assets, distressed assets and rescue, debtor-in-possession and exit financings); and capital (debt/equity financing). As of September 30, 2014, KKR had $96.0 billion of assets under administration. It continues to take advantage of strong financial markets to sell some of its investments at a profit. In the latest quarter alone, it made 10 sales, the largest being Visma, Modern Dairy and Ipreo. It still has a number of pending deals, including US Foods, Biomet and Alliance Boots....

MANULIFE FINANCIAL $22.93 (Toronto symbol MFC; Shares outstanding: 1.9 billion; Market cap: $42.1 billion; TSINetwork Rating: Above Average; Dividend yield: 2.7%; www.manulife.ca) sells life and other forms of insurance, as well as mutual funds and investment management services.

In the three months ended September 30, 2014, Manulife’s earnings per share gained 8.3%, to $0.39 from $0.36 a year earlier. Revenue rose 7.4%, to $9.5 billion from $8.8 billion, on strong sales of insurance and wealth management products in Asia.

As of September 30, Manulife had $663 billion of assets under management. After the quarter ended, it bought U.K.-based Standard Life’s Canadian insurance operations for $4 billion. In all, Standard Life has about 2,000 employees across Canada, along with 1.4 million clients and $52.0 billion of assets under management.

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RIOCAN REAL ESTATE INVESTMENT TRUST $26.85 (Toronto symbol REI.UN; Units outstanding: 307.8 million; Market cap: $8.5 billion; TSINetwork Rating: Average; Dividend yield: 5.3%; www.riocan.com) continues to open new shopping malls and, with partners, mixeduse properties with office and residential space. The trust is also selling off less profitable properties.

In the third quarter of 2014, RioCan’s net leasable area shrank by 2.5%, to 71.6 million square feet from 73.5 million a year earlier.

But thanks to strong demand from retailers, it’s renewing leases at higher rental rates. That’s why its cash flow rose 7.4% in the latest quarter, to $131 million from $122 million. Cash flow per unit gained 5.0%, to $0.42 from $0.40, on more units outstanding. RioCan’s revenue rose 10.0%, to $296 million from $269 million.

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ISHARES MSCI CHILE INVESTABLE MARKET INDEX FUND $41.09 (New York symbol ECH; buy or sell through brokers) is an ETF that aims to track the MSCI Chile Investable Market Index, which consists of stocks that mainly trade on the Santiago Stock Exchange.

The fund’s top holdings are S.A.C.I. Falabella (retail), 10.3%; Enersis SA (electricity), 9.6%; Empresas Copec SA (conglomerate), 7.8%; Empresa Nacional de Electricidad (electricity), 7.2%; LATAM Airlines, 5.5%; Banco Santander Chile (banking), 5.0%; Empresas CMPC (pulp and paper), 4.6%; Banco de Chile, 4.5%; Cencosud SA (retailer), 4.4%; and Quimica y Minera de Chile (mining), 3.9%.

The fund’s industry breakdown is: Utilities, 25.9%; Financials, 18.7%; Materials, 12.8%; Consumer Discretionary, 12.5%; Consumer Staples, 9.5%; Energy, 7.9%; Industrials, 7.8%; Telecommunications, 2.4%; and Information Technology, 2.0%.

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ISHARES MSCI GERMANY FUND $28.57 (New York symbol EWG; buy or sell through brokers) tracks the stocks in the MSCI Germany Index. This index aims to replicate 85% of the market capitalization of the German stock market. The remaining 15% is unavailable for investment, partly due to limitations on foreign ownership.

The ETF’s top holdings are Bayer (diversified chemicals), 10.2%; Siemens (engineering conglomerate), 7.9%; BASF (chemicals), 7.2%; Daimler (autos), 6.7%; Allianz (insurance), 6.5%; SAP (software), 5.5%; Deutsche Telekom, 4.5%; Deutsche Bank AG, 3.8%; BMW AG, 3.1%; and Volkswagen AG, 3.1%.

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Every Monday we feature “A Stock to Sell” as our daily post. With every stock or investment we recommend as a sell, we give you a full explanation of why we advise against investing in it at this time.

Otter Tail Corporation (symbol OTTR on Nasdaq; www.ottertail.com) is the parent of Otter Tail Power Company, which supplies electricity to over 130,000 customers. Otter Tail Corporation also has manufacturing, plastics and construction operations.

Otter Tail Power Company’s customers are in a 50,000-square-mile area that covers parts of Minnesota (48% of electrical revenue), North Dakota (43%) and South Dakota (9%). Commercial and farm clients supply 37% of electrical revenue, followed by residential (33%), industrial (23%) and other (7%).

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Pat McKeough responds to many requests from Members of his Inner Circle for specific stock tips well as questions on investment strategy and the economy. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle Members. And each week we offer you a report on one of the stocks profiled in these Q&A sessions. We give you Pat’s buy-hold-sell recommendation as well as his analysis of the stock. This is part of the specific buy, hold and sell advice we offer you in our daily posts. Every week you get “A Stock to Sell” on Monday, “Best Canadian Stocks” on Tuesday, and “U.S. Stock Picks” on Thursday.

Recently we had a question from an Inner Circle Member about the biggest defense contractor in the U.S., and the world, Lockheed Martin. Well-known for its fighter jets, Lockheed also supplies many more defense needs, including rockets and satellites, missiles and information systems. Pat looks at the company’s financial results and its expanding program of share buybacks. He also assesses the risk of depending heavily on military budgets against possible shifts in U.S. government policy.

Q: Pat: What is your opinion on Lockheed Martin Corp.? Thanks.

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Every Wednesday, we publish our “Investor Toolkit” series. Whether you’re a new or experienced investor, these weekly updates are designed to give you our specific advice on successful investing. Each Investor Toolkit update gives you a fundamental piece of investing advice and shows you how you can put it into practice right away.

Tip of the week: “Financial institutions continue to create and market products like index-linked GICs that harvest many fees and commissions, but defy investment logic.”

Index-linked guaranteed income certificates (GICs) promise to safeguard a portion of investors’ portfolios. In volatile markets like the ones we’ve been experiencing, these products may seem like an appealing place to put some of your money.

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Every Monday we feature “A Stock to Sell” as our daily post. With every stock or investment we recommend as a sell, we give you a full explanation of why we advise against investing in it at this time.

Exchange Income Corp. (symbol EIF on Toronto; www.exchangeincomecorp.ca) operates in two main areas: aviation and manufacturing.

The aviation business (63% of revenue) includes regional airlines Perimeter Aviation, Keewatin Air, Calm Air International, Bearskin Lake Air Service, Custom Helicopters and Regional One. These airlines serve communities in Manitoba, Ontario and Nunavut.

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