Investment

This little known investment could double in seven years: GMO – MarketWatch

Published

3 years ago

March 26, 2021

If you want to retire earlier or richer than you had expected, look east.

Like Spinal Tap, the famous and fake rock group, you want to be big in Japan. Or, even better, small in Japan.

So, at least, argue white-shoe, ultra-cautious Boston money managers GMO, in a surprising break from their generally gloomy outlook.

Cheap so-called “value” stocks in Japan, and especially cheap small value stocks in Japan, are a stunning investment bargain in a world of overpriced assets, GMO strategists Drew Edwards and Rick Friedman argue in a new research paper.

Thanks to low stock prices, booming profit margins, huge cash piles, and a backdrop of economic reform, Japanese value stocks could double your money over the next seven years, GMO’s number-crunchers estimate.

(In hard numbers they see large Japanese value stocks earning 5.2% a year on average after inflation, and small value stocks 8.2% a year. Meanwhile U.S. inflation expectations are currently about 2.3% a year.)

By contrast GMO thinks almost everything else is going to lose you money in relation to inflation. They see our broad U.S. stock index funds, such as the SPDR S&P 500 ETF
SPY,
+0.47%
or the Vanguard Total Stock Market Index mutual fund
VTSMX,
+0.68%,
losing us 40% of our purchasing power by 2028.

The important caveat here is that everyone can make forecasts and many prove to be wrong. GMO has been too gloomy on stocks for most of the past 20 years. On the other hand, it has made some spectacularly good calls against the mainstream. The best known are the house’s predictions in advance of the 2000-3 dot com crash and the 2007-9 global financial crisis. But there are others. In the summer of 2007, for example, while (correctly) warning against markets in general, GMO singled out one area of comparative bargain: So-called U.S. “quality” stocks, a technical term rather than one of mere approbation, meaning U.S. stocks that met certain numerical standards in terms of balance sheet strength, cash flow, profitability and earnings stability.

If you’d followed their advice you’d be laughing. The MSCI index of U.S. quality stocks has quintupled your money since — vastly outperforming the S&P 500. (Oh, and they weathered the financial crisis much better as well.)

The trick for investors may be to treat forecasts like these as “directional” (as management consultants like to say) rather than specific. In a nutshell: GMO finds Japanese value stocks, and especially small value stocks, a bargain.

Corporate profit margins there have boomed since former Prime Minister Shinzo Abe was elected nearly a decade ago and introduced economic reforms, GMO calculates. About half the nonfinancial companies on the Tokyo stock exchange now have more cash on their balance sheets than debt (the figure for U.S. companies: Just 15%). Like U.S. companies after the Great Depression, Japanese companies responded to the 1990s collapse of their financial bubble by playing defense and hoarding cash. Many are now sitting pretty.

There are ways for ordinary investors to play this simply in a 401(k), IRA or other retirement account.

The iShares MSCI Japan Value ETF
EWJV,
+0.58%
is the most obvious. Fees are just 0.15% a year, or $15 a year on every $10,000 invested. This ETF is heavily weighted toward large-company stocks.

The WisdomTree Japan SmallCap Dividend Fund
DFJ,
+0.34%
wades into small company value stocks, where GMO finds the best bargains. But fees are higher, at 0.58%, or $58 a year per $10,000 invested.

Will we make it big by going small in Japan? We’ll have to wait and see.

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Economy

S&P/TSX composite down more than 200 points, U.S. stock markets also fall

Published

6 days ago

September 6, 2024

Anne Joseph

TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.

The S&P/TSX composite index was down 239.24 points at 22,749.04.

In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.

The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.

The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.

The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.

This report by The Canadian Press was first published Sept. 6, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Economy

S&P/TSX composite up more than 150 points, U.S. stock markets also higher

Published

2 weeks ago

August 29, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.

The S&P/TSX composite index was up 171.41 points at 23,298.39.

In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.

The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.

The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.

The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.

This report by The Canadian Press was first published Aug. 29, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Investment

Crypto Market Bloodbath Amid Broader Economic Concerns

Published

1 month ago

August 5, 2024

Harry Miller

The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.

The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.

Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.

The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.

Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.

Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.

Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.

Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.

The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.