, LLC in 2002 along with Richard Fredericks, Jim Concidine and
Stephen Doyle. He currently serves as Main's CEO and Portfolio
manager and is a member of the Investment Committee. Under his
lead, Main has accumulated roughly $300 million in assets under
The collective goal of Main's founding partners was to set up a
wealth management firm that brought institutional strategies to
individual investors. Accordingly, Main Management was one of the
first firms to manage money exclusively using ETFs. Their objective
is "to deliver investment portfolios with superior risk-adjusted
net returns in a low cost, liquid, transparent, diversified, and
tax aware manner."
As 2009 comes to a close, Seeking Alpha's Jonathan Liss sits
down with Kim for a look back at the tumultuous year that was, and
a look ahead to the major issues facing markets in 2010,
identifying sectors and asset classes with particular promise for
• • •
Seeking Alpha ((
At the beginning of this year (through the March low), there
was a real sense that there was no bottom in sight in terms of
equities. Since March, the rebound has been spectacular pretty
much across almost all sectors and asset classes. How did you
initially position clients when the markets were in free-fall and
how have you positioned them since then? At what point did you
decide it was ok to get less defensive and start being more
aggressive with client portfolios?
Kim Arthur ((
When the markets were in a free fall with volatility at record
highs, we ramped up our option overlay strategy to capture the
inflated premiums at the time. After our investment committee call
at the end of March, we concluded the market was fundamentally
undervalued on a relative and historical basis.
Accordingly, we increased the equity exposure in our client
portfolios, allowing them to participate in the unprecedented rally
with a 70% equities [allocation]. Our investment committee's
ability to remain constructive in a market overwhelmed by fear and
irrational behavior enabled us to capitalize on the
Name one investment that worked out particularly well in 2009
and one that was a bust.
Our decision to get long the Market Vectors Steel ETF (
) at the beginning of 2009 worked out well for our clients; it's
currently up 115% year to date through Dec. 24, 2009.
For the investment that was a bust, we bought the SPDR Gold
) at $88, sold calls on it and got called away at $94. GLD then
proceeded to $120 over the next 2 months. Even though we were
stopped out at $94, we brought in around $6 of option premium prior
to getting called away so it wasn't a total loss.
Are we heading for another widespread dip in global equity
prices in 2010, or will markets continue to keep their heads
Another widespread dip in global equity prices, to the extent of
the recent waterfall event, is unlikely in 2010. In fact, 2010 has
the potential for robust returns when you consider 78% of S&P
500 companies beat earnings estimates for Q3'09.
Additionally, the US stock market is closing in on the worst
calendar decade for stocks going all the way back to the 1820s. As
reversion to the mean enthusiasts who believe an extreme event is
usually followed by a less extreme event, we view this stat as a
positive indicator for equity performance over the next decade.
In which sectors/asset classes do you expect strength in 2010
and beyond? Where do you expect particular weakness? Will we see
a flight away from safety to riskier asset classes going
For 2010, we like Technology, Industrials, and Financials. We
expect weakness in long term bonds. Currently, money flows into
bond funds are 3 standard deviations above the mean.
What are your expectations for commodities, the dollar and
gold in 2010 and beyond? Where do you see oil closing out the
We believe the sharpest decline in the dollar has already occurred,
which played a considerable role in easing deflationary pressures.
The weakness in the dollar should persist in 2010 as US GDP
continues to be a smaller part of global GDP. Gold will have
support from developing countries' foreign reserves which have no
meaningful gold position. Oil will trade up modestly from here
based on global GDP growing, but will run into longer term
headwinds with the continued growth from the electric and hybrid
Let's move on to some specific issues that will affect equity
returns in 2010 and beyond.
How is the healthcare reform currently being debated likely
to affect healthcare sector returns? Will healthcare stocks
continue to represent a good value for investors going forward?
Will they still make sense as a defensive play?
The healthcare sector made a good move in response to recent events
in Washington and will continue this trend as we move into 2010.
Biotech has several growth prospects worth keeping an eye on in
2010. Investors can gain exposure to Biotech companies through the
SPDR S&P Biotech ETF (
How about a climate bill. The general feeling according to
sites like Greentech Media which follow these matters closely is
that we won't get anything substantial until 2011. What are the
investment implications of a wide-reaching climate bill for the
energy and automotive sectors?
China is expected to build ten new nuclear plants over the next ten
years, more than 3 times the rest of the world combined. India,
which currently has 17 plants and 4,000 MW of capacity, plans to go
to 200,000 MW over the next 20 years. ETF choices [for the nuclear
sector] are the Market Vectors Nuclear Energy ETF (
) and the iShares S&P Global Nuclear Energy Index Fund (
). The climate change initiative will develop as an emerging market
investment theme over the next decade with lucrative propositions
for the energy and automotive sectors.
Do you think inflation will ramp up in 2010? Considering the
massive budget deficit in Washington, what would be the ideal
level of inflation?
Inflation will begin to increase around the 3rd or 4th quarter of
2010, yet there is very little reason to worry until it reaches
4-5%. We consider an inflation rate of 2-3% as an ideal level for
the US economy.
As a follow-up to the last question, which sector of the
bond/fixed-income market represents the best value going forward?
Long-term or short-term; Treasuries, Munis, or Corporate bonds;
U.S. or Foreign bonds? Have you been buying TIPS for your clients
We currently have a small position in TIPS for our clients.
Regarding fixed income, we prefer short term paper, corporate bonds
and emerging market sovereign debt. Investors can gain exposure to
investments such as emerging market sovereign debt through ETFs
like iShares JP Morgan USD Emerging Market Bond Fund (
). With interest rates expected to increase sooner rather than
later, bonds should not be viewed as the safe haven they once were,
which is why we prefer cash over bonds at the moment.
Finally, how do you rate the Obama administration's handling
of the mess they inherited? Is Bernanke the right man to continue
at the Fed?
Ben Bernanke has done a great job. Given that nine months ago
rational people believed that the US banking system was bankrupt
and capitalism was dead, Bernanke deserves full credit.
2010 Economic Forecast: This Recession Wasn't Any
Different than Past Recessions