Displaying items by tag: value
Starting with the huge gains of tech shares over the summer, and now the whole index, investors have grown increasingly uneasy with market valuations. By some metrics, markets are as stretched valuation-wise as they have ever been. Take for instance Robert Shiller’s famed CAPE ratio. As it stands now the S&P 500 has a CAPE valuation of 33.4x. That is the highest it has been since 1929 and almost double the long-term average of 17x. ”There are great expectations built into this market … We are in the seventh inning of Federal Reserve-supported equity markets”, says the CIO of CIBC Private Wealth Management.
FINSUM: As scary as the valuations are, they are not entirely irrational given the level of stimulus and the way the economy has held up.
With markets at all-time highs, but COVID restrictions tightening and the potential for a blue Senate looming, many advisors are feeling that now might be a good time to retreat into value stocks. Lower priced stocks have done very well over the last couple of months, showing good momentum on top of their theoretical valuation insulation. With that in mind, here are three very highly ranked large cap value mutual funds. The first is American Funds’ Washington Mutual Investors Fund Class A (AWSHX), sporting an expense ratio of 0.59% and an average three-year return of 9.7%. The second is the MFS Equity Income Fund Class A (EQNAX), which holds a more diversified group of securities, including some international stocks and convertibles. Finally, check out the Fidelity Equity-Income Fund (FEQIX), which tends to focus on income-producing securities.
FINSUM: A nice hybrid between appreciation and income is a good approach for right now, so the latter two seem look good buys. More broadly, value stocks appear a smart choice given the particular moment in markets.
Okay maybe it’s not a “boom” but it is certainly a “boomlet”. Alongside all the uncertainty in markets surrounding the election, value stocks have been having a moment in the sun. The reason why is interesting and seems to be two-part: one aspect is idiosyncratic, the other more macro. On the idiosyncratic front, many bank employees tend to get very conservative with their investments at this time of year because many financial companies end their fiscal year’s before December 31st. What those employees do is sell their winners and buy beaten up value stocks. It happens every year, but the effect might be bigger this year because tech stocks have gained so much. On the macro front, one big thing helping value stocks is that the COVID vaccine has given hope to “normal” economy companies. Those stocks have done very poorly this year, so are squarely in the “value” category.
FINSUM: If a vaccine is widely available soon—and people actually take it—a return to some version of the pre-COVID economy is seems likely. That said, things will have changed and there will be some stocks that continue to struggle. Choose wisely.
Large cap value is a very interesting area at the moment. Over the last few weeks there has been a pickup in breadth, with gainers outpacing losers 2-to-1. Megacap tech stocks are not leading the market like they were early on in the recovery. That means the chances for broad market gains are looking stronger. With that in mind, large cap value looks like an excellent choice. Compared to small and midcaps, large caps are less volatile and more diversified. They do have more international exposure (which could be a positive or a negative), but on the whole they appear as though they have as much or more upside potential with less downside risk.
FINSUM: If you believe in a coming broad-based rally in stocks, then large cap value seems like a good place to be.
One of the most worrying characteristics of the extremely sharp recovery the market experienced over the summer was the heavy bias towards the highest end of large caps-mega caps. Facebook, Apple, Amazon, Microsoft, and Google led the way while many other stocks continued to fall, or rose much less strongly. However, in the last few weeks that has started to shift, with a resurgence of breadth in the market. Gainers have outpaced losers 2-to-1 over the last two weeks, as investors have started to believe in a strong economic recovery. That means previously underperforming large caps are starting to join small caps in rallying into the growing economic recovery.
FINSUM: This is the perfect time for large cap value. The economic recovery is underway and there are plenty of god value large caps that have room to rise because of unreasonable discounting from COVID.