Evidence Based Investing

Gender Equality

Evidence Based Investing | October 18, 2019

Under the ESG umbrella, there is another category that pertains more to the ‘S’ and ‘G’ letters – gender equality. Given the rise of movements like MeToo and TimesUp, there is increased recognition and acceptance of gender equality and diversity at work. And thanks to UK government-backed initiatives like the Women in Finance charter, the Alexander Hampton review, which aims for 33% women on boards of all FTSE 350 companies by 2020, as well as mandatory gender pay gap reporting for companies with more than 250 employees, gender equality has become less an esoteric aim and more mainstream.

All the Same Things

“If all you’re trying to do is essentially the same thing as your rivals, then it’s unlikely that you’ll be very successful” – Michael Porter. In the last fortnight, there has been something of a reversal in the market’s favorite Factor trade – long Growth/Momentum and short Value. It began in the US, but as is normally the case, it soon went Global. As a result of this, months of gains in Momentum (long) and Value (short) were lost in a matter of days. But one would not have known anything of this, looking at the Indices, with all major markets seeing gains since the start of September.

Where has the Value premium gone?

Evidence Based Investing, Factor Based Investing | September 6, 2019

The following blog was produced by Garrett Quigley of GSI (Global Systematic Investors LLP). GSI are the appointed sub-distributor for the Global Sustainable Value fund which EBI will be using in it’s Earth portfolio suite. You may wish to view former EBI blogs on the Value premium both here and here. Summary • In global developed equity markets, Growth has outperformed Value for a protracted period.• Growth is now trading at a historically high price level relative to Value.• Much of the recent outperformance of Growth vs Value is due to the change in the valuation spread between Growth and Value.• When Growth last traded at this valuation level, it subsequently underperformed Value for 20 years.

The Land of Opportunity?

Evidence Based Investing | July 5, 2019

“The things that will destroy America are prosperity-at-any-price, peace-at-any-price, safety-first instead of duty-first, the love of soft living, and the get-rich-quick theory of life” – Theodore Roosevelt. As we discussed last week, professional investors (a very loose term), are remaining bearish on US equities, but they are by no means alone. In this market cycle, far from becoming euphoric, investors are becoming ever more concerned/worried/anxious as prices rise higher. It IS an unusual state of affairs and heightened by the financial media’s constant doom-laden headlines; sometimes it appears that investors won’t fully relax until there’s a crash!

The Bonds Boundary

Evidence Based Investing | June 7, 2019

“Confronted with a challenge to distill the secret of sound investment into three words, we venture the motto, Margin of Safety.” – Benjamin Graham.

Cover image for analysis of UK share-market underperformance and value traps

Britannia Waives the (investment) Rules?

Evidence Based Investing | May 24, 2019

“Buy not on optimism. Buy on arithmetic” – Benjamin Graham Analysts and fund managers rarely agree, but on one thing they are united; the UK stock market is cheap, at least in relative terms. Since the Brexit Referendum, the UK All Share Index has lagged the World (ex-UK) by over 6 percentage points per annum on an annual basis and now stands on a Dividend Yield of 4.22% (as of 17th May) and a Price Earning Ratio of 16.05x compared to 2.32% and 18.63x for the World ex-UK Index. There has been a flurry of articles proclaiming that the UK share market is cheap,, with a JP Morgan fund manager declaring that they have not been this cheap since World War One! The charts below show the damage wrought since the Brexit result.

Uncertainty and Risk

Evidence Based Investing, Factor Based Investing | April 12, 2019

A robot walks into a bar and takes a seat. The bartender says, “We don’t serve robots.”The robot replies, “Someday – soon – you will.” One only has to watch financial TV for a few minutes to hear some pundit or other lower their voice and intone sagely, that “markets hate uncertainty”. But when exactly was anything about markets NOT uncertain? What the speaker is actually saying is that market participants hate losses, (which is why they were so keen to see the Fed bail them out in 2008-09, a habit that both parties have since found hard to break).

The rise (and rise) of the CEO

Evidence Based Investing, Market Commentary | April 5, 2019

“When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact” – Warren Buffett. In recent years, the role of the Chief Executive has become increasingly high profile. They are widely recognised (at least in the media) and feted as veritable supermen, taking a firm by the scruff of the neck and leading them to greater glory. They are interviewed by business media with a reverence that borders on awe and they wield a great deal of influence on governments – the near-universal belief in their judgment on the part of MPs, for example, may help to explain why the latter are (mostly) against Brexit. A “loss of confidence” is often a precursor to an economic slowdown (and job cuts), which may also justify parliamentarians’ attentiveness.

Yield Curve Histrionics

Evidence Based Investing, Market Commentary | March 29, 2019

“Reversion to the mean is the iron rule of the financial markets” – John Bogle. Last week it finally happened; the US Yield curve inverted (i.e. interest rates for longer-dated bonds went below those of shorter-dated ones). The rates available on 10-year bonds are now the same as those of 3-month bonds and the premium for investing over 30 years is now just 0.38% per annum. As the chart below shows, market expectations for interest rates now expect declines rather than rises in 2019. Last week, equities sold off sharply as recession fears intensified, amidst a big slowdown in Global Trade.

Confidence Trick

Evidence Based Investing, Factor Based Investing | March 22, 2019

“Still the man hears what he wants to hear and disregards the rest.” – Simon and Garfunkel (The Boxer). Ten years ago last week (March 9th, 2009), the S&P 500 hit a low point of 666.79, from which it has subsequently risen to 2,940 in October of last year, for a gain of 441%. A recurring theme throughout this time has been the degree of skepticism, cynicism and general disbelief that accompanied this rise. After a sharp fall into year end 2018, global markets have recovered and currently stand just 3% or so off those highs, as once again, bearish US investors have been “forced in” to the market, as their selling in early January 2019 has led to nothing but frustration.