david.fm

Important day for earnings in Europe: Deutsche Bank and BP among the most awaited. In my latest conversation with Anna Edwards and Chloe Cho of CNBC I have discussed how the Greek uncertainty might impact the market negatively.

In Analyzing earnings I first try to figure out how is the banking sector doing. The 2008 crisis was mainly generated by the Worldwide failure of the banking system hence continued recovery is highly linked to the performance of banks. Today among the earnings we are awaiting the results of Deutsche Bank. DB forecasted to reach 10 billion pre tax profit by 2011 (from 5 in 2009) but it faces limitations from the new European regulatory environment that, after the SEC vs Goldman case, is likely to get even more aggressive. DB wants to expand in other sectors (possibly through acquisitions) like Wealth Management and retail banking. I would only want to own "normal" banks in wealth management or retail banking with simple and lean operations.

Interesting Sectors

a) I think that Generic Pharmaceutical companies are likely to benefit from health care cost pressures. (In the US alone healtcare costs have increased 3 folds in the last 15 years - in the next 15 years the number of people over 60 will double)

In terms of business model generic drugs have a much lower risk than traditional pharmaceutical companies. With many important drug patents reaching expiration growth in the sector is likely to continue (in the next 5 years 90 billion USD brand drug sales will face generics competition).

Consolidation in the market (as an example in Japan and other markets many generics companies are owned by families that might sell their companies in the future) can also be beneficial to investors.

The outperformance of Generics company is testified by looking at the MSCI World Pharma Index that was up 34.26% in the last year while generic pharma + 66%. Similarly in 5 years generic pharmaceuticals are up 43.15% vs. 12.19% of the MSC World Pharma.

The best way to access this market is through a traditional investment fund as there aren't many ETFs targeting this market.

For more information on this you can visit my new funds website funds.fm or its German version fonds.ag where next May I will feature the fund of the month in this interesting field.

b) Personal & Household Goods
Outperformed the broad Stoxx 600 index both this year (+14.43% vs + 11.56%) and on a 3 years basis (-10.32% vs -30.46%) despite the name the index includes good paying dividends like Tobacco companies and also several luxury manufacturies like LVMH Hermes, Burberry etc. It is a simple yet profitable sector that is not likely to include bad surprises for the future. As a pretty defensive sector I think it can play a good role in a portfolio.

Best way to access the market is probably through an ETF.