Photo: Jacob Garcia. Are Stocks Getting Stretched?
Last month we observed the fifth anniversary of the US equity bull market, which started after the S&P 500 Index troughed at 676 on 9 March 2009. With events in Ukraine and other geopolitical hotspots to distract us, we may not have celebrated with cake and candles, but we’ve reached an important milestone.
Are we on track for another year of stock gains, or have we reached the market top? Let’s take a look at some equity valuation measures to see where we stand.
Stock market fairly valued?
Valuations continue to be front-page news. Certainly commentators are saying that valuations are stretched, especially in a fragile macro world. But if we compare valuation metrics today with the two previous market peaks, we can see that the private sector is in much better shape this time around:
I would like to point out that earnings per share (EPS) are notably higher, while the trailing price-to-earnings or P/E ratio of the market is not yet at the levels we saw at the tech bubble’s peak in March 2000 or even in the not-so-bubbly October 2007. Other trailing measures also suggest that valuations are not overextended.
What about indicators that look ahead, rather than behind us? If we consider the forward P/E based on analysts’ estimates of earnings over the next 12 months, we find the market in roughly fair value territory:
To account for the ups and downs in the business cycle, we can adjust earnings by looking at the Shiller P/E, which uses the 10-year moving average of earnings adjusted for inflation. By this measure, the market looks a little expensive:
But if we look at some other measures, such as the inflation-adjusted dividend yield or the free cash flow yield that many analysts follow, the market looks cheap. So on balance, I would say that the market’s at fair value.
Evidence from credit markets
I also look to the credit markets for forward indications of where stocks may be going. As I’ve discussed before, spreads in the bond market are the price that corporations have to pay for credit. We’ve seen those spreads stay steady or even narrow. My colleagues at MFS are experts in the credit sector, and our high-grade and high-yield bond analysts and portfolio managers are telling me that these markets are signaling better times ahead.
So to those who claim that the easy money from the US Federal Reserve is propelling equities beyond reasonable pricing, I would respond that the market at this point is not overvalued due to excess liquidity — especially good news now that the Fed’s communications have become a bit more hawkish than we might have expected. And narrower credit spreads, as we’re seeing now, have tended to be pretty good indicators when other risky assets — like stocks — aren’t under pressure.
Article by James Swanson, Chief Investment Strategist, MFS
Michael Zeuner, managing partner of WE Family Offices, a family office advisory firm that caters to ultra high net worth (UHNW) clients, was featured in the Wall Street Journal discussing one of the least understood problems in the financial service industry. Clients seeking advice from their advisors are often unaware of potential conflicts of interest stemming from their advisor’s compensation model, which incentivizes the advisor to sell them certain products and services.
“This problem doesn’t just apply to UHNW families – lack of transparency and conflicts of interest are widespread issues in the financial industry as a whole. When clients seeking advice are instead sold products or services, it can be difficult to tell the difference. They trust their advisors but typically are unaware of how their advisor is compensated,” said Michael Zeuner.
Zeuner identifies three different types of advisors:
Manufacturers: These firms create financial products such as mutual funds, or private equity or hedge fund interests. They are typically compensated by a percentage of assets under management (AUM) from investors who buy their product.
Distributors: Brokers, dealers, or other advisors who sell their customers and clients investment products and services created by Manufacturers. Distributors often are affiliated with, or have agreements in place with Manufacturers, and may receive both commissions to sell their products and management fees from clients.
Independent, Fee-Only Fiduciary: These advisors are independent, registered with the SEC and have a legal obligation to put their clients’ interests ahead of their own. They do not receive sales-based compensation and are not affiliated with manufacturers or distributors. This business model allows them to provide unconflicted advice focused on helping a client make smart buys, instead of trying to sell the client something.
How can clients tell what kind of advisor they are dealing with? It can be as simple as asking their advisor these two questions:
1- Are you affiliated with any company that sells financial products or services?
2- Do you receive any compensation based on the products and services you are recommending to me?
To help investors and families understand the difference between advisors, Zeuner also authored an article titled “Cut Through The Clutter” that provides investors with information to help them understand the role or roles their advisor plays and figure out if they are getting unbiased advice to help them buy smart, or being sold products and services that the advisor or its affiliates have a stake in.
Foto: Wallyg. TIAA-CREF y Henderson cierran su joint venture de bienes raíces
TIAA-CREF, a leading financial services provider, completed on April 1st the successful launch of its previously announced real estate joint venture with Henderson Global Investors, one of Europe’s largest investment managers.
The new real estate investment management company, TIAA Henderson Real Estate, will pursue core and value-add investment opportunities in all major sectors of global commercial real estate. It launches with a combined $22.6 billion of assets under management across 50 funds and mandates, overseen by a network of offices in Asia, Europe and North America. Headquartered in London, the joint venture is 60 percent owned by TIAA-CREF and 40 percent owned by Henderson.
“TIAA-CREF continues to evolve and expand its asset management business, and today’s launch is a major step forward in our strategy to build a truly global investment organization,” said Rob Leary, president, TIAA-CREF Asset Management. “Expanding the scale and scope of our global real estate business, already one of the largest and most diverse real estate investing platforms in the world, strengthens the franchise and helps us continue to meet the needs of sophisticated institutional clients.”
TIAA-CREF will continue to operate its existing $48.2 billion global real estate platform, which invests in directly owned property, real estate securities and private commercial mortgages through an innovative platform built on over six decades of real estate investing experience. The combination of TIAA-CREF’s real estate platform and TH Real Estate represents one of the largest real estate investment management enterprises in the world with approximately $71 billion in AUM, as of Dec. 31, 2013.
“TH Real Estate will drive the growth of our real estate platform globally by expanding our footprint, service capabilities and access to new investment opportunities,” said Tom Garbutt, head of TIAA-CREF global real estate and chairman of the new venture. “We will harness local knowledge and deep experience in the global real estate markets to deliver distinctive real estate investment solutions to our clients.”
Concurrent with today’s launch, TIAA-CREF completed the acquisition of Henderson’s $2.6 billion North American property business. The business is being managed as a distinct, yet complementary operation within the existing TIAA-CREF real estate organization. It will continue to operate out of Hartford, Conn. and Chicago with its current team of investment and client service professionals. The platform offers commingled funds and separate accounts for institutional clients, and invests across the four primary real estate sectors in U.S. core and value-add strategies with a current market emphasis on the apartment, student housing and medical office sectors.
Credit Suisse has announced that DLJ Merchant Banking Partners, the bank’s mid-market leveraged buyout business, has spun off into an independent advisory firm, aPriori Capital Partners L.P. established by the existing DLJ MBP management team led by Colin Taylor and Susan Schnabel.
aPriori Capital will manage the DLJ Merchant Banking Partners III, L.P. and DLJ Merchant Banking Partners IV, L.P. private equity funds, collectively representing approximately $2 billion of value across 22 portfolio companies as of December 31, 2013. Colin Taylor and Susan Schnabel, Co-Heads of DLJ MBP, will continue to manage the MBP Funds and lead aPriori Capital.
All other investment professionals comprising the DLJ MBP management team are joining aPriori. As the new general partner and investment manager of the MBP Funds, aPriori, is expected to be a strong platform for the DLJ MBP team to manage and maximize the value of the MBP Funds as well as raise capital in the future. The new firm will continue to operate from offices in New York, Los Angeles and London.
Nicole Arnaboldi, Vice Chairman of Credit Suisse’s Asset Management business, said, “We are pleased to have completed this spin-off and are grateful for the efforts and performance of the team over many years at DLJ and Credit Suisse. We wish aPriori Capital much success in the future.”
“The team is excited by the opportunity to establish an independent fund advisory business and a new platform for the future. We appreciate the strong support we have received from our investors throughout this transition and in particular would like to thank Credit Suisse for their partnership and support over the past 14 years,” said Colin Taylor and Susan Schnabel, Co-Heads of aPriori Capital.
This spin-off is part of Credit Suisse‘s previously announced divestment plans.
CenterSquare Investment Management, the suburban Philadelphia, PA-based real estate specialist for BNY Mellon, has launched CenterSquare Value-Added Fund III, L.P. The fund will invest in middle-market, transitional real estate assets in the U.S., focusing on the office, multifamily, retail, industrial, parking and hospitality sectors.
The fund, which is limited to qualified purchasers, is expected to raise $500 million, with the first closing date anticipated in the second quarter of 2014 and the final closing date anticipated in the second quarter of 2015. CenterSquare said the fund plans to acquire properties with total capitalizations ranging from $25 million to $75 million.
The fund will implement a value-added strategy, focusing on acquiring and improving assets that require physical upgrades or revisions in their capital structures. “We believe that a middle market, value-add real estate strategy represents the most attractive space in the market for creating value and reducing risk,” said P.J. Yeatman, head of private real estate for CenterSquare. “Fund III will be an acquirer of transition and a seller of stability.”
CenterSquare said that it will leverage the capabilities of its national network of local real estate operating partners to source, underwrite, and execute attractive value-add investment opportunities. CenterSquare also said that the fund is being designed to employ a total return strategy that may include a significant current yield component.
EFG Asset Management (EFGAM), an international provider of actively managed investment products and services, has launched the New Capital Swiss Select Equity Fund, an open-ended equity fund that will invest in 35 to 45 Swiss stocks across all market capitalisations.
The fund will be managed by Urs Beck, a highly experienced Zurich-based Swiss equity fund manager who recently joined EFGAM. Urs will combine his expertise in bottom-up stock selection with EFGAM’s top-down sector analysis without the constraints of a benchmark or specific investment style. Prior to joining EFGAM, Urs was head of Swiss equities at Zuercher Kantonalbank (ZKB), running both institutional and retail Swiss equities mandates for seven years. During his tenure at ZKB, Urs received the FERI award for best fund in the Swiss equities category in both 2013 and 2014.
EFGAM strongly believes in the opportunities presented by the Swiss market, whose stable platform and international exposure will allow for continued unique investment opportunities. The New Capital Swiss Select Equity Fund is the eighth sub-fund in its New Capital mutual fund range – the New Capital UCITS Fund PLC – and joins the New Capital Dynamic European Equity Fund as part of the New Capital portfolio of European funds. The fund is currently open to institutional and qualified investors only but will be available to retail investors pending registration in Switzerland, UK, France, Germany, Netherlands, Luxembourg and Sweden.
Patrick Zbinden, CEO, EFG Asset Management Switzerland: “We are very pleased to have an experienced portfolio manager of Urs’ calibre and proven track record join the New Capital family of funds. The development of Swiss equities as one of our core competencies further underlines our commitment to investment management in Switzerland.”
Urs Beck, on his fund: “Launching a focused Swiss equity fund for the New Capital fund family is an excellent opportunity for me to leverage my expertise so as to benefit EFG’s clients and professional investors seeking investment opportunities in Switzerland. I am delighted to be part of the team.”
China. Foto: WillHastings, Flickr, Creative Commons.. Nordea logra autorización como inversor institucional extranjero cualificado en China
Nordea Asset Management has been approved as Qualified Foreign Institutional Investor by the government in China. It means that Nordea Asset Management is licensed to trade directly on the stock exchanges in Shanghai and Shenzhen in the so-called China A-share market.
The China A-share market is ranked as the third largest equity market in the world with around 2.500 shares listed and a total market cap of approximately USD $4.0 trillion, nearly equivalent to the size of the Tokyo Exchange. However, foreign investors, such as Nordea, hold less than 2 percent of the trading.
“Essentially, we have acquired a very exclusive access to a stock market, which is expected to grow considerably and become more open to foreign investors in the coming decades, and which is currently priced at attractive valuations,” says Allan Polack, Nordea’s head of asset management.
Nordea Asset Management has furthermore entered into an investment management agreement with Libra Capital Management, an investment advisor specialised in the China A-share market and with offices in Hong Kong and Shanghai.
“Equipped with this license and the partnership with Libra, we are able to provide institutional and retail investors with the opportunity to invest directly into the China A-share market in a responsible and prudent manner,” Allan Polack says.
The investment index compiler MSCI plans to include China’s mainland-based A shares into the MSCI Emerging Markets Index from May 2015, and it will announce a firm decision in June 2014, when the consultation process with investors is completed.
New office in Munich. Photo: Pictet. Pictet Opens Munich Branch and Set for Major Expansion of UK-Based WM Business
The Swiss-based Pictet Group has announced that it is to open an office in Munich. Pictet has embarked also on a major expansion of its UK-based wealth management presence. In the coming months, it will be adding a number of senior private bankers, as well as reinforcing services such as wealth and portfolio structuring for clients.
To accommodate this growth, Pictet’s London wealth management team, currently in the City, are moving to bigger premises in Mayfair with effect from Monday 31st March, 2014. Already the financial capital of Europe, London is rapidly becoming the global financial centre of choice for individuals and entrepreneurs of exceptional wealth. Recent research shows that the UK is home to more UHNWIs than any other world city and that this is likely still be the case in a decade’s time.
Heinrich Adami, a Group Managing Director of Pictet, commented: “The UK, and London in particular, is exceptionally well-suited to the needs of the ultra-wealthy. Key attractions for our clients are the improving economic climate, the robust legal system, an entrepreneurial spirit and a predictable fiscal regime. These advantages, together with a vibrant international culture, world class services, and renowned private education system, make it the destination for such clients.”
He continued: “The biggest change we have seen in recent years is that international and UK domiciled clients see the UK as the preferred location for their primary financial relationship. Our clients have historically been UK resident, non-domiciled, but this is changing. Many young entrepreneurs and start-up founders who have created large fortunes are based in London and need a wealth manager that understands their needs and way of life. We have adapted our services for this new generation, without losing our expertise in looking after more traditional families, whose primary aim is preservation of capital.”
Office in Munich
Regarding the open of the Munich’s office, the office will, legally speaking, be a branch of Pictet & Cie (Europe) SA’s registered office in Frankfurt. With its head office in Luxembourg, Pictet (Europe) S.A. acts as the parent company for all of the Pictet Group’s banking activities in Europe, while the Frankfurt office coordinates these activities in Germany.
Marc Pictet, one of the Pictet Group‘s Managing Partners, commented on the new branch opening: “The opening of an office in Munich is a natural step in the Group’s development following several years of very positive growth in our business in Munich and Southern Germany. Our presence will therefore enable us to strengthen our links in this area.”
Armin Eiche, Head of Wealth Management for the Pictet Group in Germany, added: “Among clients who have now assimilated the lessons of the financial crisis we are seeing a growing need for independent client servicing coupled with international expertise provided by a highly reputable bank. We feel that this combination definitely gives us a competitive edge.”
Ole Hagen Jørgensen. Photo Linkedin. Ex-World Bank Economist Joins Global Evolution
Global Evolution has announced that Ole Hagen Jørgensen joins Global Evolution as Research Director. Ole will be responsible for further deepening Global Evolution’s emerging markets research and intelligence on regional and country-specific macroeconomic and political issues.
Prior to joining Global Evolution, Ole worked with the World Bank since 2005 in various capacities and still acts as a consultant. In Washington D.C., Ole worked for the World Bank on low and middle income countries in Latin America, Eastern Europe, Asia, and Africa – and specifically as a country economist and team leader responsible for a World Bank project and lending portfolio in seven frontier markets.
Ole holds a Ph.D. in economics and has been visiting Harvard, Stanford, and Brown Universities as a scholar on development economics. Ole’s research has been published in World Bank journals and by Cambridge University Press among others. Ole activates a comprehensive global IMF and World Bank network of country economists in emerging and frontier markets that will further strengthen the investment process of Global Evolution.
Global Evolution is a dedicated and specialist emerging and frontier markets boutique investment manager with an established track record based on a long history of investment in emerging and frontier markets.
. Nomura Partners confía a Matthews Asia los activos del fondo de renta variable japonesa más antiguo de EE.UU.
Matthews Asia announced this week that the Board of Directors of Nomura Partners Funds has approved the merger of the Nomura Japan Fund into the Matthews Japan Fund. Regarded as Nomura Partners Funds’ flagship fund, the Nomura Japan Fund has been investing in Japanese equities since 1962, and is the oldest open-ended Japanese equity fund incorporated in the U.S. The decision to entrust Matthews Asia with the Nomura Japan Fund shareholders’ assets is in recognition of Matthews Asia’s reputation, depth of expertise and long history of investing in Japan.
Subject to and following the approval of a charter amendment by Nomura Partners Funds shareholders, Nomura Partners Funds will transfer all of the assets and specified liabilities of the Nomura Japan Fund (NPJAX, NPJCX, NPJIX, SJPNX) to the Matthews Japan Fund (MJFOX, MIJFX). In the interim, the Nomura Japan Fund remains closed to all purchases and exchanges. Shareholder approval is expected later this year, soon after which time Nomura Japan Fund shareholders will become shareholders of the Matthews Japan Fund and the Nomura Japan Fund will be liquidated.
Matthews Asia is a specialist investment manager located in San Francisco. With $24.9 billion in assets under management as of February 28, 2014, the firm focuses on investing solely in Asia. It currently manages the Matthews Japan Fund, an open-ended Japanese equity fund incorporated in the U.S. With a 15-year track record, it follows a similar investment objective to the Nomura Japan Fund which is to generate long-term capital appreciation through investment of at least 80% of its assets in securities of Japanese issuers. The Nomura Japan Fund had assets of $169 million and the Matthews Japan Fund had assets of $451 million as of February 28, 2014.
William Hackett, Chief Executive Officer, commented: “Since the launch of our first two regional Asia equity strategies, Japan has been a core part of our portfolios and given its importance as an investment destination, a stand-alone Japanese equity fund was launched in 1998.”
Robert Horrocks, PhD, Chief Investment Officer, commented: “As the third largest economy in the world, Japan continues to have an important standing within the international market place. As a long-term investor in Japan for over 20 years, we also believe the country still represents an important part of an investor’s portfolio.”
