Displaying items by tag: valuations

Monday, 24 October 2022 11:21

Strong Dollar Boosting Small Caps

Small-cap stocks appear to be having their moment this year outperforming their large-cap peers. The S&P 600 small-cap index is currently on pace to outperform the S&P 500 for the first time since 2016. One reason for their outperformance is a strong U.S. dollar. This is due to the negative effect that a strong dollar has on the profits of multinational companies. A strong dollar harms U.S. companies that sell goods overseas by making them less affordable. Smaller companies, on the other hand, are more insulated from adverse currency effects as most of their business is done stateside. For instance, companies in the S&P 600 index generate only 20% of their revenue outside the U.S, while companies in the S&P 500 generate 40% of their sales abroad. This had led to some of the largest companies in the U.S warning of currency risks in their latest earnings calls. In addition to a strong dollar, small caps are also benefitting from better valuations. According to FactSet, the S&P 600 is trading at 10.8 times expected earnings over the next 12 months, which is well below the S&P 500’s forward price/earnings ratio of 15.3.


Finsum: Small-cap stocks are outperforming large-cap stocks this year due to a strong U.S. dollar and more attractive valuations.

Published in Eq: Small Caps

Analysts at Jefferies are warning investors to avoid small-cap tech stocks due to their high valuations and falling earnings and revenue estimates. In a note, analysts said that their current valuations of 3.4 times sales are not cheap compared to their long-term average of 2.1 times sales. They believe there are “too many nonearners” and then tend to perform poorly when the Fed is hiking interest rates. However, the analysts aren’t telling investors to avoid small-cap stocks altogether, as they like names in the healthcare and consumer-discretionary sectors, which have been outperforming. Analysts stated that valuations in healthcare stocks haven’t jumped as much as their stock performance. Plus, mergers and acquisitions have picked up in the healthcare sector, which the analysts believe could help drive performance. They also believe that discretionary stocks are the cheapest sector in the small-cap range and they tend to outperform when coming out of bear markets.


Finsum:Jeffries analysts are warning investors to steer clear of small-cap tech stocks due to high valuations and falling earnings and revenue estimates. 

Published in Eq: Small Caps
Thursday, 12 May 2022 21:05

Volatility ETFs Return from the Dead

Volatility ETFs reached infamy in the 2018 Volmageddon episode, but these formerly destructive ETFs making a Lazzarath-like comeback. Both the SVIX and UVIX delivered record style gains amid inflows due to market gyrations UVIX closed 37% higher but was up 42% in mid-day trading. The wild up and downs came in response to the Fed meeting and a tanking S&P the following day. Advisors are steering investors toward both UVIX and SVIX because this is exactly where these products thrive. However, there is still a substantial risk as investors have suffered greatly in the past from these products and the ‘juice’ they are receiving could be detrimental on the downside.


Finsum: This is unprecedented volatility in the post-GFC, and it could continue until inflation is under control.

Published in Eq: Total Market
Friday, 25 March 2022 20:00

Bubble in ESG Markets

The boom in credit inflows to ESG might be an obvious sign environmental risk isn’t actually priced in. Coal companies have got credit ratings boosts, mortgage increases in flood zones, and a myriad of other issues. These are all signals that risks aren’t properly priced into fixed income markets according to Tom Graff of Brown Advisory. Natural disasters are becoming more frequent yet greenwashing keeps this from accurately being a factor in ESG. However, there is an advantage for investors to take advantage of mispricing, if disasters isolate countries energy independence could be underpriced in many countries around the world, the anti-Russia position.


Finsum: Fixed income regulators are could be turning a blind eye to sources of credit risk which investors might be able to exploit in the early days of greenwashing.

Published in Eq: Tech
Thursday, 24 February 2022 23:48

ESG on the Verge of a Scandal

Environmental, social, and governance investing have been one of the largest sources of outperformance in the last two years, however, a mis-selling scandal could be coming to ESG investing. Most investors know mis-selling scandals from PPI, endowment mortgages, and diesel cars. ‘Greenwashing’ is not new by any means but high-profile cases with DWS and BlackRock are both escalating. BlackRock whistleblower Tariq Fancy said this could just be the beginning and that a combination of marketing hype and false promises could cause more scandal in the upcoming years. The difference will be if funds are on the hook for the language they put forth and that the Paris Agreement could be critical to holding them accountable.


Finsum: ESG investing could be reaching its peak performance, time will tell howgGovernments begin the crackdown.

Published in Eq: Tech
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