Displaying items by tag: value

Technology stocks ticked up late this week which was refreshing as they have suffered since November when the Nasdaq crept to an all-time high. Rising bond yields fueled the devaluation in technology stocks because as the yield curve steepened this lowers the relative value of future cash flows which are the foundation of growth stocks. Additionally higher inflation also devalues those future earnings. However, the yield curve stagnating was enough to boost the Nasdaq by 3%. Additionally, most tech companies have surpassed expectations on earnings despite headline numbers from Meta.

Finsum: It might not take too many rate hikes to put inflation back in its place which means tech could be undervalued!

Small caps have been sluggish since Q2 2022 most indicated by the poorer returns in the Russell 2000 and S&P 600 Small Cap. However, things could turn around for the smaller companies moving forward. A value tilt is pervasive through many small cap companies and as the yield curve begins to steepen that value tilt will edge out over larger growth companies. The other factor favoring small caps is the pending corporate tax minimum. Only 1 of the S&P 600 small caps will see their liabilities rise but lots of S&P 500 companies will face new tax burdens which they previously avoided. This is a historic opportunity for small caps moving into 2022.

FINSUM: With Powell’s renomination it's more likely the yield curve will steepen as future rate hikes will be priced in but no real indication of a move currently; increasing the likelihood of a small cap comeback.

Value stocks are usually sought after for their relatively cheap prices trading at low P/E ratios or below book values. They had been on a near decade-long losing streak that culminated in the Pandemic crisis, which drove investors to the lofty tech-based growth stocks, but things turned around for value in September 2020 but were once again stalled out by the delta variant. However, as the economy begins to once again stabilize value is coming back with a vengeance. Bankruptcy concerns and thin profit margins are no longer fears, and value is at the ultimate discount. Research Affiliates, and investment strategy firm, value is poised to return between 5-10% in the coming decade. Global vaccine rates are making progress and cyclical sectors and hence then value sectors are going to turn around the way they started to in September 2020.

FINSUM: Value’s comeback seems inevitable, the ultra-low prices are out of wack stability will see value outperforming other factors in the upcoming year.

The post-pandemic stable recovery is starting to teeter, and threats to the portfolio are starting to creep in. Investors are now actively turning bearish and moving into cyclical value plays, while others remain optimistic that growth stocks are still the best option. The question isn’t about the future but rather what exposure has the least risk and the best upside in the current environment. The O’Shares Global Internet Giants Index ETF (OGIG) may be an opportunity to invest in growth at a great value.

Riding the Growth-Value Line

OGIG is a rules-based ETF that tracks both quality/value characteristics in internet companies. These companies need to include a majority share of their revenue from either internet commerce or technology services that underpin e-commerce. Internet companies are an obvious signal for growth and OGIG’s biggest holdings include Amazon, Google, and Microsoft from the US; and Tencent, Alibaba Group, and Shopify* from abroad. In addition to growth, the fund optimizes on the most important driver of value: revenue. Over the last three years, revenue is one of the best predictors of returns. As the first quartile of technology stocks nearly doubled the annualized return of the quartile below. Part of what makes this fund so attractive is that the revenue is a prop against future headwinds, but more on that later.

Since the onset of the pandemic, stocks have performed well. The S&P 500** has had a pure return of 94.4% since bottoming out on March 20, 2020 through 9/15/2020, but OGIG has drastically outpaced it. Growing at 153% since that same date, OGIG even dwarfs competitors like the Nasdaq 100 by over 20 percentage points. The primary reason for that is the revenue value factor. This drives a 20% discount in relative price-to-sales ratio compared to the Nasdaq 100 vs. the 3-year average. The other driver is exposure to the fastest-growing technology companies globally in emerging markets, China, and Canada.

The Future Landscape

Investors are worried about the spreading delta variant, weak economic growth, and future inflation, but all of these risks are of little concern for OGIG. E-commerce is driving the success of OGIG, which would only be fueled by a pick-up in the delta variant and has institutionalized itself in the American economy in a return to normal. Weak economic growth is a concern for non-revenue generating companies, but robust revenue generators outpace competitors in tough economic times. Meanwhile it’s the hyper-growth prospects that are concerned about future inflation as they have no current revenue. And besides, the latest inflation data suggests Powell is right about inflation being transitory.

Finally, regulation in China started to spike in July, but the lion’s share of that regulation is already passed. Historically, China has been quick to redact any policies that are a hindrance to its future growth. In fact, China’s regulation is actually providing a solid landscape for the fast-growing tech sector with more assurances moving forward.

Grow and protect with the O’Shares Global Internet Giant ETF.

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[*] Click here to view the funds top 10 holdings.

[**] Definitions:

S&P 500: The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities and serves as the foundation for a wide range of investment products. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.

NASDAQ-100 Total Return Index: The NASDAQ-100 Index is a modified capitalization-weighted index of the 100 largest and most active non-financial domestic and international issues listed on the NASDAQ. No security can have more than a 24% weighting. The index was developed with a base value of 125 as of February 1, 1985. Prior to December 21,1998 the Nasdaq 100 was a cap-weighted index.

Relative Price/Sales Ratio (P/S): The price-to-sales ratio is a valuation ratio that compares a company’s stock price to its revenues.

Before you invest in O’Shares ETF Investments Funds, please refer to the prospectus for important information about the investment objectives, risks, charges and expenses. To obtain a prospectus containing this and other important information, please visit www.oshares.com to view or download a prospectus online. Read the prospectus carefully before you invest.

There are risks involved with investing including the possible loss of principal. Concentration in a particular industry or sector will subject the Funds to loss due to adverse occurrences that may affect that industry or sector. The Funds may use derivatives which may involve risks different from, or greater than, those associated with more traditional investments. A Fund's emphasis on dividend-paying stocks involves the risk that such stocks may fall out of favor with investors and underperform the market. Also, a company may reduce or eliminate its dividend after the Fund's purchase of such a company's securities. Past performance does not guarantee future results. Shares are bought and sold at market price (not NAV), are not individually redeemable, and owners of Shares may acquire those Shares from the Funds and tender those shares for redemption to the Funds in Creation Unit aggregations only, consisting of 50,000 Shares. Brokerage commissions will reduce returns. The market price of Shares can be at, below, or above NAV. Market Price returns are based upon the midpoint of the bid/ask spread at 4:00 PM Eastern time (when NAV is normally determined), and do not represent the returns you would receive if you traded Shares at other times. O’Shares ETF Investments Funds are distributed by Foreside Fund Services, LLC. Foreside Fund Services, LLC is not affiliated with O’Shares ETF Investments or any of its affiliates.

View the standardized performance for OGIG. Expense ratio: 0.48%

Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than original cost.

Please note that very strong performance may be due to unusually favorable conditions that are likely not sustainable.

The Fed is beginning to talk tapering and that has sent treasury yields spiking to 3-month highs (since before delta was spreading rapidly). The treasury yield spike has sent Growth stocks, such as in the technology sector, tumbling. Investors caught in the middle have flocked to value stocks, such as energy and financials. These stocks have cyclical reopening qualities and investors are singing the same reflationary trade song from back in May. However, growth doesn’t look quite as sluggish, and this might keep these stocks rolling a bit longer. Supply side factors in energy in particular will keep value strong beyond interest rates falling or inflation being more than transitory.

FINSUM: Value needs this middle zone of moderate inflation and moderate growth. If either fall off or pick up too much it could push investors back into growth or push the whole market down!