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Value A Sideshow To Expensive Stocks

April was supposed to be the month that the underperforming Value and Small cap factor premiums rebounded from their painful COVID-19 crash. After all, that is exactly what famously happened after the TMT crash in 2000 when traditional Value stocks enjoyed a recovery after long periods of underperformance (1). And sure enough global small cap stocks registered an impressive bounce during April, rising 23.9% from lows in March against a 17.2% move in the overall market. That’s something, perhaps not overwhelming, whilst Value just tailed the market benchmark. Most Value investors, and many (but not all) Small cap investors, know that they have to take a long view and swim against the tide of take-downs and negative opinion which can at times seem overwhelming.

Solving The Dividends Puzzle

Evidence Based Investing | May 1, 2020

Dividends are being cut at a pace unimaginable a few weeks ago. Company boards in every country are scrambling to conserve cash, comply with strings attached to state subsidies and performing pivots, if not pirouettes, between the short and long-term interests of a gaggle of stakeholders ranging from employees, investors, bankers and underfunded pension funds. Among energy companies for example, Shell have just cut their dividend whilst BP are holding out. Dividends in this environment can hardly be viewed as anything other than a highly discretionary signal from company managements to their stakeholders.Some of our clients are worried about dividends too.

Is Inflation Set to Explode?

Market Commentary | April 26, 2020

In March 2018 it appeared that global growth would exert pressure on interest rates, forcing the rate of inflation ever higher, making bonds a weaker investment prospect. Things have not worked out quite as market participants then might have expected.The Fed’s policy changes and quantitative tightening in 2018, combined with the high existing global debt levels snuffed out any inflationary impulse. Following the COVID-19 fuelled stockmarket crash bond yields all over the world are now 1% or less.

Oil in Intensive Care

Market Commentary | April 9, 2020

The first Quarter of 2020 was the poorest equity market performance since 2008 for the S&P 500, but that was not the weakest asset class.The oil market had a truly dreadful 3 months, falling by a massive 66%, its worst ever quarterly return. The refusal of Russia to agree to cuts in oil output levels by OPEC+, the OPEC nations plus Russia, led to Saudi Arabia discounting their oil prices and gearing up oil production to force prices lower.

The End of an Era

Market Commentary | March 30, 2020

The Coronavirus panic has changed quite a few things in its short life.We no longer stand within two metres of each other without being forcefully reminded to move apart, we no longer seem to mind washing our hands several times per hour or the restrictions being placed on our everyday lives in the name of “flattening the curve” , whilst governments across the world have awoken from their apparent apathetic attitude towards the economy’s performance. The latest US and UK stimulus packages, in addition to the usual Central Bank monetary responses, cutting rates, printing more money, provided banking system liquidity infusions, are now leading governments into the realm of fiscal policy or state spending; it is almost as if the Coronavirus has decided that we were to have a UK socialist government irrespective of the last election result.

A Diversification Toolkit for Long Term Investing

Evidence Based Investing, Factor Based Investing | March 30, 2020

March 2020 will long be remembered as a month when information overload was tested beyond imagination. Embattled investors had to deal, not only with an imminent threat to life against themselves and their families, but also with violent liquidity and price collapses across asset classes, including even long bonds and gold.Diversification seemed momentarily to have failed. As it happens, it was also the perfect moment for me to start a new role as Investment Manager at EBI.Scanning through the market crashes of the past we see both uniqueness and commonalities. The 1973-4 crash left the US markets down around 45% and the UK down 67%. The 1987 stockmarket crash was over relatively quickly with a “V” shaped market and economic recovery. In 2000 the Technology, Media and Telecoms (TMT) bubble ended with a two-year blowout elongated by the events of 9/11. The Great Financial Crisis (GFC) of 2007 onwards was long drawn out with unprecedented levels of intervention led by Fed Chairman

The Authorities (forced to) step up to the plate:

Market Commentary | March 20, 2020

Things are getting wilder by the day – it is said that markets stop panicking when Central Banks start panicking, and it appears that they have now done so. According to Goldman Sachs, there have been 14 days in the last 23 when the S&P 500 has moved up or down by more than 3%, the highest concentration since 2009. The moves in US equities for the last week have been, shall we say, unusual.12/3: Limit Down13/3: Limit Up16/3; Limit Down17/3: Limit Up18/3: Limit Down…

Seeing Past the Coronavirus Shock

Market Commentary | March 19, 2020

As unexpected shocks go, Coronavirus ranks in the very top tier of events capable of disconcerting investors, amongst the Great Financial Crisis (GFC) and Black Monday. Whilst news continues to horrify many investors with the human and economic implications, buried in the latest data in what statisticians refer to as “the inflection point of a logistics curve”, is a sign that the very worst may be over. February news was dominated by the global spread and impact of the Coronavirus (Covid-19). Dow Jones, S&P 500 and the FTSE All-Share fell by over 14%, 12% and 11%. So far in March (16th March 2020), these Index markets have been continuing their decline and the correction has now developed into a full-scale bear market.

So You Want to be a Tech Superstar?

Evidence Based Investing, Factor Based Investing | March 13, 2020

Technology stocks are the top dogs of the stock market. For the last 6 months or so, they have risen almost without a pause and have become a greater and greater influence on the direction of the overall stock market. Last month, the big four MAGA stocks (Microsoft, Amazon, Google (Alphabet) and Apple) reached the point where they represented over 17% of the total S&P 500, and contributed almost 70% of the gains attributable to that Index in 2020 alone. How did they get this big and thus so influential on both the stock market and the wider economy? There was of course a lot of hard work, plus some innovative ideas, but they had a few advantages that were (mostly) unavailable to other firms. If you want to become a “tech titan”, some or all of the following tailwinds need to be behind you.

The Japanification of World Bond Markets

Market Commentary | March 6, 2020

[This post is a follow-up to that of October 2019, in the light of further falls in interest rates; the message remains very much the same however: stick to the plan. Changing asset allocation in response to market movements remains fraught with danger. Stay diversified].