Regime shift US stocks have outperformed their global and emerging counterparts by a mile in the last ten years. But this hasn’t always been the case. For example, in the decade prior to that, the S&P 500 Index realized a negative return while emerging markets skyrocketed 188%. So what about the ten years to come? Given the lofty valuation of US stocks, the CAPE being above 30, stock markets outside the US may well outperform. That said, the performance gap between US and the rest of the world can partly be explained by the US being home to a number of technology firms that have reshaped many aspects of daily life. This is not something that will shift overnight. Is the manufacturing glass half full or half empty? … [Read More...]

With the euro sliding deeper against the dollar this week, equity investors have been getting nervous. But why is everyone so surprised when known currency fluctuations derail earnings? In our view, a sharper focus on company exposures can help create a “natural” currency hedge in global equity portfolios. [Read More...]

Since the low point for the equity markets during the global financial crisis in 2009, Eurozone equities have lagged their US counterparts by an impressive 300%. Why is this? By the look of things, it’s a combination of different factors. The first – and most important – reason is that US companies have performed much better than their European counterparts when it comes to corporate earnings. The graph below shows that since March 2009, the earnings per share of companies in the S&P 500 have increased 170%, compared with an increase in earnings of precisely 0% for companies in the Eurostoxx 50. Some of this difference can be explained by share buybacks, but for the most part it can simply be put down to profitability. Heavyweights The second reason is … [Read More...]

It’s been another tough start to the year for emerging-market equities, amid growing concern about political risk and economic growth. But we believe the seeds have been sown for a recovery that can best be captured through a selective investing approach to avoid the risks of a benchmark. [Read More...]

Investors who wanted safety and certainty last year mostly shunned smaller-cap US stocks. As a result, many high-quality names are now on sale. With US growth likely to accelerate in 2015, we think these domestically oriented smaller-cap companies may turn out to be a real bargain. [Read More...]

Here’s this year’s update of the ‘average return doesn’t exist’ blog showing that the average return on equities is mostly a statistic, and is seldomly seen in reality. And last year is another brilliant example of that. The Dow Jones Industrial Average realized a a positive return of more than 22% in 2019, miles away from the average return of 7.4% since 1900. It also underpins that using this long-term average for forecasting annual returns, as many professional forecasters tend to do, will do little good for your ‘guru’ status. Those who dare to put in ‘obviously’ far too bearish or far too bullish forecasts have (much) better odds in getting it right. The graph below shows the calendar year returns on the Dow Jones Industrial … [Read More...]

FTSE 100 stays strong with another new high for the year Global equity markets remain extremely strong with global economic data continuing to improve particularly from China in early April…. [Read More...]

History suggests that reports of active management’s death are premature. In fact, conditions appear ripe for a comeback, as my colleague Scott Wallace ably explained in a recent article for Institutional Investor.com’s Global Market Thought Leadership blog, attached below. [Read More...]

A “big data” revolution is under way, transforming the volume and nature of data generated throughout the economy. This trend—driven by the data-intensive nature of innovations such as social networking—is highly disruptive to the tech sector, creating fresh challenges and opportunities for investors, as my colleague Chris Toub explains below. [Read More...]

One of the greatest challenges facing money managers in the aftermath of 2008 has been how to balance the fear of loss against the need to take risk in order to generate positive real returns. Striking the right balance between them will, I believe, be the key to investment success in 2012. [Read More...]

The chart above, created by JP Morgan, shows the calendar year returns on the S&P 500 Index and the intra-year drops that occurred during those years. This reveals an interesting picture. The average annual return since 1980 is 8.4%, a number which will likely ring a bell for investors familiar with long-term equity returns. But it is perhaps less well-known that the S&P 500 Index also recorded an average intra-year drop of 13.9%. So, on average, investors have had to deal with a significant decline in stock prices in every year. So far this year, including the current drop in equity futures because of US President Trump’s tweets on increasing tariffs on Chinese imports, the maximum intra-year decline is just 2%. The odds… [Read More...]

At today’s valuations, we believe that Japanese equities offer an exceptional investment opportunity. [Read More...]

The impact of central banks should not be underestimated. And I don’t just mean their impact on economic growth and interest rates. Central banks are also a driving force of financial markets. As the chart above shows, the size of G4 (US, Eurozone, UK and Japan) central bank balance sheet as a % of GDP has risen relentlessly over the last 20 years, and global equities have more or less followed suit. The correlation has become even tighter since the financial crisis – a period that, not by coincidence, has seen unprecedented stimulatory monetary policy. In the last 20 years, only two major equity rallies have not been accompanied by significant increases in global central bank liquidity: the internet bubble (2000-2001) and the housing bubble (2006-2008). Surely… [Read More...]

The laborious pace of the US recovery has inevitably fostered comparisons with Japan. But we find several reasons why a protracted slump like Japan’s is unlikely, as my colleague Gerry Paul argues below. [Read More...]

Bourses across Asia put in a mixed performance Tuesday even though China’s Q1 GDP print came in at a bouncy 6.8% above the government’s 6.5% forecast. [Read More...]

Markets have seen a sharp increase in volatility in recent weeks, with the S&P 500 experiencing its worst December month since 1931. But, looking back at the history, the total lack of volatility in 2017 was more exceptional than the current market swings. Realized volatility The above graph shows the realized volatility of the S&P 500 Index since 1960. There are a number of observations about the ‘behavior’ of volatility on stock markets that are worth noting. First: spikes in volatility occur from time to time and in a significant number of cases, they can’t be directly related to a bear market or recession. The most recent example was the period from the end of 2015 to the beginning of 2016, in which realized volatility rose to the levels seen today and… [Read More...]

A famous Business Week article, “The Death of Equities,” concluded, “Today, the old attitude of buying solid stocks as a cornerstone for one’s life savings and retirement has simply disappeared.” Sound familiar? The article was published in August 1979. [Read More...]

The US midterm elections are behind us. As expected the Democrats took the House while Republicans hold the Senate. So what happens now? Surely we can’t tell, but if history is any guidance stock markets tend to go up from here. Five charts on (equity) market performance after the midterm elections. On average, equities went up! The chart above shows that, on average, equities start to go up just before the elections and keep going up well into the next year. More importantly, equities tend to go up much faster in midterm election years than in all other years. Needless to say, substantial differences occur during different elections. This year for example, stock markets cratered in the run up to the midterms, as you will surely … [Read More...]

The territorial dispute between China and Japan is clouding the outlook for Japanese automakers. But we think that bilateral business pragmatism will eventually trump the current political tensions. [Read More...]