A Question of Style: Why fundamentally weighted indices have the potential to outperform value over time

A number of value-oriented investment strategies have underperformed in recent years as successful “growth” sectors such as the technology and health care sectors have continued to be favoured by investors. That said, due to the tendency of markets to “regress to the mean”, history suggests that extended periods of outperformance by one style strategy are eventually followed by periods of underperformance – in other words, markets go through cycles of “style rotation”. Such style rotation, moreover, is a major reason why fundamental-indexing strategies have tended to outperform traditional value indexing approaches historically.

value

Read more

Market Insights: Is America running out of workers?

The much weaker than expected 38,000 gain in United States payrolls for May led many to fear a weakening in the US economy and immediately caused the market probability of a near-term Federal Reserve interest rate increase to drop notably. But rather than weak demand, the soft payrolls report might also reflect emerging capacity constraints.  If so, it would pose upside risks to inflation and interest rates and downside risks to economic growth and profits.

usworkers

Read more

3 Bears – learn more about going short with ASX-traded funds

There is an old saying within investment circles that goes – “Sell in May and go away”.  Well, just so you know, sayings are not always right! If you had done that this year, you would have missed out on a rebound of ~3% on the S&P/ASX 200, and ~7% on the S&P 500 (on an unhedged basis).  However, with the markets having rebounded in recent months without significant underlying earnings gains, the recent rises have been largely due to current valuations – Australian price to forward earnings are now at high levels (16X) relative to that of the past decade’s longer-run average (13.5X), and US markets are also at above-average valuations.

3_bears

Read more

The equity yield chase is paying dividends

The Australian equity market has enjoyed a few good months, though once again it is now facing valuations challenges. Irrespective of how the market deals with this challenge, however, one fact is indisputable: income returns from the market remain very attractive relative to interest rates. Given that local interest rates could fall even further in coming months, this suggests that the high yield equity theme is likely to perform relatively well in most likely market conditions.  There’s even a chance that the equity market could be “re-rated” higher if interest rates remain below historic average levels.

chase

Read more

The Nasdaq 100 ETF – Tick several boxes

Whilst every investor is different, there are 5 common themes we hear from many investors on an ongoing basis. They are the desire to:

  1. Increase the diversification of portfolios
  2. Get exposure to growth in a “low-growth” world
  3. Get exposure offshore
  4. Reduce exposure to the Banks and Materials Sectors in Australia
  5. Maintain a keen focus on valuations after a long (but challenging) “Bull Market”
writing

Read more

Market Insights: UK likely to dodge the Brexit bullet, for now at least

The impending United Kingdom referendum on European Union membership remains a major “event risk” for global markets over the coming month.  That said, polling suggests the chances of the UK leaving the Union after this vote are diminishing, which means there might be scope for at least a short-term “relief rally” for the British Pound. More broadly, however, it’s worth noting that UK equities have underperformed their continental counterparts in recent years, and lingering concerns over the UK’s commitment to the European Union suggests investors might consider European investments that exclude the United Kingdom.

brexit