David Rosenberg: 2012 INVESTMENT STRATEGY: S.I.R.P

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Many investors increasingly want preservation of cash flow as well as preservation of capital. We concur and have consistently recommended a focus on S.I.R.P. — safety and income at a reasonable price, with a primary focus on stability and prudent risk-taking.

INVESTMENT STRATEGY: SAFETY AND INCOME AT A REASONABLE PRICE (S.I.R.P)
1.    Focus on safe yield: High-quality corporates (non- cyclical, high cash reserves, minimal refinancing needs). Corporate balance sheets are in very good shape.
2.    Equities: focus on reliable dividend growth/yield; preferred shares ("income" orientation).
3.    Whether it be credit or equities, focus on companies with low debt/equity ratios and high liquid asset ratios - balance sheet quality is even more important than usual. Avoid highly leveraged companies.
4.    Even hard assets that provide an income stream work well in a deflationary environment (ie, oil and gas royalties, REITs, etc...).
5.    Focus on sectors or companies with these micro characteristics: low fixed costs, high variable cost, high barriers to entry/some sort of oligopolistic features, a relatively high level of demand inelasticity (utilities, staples, health care — these sectors are also unloved and under owned by institutional portfolio managers).
6.    Alternative assets: allocate significant portion of asset mix to strategies that are not reliant on rising equity markets and where volatility can be used to advantage.
7.    Precious metals: A hedge against the reflationary policies aimed at defusing deflationary risks— money printing, rolling currency depreciations, heightened trade frictions, and government procurement policies.

For 2012, tactical strategies will also be crucial, at least as much as in the roller- coaster ride of 2011 (when strategists talked of 20% price appreciation in the classic third year of the presidential cycle).

Investors should be making a special effort to fight dogma and keep an open mind in the coming year — looking to take advantage of both long and short opportunities, focusing on dividend growth and yield in the equity market, and sticking to fixed-income — though we must be acutely aware of when this strategy becomes a "crowded trade" and a widespread consensus viewpoint.

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