Billionaire hedge fund manager and venture capitalist Cliff Asness kicked off an intense discussion regarding the underperformance of value investing strategies with “Is (Systematic) Value Investing Dead? published on May 8.
Mr. Asness’ analysis is complicated, befitting his quantitative investing style, covering the usefulness of valuation techniques like price to book in a market environment dominated by high profit margin technology companies.
The conclusion of the piece was that value investing was far from dead, and it got me thinking very seriously about adding a value component to my portfolio. He writes, “Value is exceptionally cheap today, and it gets cheaper (and becomes clearly the cheapest ever) the closer our analysis gets to realistic implementations. Measured in the most realistic way (for us) neither tech bubble nor the global financial crisis can lay claim to the cheapest ‘value of value’ anymore. Sadly, looking back, and wonderfully … forward, today has that honor.”
The phrase “value of value” refers to the cheapness of value stocks relative to the market as a whole. So, in other words, value stocks are now the cheapest they’ve ever been relative to growth stocks.
Domestically, fund manager Kim Shannon published “Waiting for Dawn” on the website for Sionna Investment Managers, the asset management firm she founded.
As a valuation-conscious fund manager, Ms. Shannon is of course a biased observer. Nonetheless, the short paper provides useful context. It notes that the current period of value investing underperformance is the longest since the Great Depression. “Today, value is more undervalued relative to growth (on a total annualized return basis) compared to any other time period since 1936, cheaper even than 1940 or 2000,” she writes.
Ritholtz Wealth Management’s Josh Brown, who I also featured earlier in the week, published “Value Investing is Immortal” on Tuesday. Mr. Brown writes “Value investing is immortal. It cannot die. Perhaps the way it’s been traditionally practiced is dead. The metrics that the value discipline has been based upon are not and have not been relevant for a long time.”
Mr. Brown goes on to warn about value traps, stocks that are cheap for good reason – the profit outlook is deteriorating faster than valuation multiples – and that point is well taken.
It is Mr. Asness’ research I find most compelling and I’m now officially interested in a value investing strategy for my portfolio. I’m not sure what form it will take – a small position in a long short hedge fund seems most likely off the top of my head – but I’ll report to readers if a transaction takes place.
— Scott Barlow, Globe and Mail market strategist
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The Rundown (for subscribers)
Five major points for investors right now (and the highest conviction call)
David Rosenberg summarizes his five major points to investors at this historic moment in time. And yes, the famed economist known for his bearish take on markets is actually bullish on something.
Gold and tech stocks lead TSX rebound from March selloff
Beneath the surface of the stock market’s near-miraculous rebound since March, seismic shifts have altered the fortunes of the companies within Canada’s benchmark index. The S&P/TSX Composite Index is now down just 17 per cent from its peak in February, before the COVID-19 pandemic took hold. That qualifies as a mere garden-variety correction in terms of total market losses. But at the level of individual stocks, the swings have been more on par with the pandemic’s powerful global impact. Tim Shufelt reports
The subtle message delivered by negative interest rates: Policy makers have no options left
Growing talk of negative interest rates in Canada and the United States is stirring fear about what such a dramatic move by central banks might mean for savers and investors. The biggest danger, though, may be something more subtle. If North American central banks did drag rates into negative territory, it would signal they are ready to double down on what they have already been doing for several years, with generally unimpressive results. Ian McGugan tells us more. (Also see: Once taboo, investors begin to imagine negative U.S. rates)
A new way to tell if your adviser adds value or dead weight
There’s now a math formula for measuring the value of an adviser. Rob Carrick tells us how it works, and how you can calculate it.
Others (for subscribers)
Tuesday’s Insider Report: CFO invest over $300,000 in this large-cap consumer staples stock
Number Cruncher: Fifteen U.S. big cap stocks with strong balance sheets
Others (for everyone)
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Ask Globe Investor
Question: On March 25, the Federal Government advised that that RRIF minimum withdrawals could be reduced by 25 per cent for 2020. I receive minimum monthly payments from a RRIF and a LIF administered by a major bank’s brokerage. I called them to find out the procedure to take advantage of this 25 per cent reduction. They didn’t have a clue as to what to do and admitted they had lots of inquiries, but the management had not given them any direction. This is totally unacceptable. Can you advise what the procedure should be?
Answer: You’re right, it is unacceptable. The procedure should be simple: you call your broker or plan administrator and tell him/her you want to take advantage of this relief and to adjust your RRIF and LIF payments accordingly. It should not be more complex than that. All I can suggest is that you contact the brokerage manager and make your displeasure known. A simple memo from the top should be all it takes.
Do you have a question for Globe Investor? Send it our way via this form. Questions and answers will be edited for length.
What’s up in the days ahead
Should you use ETFs that use currency hedging when seeking foreign stock exposure? Andrew Hallam will have some research that points to a definitive answer.
More Globe Investor coverage
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Compiled by Globe Investor Staff
Knightscope Opens Investment Opportunity to Canada – GlobeNewswire
MOUNTAIN VIEW, Calif., May 28, 2020 (GLOBE NEWSWIRE) — Knightscope, Inc., a developer of advanced physical security technologies utilizing fully autonomous robots focused on enhancing U.S. security operations, announced today that it is able to accept investments in support of the Company’s Regulation A+ Offering from Canadian investors through FrontFundr. FrontFundr is Canada’s leading online investment platform offering access to select private placements. Investments from the U.S. and other international markets are still available through StartEngine.
FrontFundr founder and CEO, Peter-Paul Van Hoeken stated, “I see Knightscope as a revolutionary deal where all North Americans, retail investors on both sides of the border, can invest in a North American growth company in the business of building technology to reduce crime.”
“Knightscope has received countless inquiries from our northern neighbors wanting to invest in our technologies,” said William Santana Li, chairman and CEO, Knightscope. “It is with great pleasure that we are able to finally announce the ability for retail Canadian investors to purchase shares online with our new friends at FrontFundr.”
PURCHASE SHARES IN KNIGHTSCOPE TODAY
Knightscope is currently accepting accredited and unaccredited investors from $1,000 to $10M completely online. Click here to invest today.
Knightscope is an advanced security technology company based in Silicon Valley that builds fully autonomous security robots that deter, detect and report. Our long-term ambition is to make the United States of America the safest country in the world. Learn more about us at www.knightscope.com. Follow Knightscope on Facebook, Twitter, LinkedIn and Instagram.
FrontFundr is Canada’s leading online private markets investing platform and an exempt market dealer. It provides startups and growth companies access to capital and gives investors access to private companies they believe in and want to support. It provides a community of over 16,000 retail investors with the ability to review and complete private placements on one digital platform. The company’s revolutionary technology allows users across Canada to invest in innovative growth businesses in under 12 minutes, starting from as little as $250. To date it has helped more than 43 companies raise over $35 million.
Knightscope and www.knightscope.com are operated by Knightscope, Inc. Investment opportunities in the Reg A+ offering are not a public offering, are private placements, are subject to long hold periods, are illiquid investments and investors must be able to afford the loss of their entire principal. There is no guarantee that Knightscope will register its shares with the SEC or any stock exchange. Offers to buy or sell any security can only be made through official offering and subscription documents that contain important information about risks, fees and expenses. You should conduct your own due diligence including reviewing in detail the Offering Circular and consultation with a financial advisor, attorney, accountant, or other professional that can help you to understand the risks associated with the investment opportunity.
This release may contain forward-looking statements regarding Knightscope’s proposed public listing of its securities and the timing thereof, projected business performance, operating results, financial condition and other aspects of the company, expressed by such language as “expected,” “anticipated,” “projected” and “forecasted.” These statements also include estimates of the pace of customer adoption of the company’s products, engineering developments and prototype capabilities. Please be advised that such statements are intentions or estimates only and there is no assurance that the results stated or implied by forward-looking statements will actually be realized by the company, or that the company will be able to consummate its planned goals (including without limitation, a public listing of its securities). Forward-looking statements may be based on management assumptions that prove to be wrong. The Company’s predictions may not be realized for a variety of reasons, including due to inability to raise a sufficient amount of funds, a lack of marketability for the company’s securities, failure of business operations, competition, customer sales cycles, and engineering or technical issues, among others. The Company and its business are subject to substantial risks and potential events beyond its control that would cause material differences between predicted results and actual results, including the company incurring operating losses and experiencing unexpected material adverse events.
John Hills +1 289 962 1708
'Should we invest our 2020 TFSA now, or wait a few months?' – The Globe and Mail
Here’s how I handle my TFSA contributions – I divide the total amount for the year, currently $6,000, by 26 and then have that amount electronically transferred when I get paid every two weeks into a TFSA investment account.
A reader recently asked about TFSA contribution strategies for this year: “We have yet to invest in our TFSA for 2020. Should we go ahead and invest now, or should we wait for another few months when the economy will hopefully begin to pick up again?”
I have no idea at the best of times about when the best time to invest is. Now, I’m more baffled than ever. The economy has been damaged and prospects for a comprehensive reopening seem uncertain at best, given the differing medical outlooks across the provinces. Will companies bring back all the workers they laid off? How many businesses won’t reopen? How much will economic activity be down overall six to 12 months from now? What about all the debt deferrals people arranged – what happens when they have to resume their usual payments?
Our world today is so much different than it was in early February, before pandemic fears hammered the stock markets. And yet, the U.S. stock market has charged back to the point where it was off only about 10 per cent in late May from its 52-week high and well above its level of May 2019.
I don’t get it, and I won’t fight it. My biweekly TFSA contributions continue, just as they did when the markets plunged in March.
As to that reader question, I can only suggest the gradual approach to TFSA investing. Academic studies have shown that lump-sum investments outperform the gradual approach, known as dollar-cost averaging. But this year is off the charts – why guess what’s going to happen?
Subscribe to Carrick on Money
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Rob’s personal finance reading list…
Never refrigerate bread
Tips from Consumer Reports on how to extend food expiration dates. Cut waste, and visit the supermarket less. By the way, coffee shouldn’t go in the fridge, either. Flour should, though.
Inflation: How big a problem will it be?
A lot of readers have told me lately they worry about inflation being ignited by all the money the government is pumping into the economy to offset the effects of the pandemic. This guide to inflation, deflation and disinflation should set minds at ease, at least until the good times resume.
How to avoid retirement myopia
Way too much retirement advice is tossed out in a general way, even if the needs and priorities of each generation are different. Here’s a different take – retirement guidance for people 25 to 40, 41 to 55 and 56+.
Make your own Starbucks drinks at home
A personal finance blog shares some cheap and cheerful versions of tea, lemonade and coffee drinks.
Q: Why you haven’t recommended five-year GICs as a possible safe vehicle for a portion of retiree funds? I have $50,000 in one earning 3.25 per cent, a higher rate than one- or two-year GICs or a savings account. It’s true I purchased when GIC rates were higher, but the principle remains the same.
A: I have written a lot over the years about how GICs make a good substitute for bonds or bond funds in diversified portfolio – they’re not as liquid as bonds in that there are stiff fees if you sell early, but they don’t jump around in price like bonds can. GIC rates are also quite competitive with bonds. The best rate on a five-year guaranteed investment certificate in late May was 2.3 to 2.4 per cent, while the yield on the five-year Government of Canada bond was just 0.4 per cent.
Do you have a question for me? Send it my way. Sorry I can’t answer every one personally. Questions and answers are edited for length and clarity.
Today’s financial tool
How to report wrongdoing by an investment adviser.
Tweet of the week
Evan Siddall, president and CEO of Canada Mortgage and Housing Corp., takes on those who insist real estate prices can keep going up despite the economic damage caused by the pandemic.
In case you missed these Globe and Mail personal finance-related stories
- How advisers can help jobless Canadians avoid financial pitfalls
- Day-to-day banking proving to be a struggle for some isolated seniors
- A cottage agreement can make sharing a summer home simple
More Carrick and money coverage For more money stories, follow me on Instagram and Twitter, and join the discussion on my Facebook page. Millennial readers, join our Gen Y Money Facebook group. Send us an e-mail to let us know what you think of my newsletter. Want to subscribe? Click here to sign up.
Just How Good An Investment Is Renewable Energy? New Study Reveals All – Forbes
Renewable energy investments are delivering massively better returns than fossil fuels in the U.S., the U.K. and Europe, but despite this the total volume of investment is still nowhere near that required to mitigate climate change.
Those are some of the findings of new research released today by Imperial College London and the International Energy Agency, which analyzed stock market data to determine the rate of return on energy investments over a five- and 10-year period.
The study found renewables investments in Germany and France yielded returns of 178.2% over a five year period, compared with -20.7% for fossil fuel investments. In the U.K., also over five years, investments in green energy generated returns of 75.4% compared to just 8.8% for fossil fuels. In the U.S., renewables yielded 200.3% returns versus 97.2% for fossil fuels.
Green energy stocks were also less volatile across the board than fossil fuels, with such portfolios holding up well during the turmoil caused by the pandemic, while oil and gas collapsed. Yet in the U.S., which provided the largest data set, the average market cap in the green energy portfolio analyzed came to less than a quarter of the average market cap for the fossil fuel portfolio—$9.89 billion for the hydrocarbons versus $2.42 billion for renewables.
Speaking to Forbes.com, Charles Donovan, director of the Centre for Climate Finance and Investment at Imperial College and the report’s lead author, said: “The conventional wisdom says that investing in fossil fuels is more profitable than investing in renewable power. The conventional wisdom is wrong.”
In spite of the chaos seen in the fossil fuel markets in recent years and months, Donovan said that many investors were finding it hard to let go of hydrocarbons. “Many investors are sleepwalking through a technological disruption of the energy industry, preferring to believe in a fairyland where upstream oil and gas projects earn big risk-adjusted returns,” Donovan warned. “Those days are gone.”
Donovan also warned that, despite the impressive returns from renewables, such figures had “not triggered anywhere near the level of investment required” to decarbonize the economy and mitigate climate change.
This was a point addressed yesterday in a separate report from the IEA, which showed total global investment in energy down 20%—almost $400 billion—compared with last year, largely as a result of the coronavirus crisis. The IEA characterized the drop as “staggering in both its scale and swiftness, with serious potential implications for energy security and clean energy transitions.”
The IEA laid the blame for the collapse on lower demand for energy, lower prices and a rise in non-payment of bills, which were side effects of the pandemic.
“The crisis has brought lower emissions but for all the wrong reasons,” said Fatih Birol, IEA’s executive director. “If we are to achieve a lasting reduction in global emissions, then we will need to see a rapid increase in clean energy investment.”
Indeed, even before the coronavirus, global investment in green energy was falling well short of that necessary to hit the Paris Agreement target of limiting global warming to within 2 degrees Celsius by 2100. In order to achieve that, countries will need to at least double their annual investment in renewables compared to current levels, from around $310 billion to more than $660 billion, according to the International Renewable Energy Agency.
In answer to why investment in renewables remains relatively low despite apparently stellar returns, the Imperial College report noted that large asset managers and institutional investors such as pension funds required deeper liquidity than the renewables market currently held. “It is easier to allocate a meaningful percentage of their assets under management to renewables if the market is deep and liquid,” the report stated. “Currently, that is not the case.”
The authors attributed much of the uncertainty around renewables to the market being relatively young. “It is not surprising that many investors still consider the renewable power sector as a nascent area,” they wrote. “There are too few pure-play companies, too little information about those companies, and relatively short trading histories. While there is a body of literature developing on the specific investment risk factors associated with renewable energy, the body of empirical evidence remains limited.”
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