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Why value investing has never been more tempting, Rosenberg’s highest conviction call, and a TSX transformed – The Globe and Mail

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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.”

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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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This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.

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

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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)

TSX stocks that have cut dividends since the start of the coronavirus crisis

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Wednesday’s analyst upgrades and downgrades

Tuesday’s analyst upgrades and downgrades

Tuesday’s Insider Report: CFO invest over $300,000 in this large-cap consumer staples stock

Number Cruncher: Six dividend-paying midstream energy companies trading at bargain-basement prices

Number Cruncher: Fifteen U.S. big cap stocks with strong balance sheets

Others (for everyone)

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Why sustainable equities have been outperformers during this crisis

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How the rise of e-commerce can lift these two Canadian stocks

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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?

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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.

–Gordon Pape

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.

Click here to see the Globe Investor earnings and economic news calendar.

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Investment Statistics (10 Investment Statistics Investors Need To Know) – Forbes

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Understanding investment markets can be difficult, as there’s so much information to sort through. Fortunately, you don’t need to understand every single concept or piece of data to have success as an investor.

A few important, simple and often surprising investment statistics can guide your choices and make you a better investor in the long term. Here are a few worth considering.

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1. The Annual Return of the S&P 500 (10% Per Year)

The stock market has been a consistent way to build wealth over the past 100 years. Likewise, from April 1, 1936 through March 31, 2024, the S&P 500 Index–a widely followed barometer for the broad U.S. stock market–averaged an annual return of 10.75%.

To put that return into perspective, if you earn 10% per year on your savings, and your gains compound quarterly, you’ll double your money roughly every seven years. Put $20,000 in an S&P 500 fund today, and if you earn the historical return of 10% per year, you’ll have $40,000 in about seven years.

Of course, the stock market is unpredictable and goes through swings. Your portfolio might go down some years and up by more than 10% in others. The key takeaway is that the stock market posts a substantial average annual return over time.

2. The Average Annual Inflation Rate (3.8% Per Year)

Inflation is another reason why it’s essential to invest. When prices go up, the purchasing power of each of your dollars goes down. On average, U.S. inflation has been 3.8% percent per year from 1960 to 2022. If you aren’t earning at least that much on your money, it’s losing value. Your balance might stay the same in a bank account, but it buys less and less, making you poorer.

Investments like stocks historically outperform inflation. By investing some of your money in stocks and stock funds, your savings and spending power can keep up with rising prices.

3. The Number of Active Day Traders Who Lose Money (80%)

Using an index fund, you can often match the performance of the entire S&P 500 and various major stock markets. This is different from buying and selling–or trading–individual stocks. Trading individual stocks can be exciting when it succeeds, leading sometimes to sharp short-term gains, but profiting consistently is very hard.

In fact, 75% of day traders trying to invest professionally quit within two years, and 80% of their trades are unprofitable, according to a University of Berkeley study. And individual stock day traders working through a taxable account often generate short-term capital gains, which are taxed at higher ordinary income rates than long-term capital gains. Day traders can also trigger a lot of investment fees. Also, as a day trader you’re competing against the best professional investors on Wall Street, many backed by big research teams.

Most regular investors are better off using mutual funds and exchange-traded funds, or ETFs, that aim to match the stock market instead. It’s less exciting but still lucrative in the long term.

4. The Cost of an Index Fund vs. an Active Fund for a $1 Million Portfolio ($1,200 vs. $6,000 Per Year)

If you’re trying to pick an investment fund, consider the cost. An index fund keeps costs low by simply trying to mimic the performance of a specific segment of the market. The S&P 500 is one. It consists of 500 of the largest companies listed on U.S. stock exchanges. The Nasdaq 100 consists of stocks issued by 100 of the largest nonfinancial businesses listed on the Nasdaq stock exchange.

Many index funds track each of those groups. Generally, their costs are kept low because they don’t have to pay for lots of investors, analysts and software wizards to find stocks. In contrast, actively managed funds do pay for talented people who can pick stocks that outperform. Those costs get passed on to shareholders like you.

Index funds, on average, charge 0.12% per year versus the 0.60% charged by active investment funds. That means on a $1 million portfolio, you’d pay $1,200 per year for an index fund versus $6,000 a year for an active fund.

Despite charging much more, 79% of active funds, trying to earn higher returns, underperformed the S&P 500 in 2021. Often, you’re paying extra fees for actively managed funds without getting any additional return in exchange.

5. The Average Length of a Bear Market (14 Months)

One drawback to investing is that your returns are not guaranteed. In some years you’ll earn a lot. In others, your portfolio could lose money. It’s not fun to lose money, but during this stretch, remind yourself that the market will turn around eventually.

The average historical bear market, a period when stocks are losing value, has lasted 14 months. On the other hand, the average historical bull market, when stocks go up in value, has lasted five years.

The market will go through cycles of gains and losses. Remember that the positive stretches last longer than the negative ones.

6. The Number of ‘Best Investing Days’ That Can Turn a Positive Portfolio Negative If Missed (20 Days Over Two Decades)

When the market crashes, you might feel tempted to cash out and wait until things start picking up again. This is one of the most expensive mistakes investors make.

Why is that? Because so much of the stock market’s long-term returns come from single-day gains. The market sometimes shoots up by 5%, 7% or even 10% in a single day. Those days are impossible to predict. And they often occur at the start of a rally.

Individual retail investors often miss those explosive, unexpected upturns because they cashed out or moved to bonds amid the market’s earlier downturn.

A JPMorgan report found that if investors missed the top 10 best days of investing over a two-decade period from January 1999 to December 2018, it cut their portfolio return in half. If investors missed the top 20 best investing days, their return turned negative, meaning that they lost money over that two-decade period. Don’t try to time the market. Stay invested for the long term for the best results.

7. The Monthly Investment Needed to Reach $1 Million If You Start at Age 25 vs. Age 45 ($350 vs. $1,650)

The earlier you start investing, the more time you have to build wealth. This makes it easier to hit your long-term financial goals.

Let’s say you want $1 million in your nest egg for retirement at age 67. You expect to earn 7% a year, a reasonable return for a portfolio of stocks and bonds. If you start at age 25, you would need to save about $350 per month. If you start at age 45, you must save around $1,650 a month.

If you’re still early in your career, consider ways to save more money. Even a little extra today will make reaching your future financial goals easier. Don’t get discouraged if you are later in your career. You may wish you had started earlier, but anything you put aside now will help you once you retire. As the saying goes, perhaps the best time to start was years ago, but the second-best is now.

8. The Number of People With a Workplace Retirement Plan (44%)

A workplace retirement plan, like a 401(k), can help you invest. Those plans let you save money and defer yearly tax on growth in your investments inside your account. With a traditional 401(k), you also get a tax deduction for the money you kick into your account. In most cases, your employer also contributes to your account.

Only 44% of American workers have access to a workplace retirement plan. If you have one, study how it works to take full advantage.

The majority of workers, 56%, do not have a retirement plan at their job. Consider an individual retirement account, or IRA, if you are in that situation. It offers similar tax advantages for your retirement savings and investment goals.

9. The Expected Life Expectancy of Males and Females Turning 65 (82 and 85 Years)

The top reason most people invest is to save for retirement. And retirement might last a lot longer than you expect. The typical male turning 65 today is expected to live until 82, while females are expected to live until 85, according to the Social Security Administration.

That is a retirement lasting an average of nearly two decades. Some people will live even longer, reaching 90, 100 or even older. This is why saving and investing regularly is important—to build extra savings to fund your retirement lifestyle.

10. The Average Baby Boomer 401(k) Balance ($230,900)

Fidelity measured the average 401(k) balance by age of its customers. This can give you an idea of where your savings stack up against your peers:

  • Gen Z: $9,800
  • Millennials: $54,000
  • Gen X: $165,300
  • Baby Boomers: $230,900

This represents investments in a 401(k). People may have more money in an IRA or other investment account. Still, those figures show that the typical person does not retire with $1 million. Therefore, you shouldn’t feel behind if you’re just starting to save for retirement. Do what you can to beat these averages and grow your portfolio.

Hopefully, these statistics help shed some light on the importance of investing and investing wisely. Consider meeting with a financial advisor to discuss your portfolio for more advice.

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Deutsche Bank's Investment Bankers Step Up as Rate Boost Fades – Yahoo Canada Finance

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(Bloomberg) — Deutsche Bank AG relied on its traders and investment bankers to make up for a slowdown in income from lending, as Chief Executive Officer Christian Sewing seeks to deliver on an ambitious revenue goal.

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Fixed income trading rose 7% in the first quarter, more than analysts had expected and better than most of the biggest US investment banks. Income from advising on deals and stock and bond sales jumped 54%.

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Revenue for the group rose about 1% as the prospect of falling interest rates hurt the corporate bank and the private bank that houses the retail business.

Sewing has vowed to improve profitability and lift revenue to €30 billion this year, a goal some analysts view with skepticism as the end of the rapid rate increases weighs on revenue from lending. In the role for six years, the CEO is cutting thousands of jobs in the back office to curb costs while building out the advisory business with last year’s purchase of Numis Corp. to boost fee income.

“We are very pleased” with the investment bank, Chief Financial Officer James von Moltke said in an interview with Bloomberg TV. The trends of the first quarter “have continued into April,” he said, including “a slower macro environment” that’s being offset by “momentum in credit” and emerging markets.

While traders and investment bankers did well, revenue at the corporate bank declined 5% on lower net interest income. Private bank revenue fell about 2%. Both units benefited when central banks raised interest rates over the past two years, allowing them to charge more for loans while still paying relatively little for deposits.

With inflation slowing and interest rates set to fall again, that effect is reversing, though markets have scaled back expectations for how quickly and how deep central banks are likely to cut. That’s lifted shares of Europe’s lenders recently, with Deutsche Bank gaining 25% this year.

“Deutsche Bank reported a reasonable set of results,” analysts Thomas Hallett and Andrew Stimpson at KBW wrote in a note. “The investment bank performed well while the corporate bank and asset management underperformed.”

–With assistance from Macarena Muñoz and Oliver Crook.

(Updates with CFO comments in fifth paragraph.)

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©2024 Bloomberg L.P.

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How Can I Invest in Eco-friendly Companies? – CB – CanadianBusiness.com

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Welcome to CB’s personal-finance advice column, Make It Make Sense, where each month experts answer reader questions on complex investment and personal-finance topics and break them down in terms we can all understand. This month, Damir Alnsour, a lead advisor and portfolio manager at money-management platform Wealthsimple, tackles eco-friendly investments. Have a question about your finances? Send it to [email protected].


Q: It’s Earth Month! And… there’s a climate crisis. How can I invest in companies and portfolios funding causes I believe in?

Earth Day may have been introduced in 1970, but today it’s more relevant than ever: In a 2023 survey, 72 per cent of Canadians said they were worried about climate change. Along with carpooling, ditching single-use plastics and composting, you can celebrate Earth Month this year by greening your investment portfolio.

Green investing, or buying shares in projects, companies, or funds that are committed to environmental sustainability, is an excellent way to support projects and businesses that reflect your passions and lifestyle choices. It’s growing in favour among Canadian investors, but there are some considerations investors should be mindful of. Let’s review some green investing options and what to look out for.

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Green Bonds

Green bonds are a fixed-income instrument where the proceeds are put toward climate-related purposes. In 2022, the Canadian government launched its first Green Bond Framework, which saw strong demand from domestic and global investors. This resulted in a record $11 billion green bonds being sold. One warning: Because it’s a smaller market, green bonds tend to be less liquid than many other investments.

It’s also important to note that a “green” designation can mean a lot of different things. And they’re not always all that environmentally-guided. Some companies use broad, vague terms to explain how the funds will be used, and they end up using the money they raised with the bond sale to pay for other corporate needs that aren’t necessarily eco-friendly. There’s also the practice of “greenwashing,” labelling investments as “green” for marketing campaigns without actually doing the hard work required to improve their environmental footprint.

To make things more challenging, funds and asset managers themselves can partake in greenwashing. Many funds that purport to be socially responsible still hold oil and gas stocks, just fewer of them than other funds. Or they own shares of the “least problematic” of the oil and gas companies, thereby touting emission reductions without clearly disclosing the extent of those improvements. As with any type of investing, it’s important to do your research and understand exactly what you’re investing in.

Socially Responsible Investing (SRI) and Impact Investing

SRI and impact investing portfolios hold a mix of stocks and bonds that are intended to put your money towards projects and companies that work to advance progressive social outcomes or address a social issue—i.e., investing in companies that don’t wreak havoc on society. They can include companies promoting sustainable growth, diverse workforces and equitable hiring practices.

The main difference between the two approaches is that SRI uses a measurable criteria to qualify or disqualify companies as socially responsible, while impact investing typically aims to help an enterprise produce some social or environmental benefit.

Related: Climate Change Is Influencing How Young People Invest Their Money

Some financial institutions use the two approaches to build well-diversified, low-cost, socially responsible portfolios that align with most clients’ environmental and societal preferences. That said, not all portfolios are constructed with the same care. As with evaluating green bonds, it’s important to remember that a company or fund having an SRI designation or saying it partakes in impact investing is subjective. There’s always a risk of not knowing exactly where and with whom the money is being invested.

All three of these options are good reminders that, even though you may feel helpless to enact environmental or social change in the face of larger systemic issues, your choices can still support the well-being of society and the planet. So, if you have extra funds this April (maybe from your tax return?), green or social investing are solid options. As long as you do thorough research and understand some of the limitations, you’re sure to find investments that are both good for the world and your finances.

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