Posts

Cannabis stocks weren't smoking in 2018

Image
From time to time we've published an index on cannabis stocks and on other speculative thematics - lithium, China consumer plays and cryptocurrency stocks.

We had another look at these indices, based on the average share price moves of baskets of stocks exposed to the relevant themes, to provide a client with some perspective on how they have performed compared to the continually bubbly narrative of newsletter writers.


Figure 1: Average share price performance of ASX-listed cannabis stocks since Jan 2016

















Source: Sentieo, Equitable Investors


On our calculations, cannabis stocks fell 36% in 2018 - but that was better than cryptocurrency stocks (down 62%), lithium stocks (down 53%) and China consumer stocks (down 40%).

These stocks tell the story of market sentiment – they will run very hard when sentiment is strong and they will have the biggest declines when people start to worry.


Figure 2: Speculative thematic indices peaked in Dec 2017/Jan 2018



















Source: Sentieo, Equitable Investors

Ten Thousand Words - January 2019

Image
Apparently, Confucius didn’t say “One Picture Worth Ten Thousand Words” after all. It was an advertisement in a 1920s trade journal for the use of images in advertisements on the sides of streetcars. Even without the credibility of Confucius behind it, we think this saying has merit. Each month we share a few charts or images we consider noteworthy.

This month, a massive outflow of funds from global equities in late CY2018 was highlighted by Paul Moore of PM Capital and Blackrock backs this up with an estimate of the impact of uncertainty on US equities; Morgan Stanley shows that none of the key asset classes bettered inflation in CY2018; Blackrock looks at previous periods in which "value" stocks have under performed and Equitable Investors concludes that the value end of its Australian equities universe (Financial, Industrial and Technoogy - FIT - stocks with market caps of $10m to $5 billion) did indeed have a tough CY2018.



Record equity outflows (published early Jan 2019)

S…

Ten Thousand Words - December 2018

Image
Apparently, Confucius didn’t say “One Picture Worth Ten Thousand Words” after all. It was an advertisement in a 1920s trade journal for the use of images in advertisements on the sides of streetcars. Even without the credibility of Confucius behind it, we think this saying has merit. Each month we share a few charts or images we consider noteworthy.

This month, Evans & Partners sets out the downward trend in earnings expectations for the S&P/ASX 200; capital flows into short-term bonds while the World Uncertainty Index has been on a long-term upward trend; the best performed stocks in Australia between 2007 and 2017 were yield plays and the worst were stocks with no yield; while back in the US, academics show IPOs can be dicey and Bianco Research highlights an increasing percentage of US companies don't cover their interest expense with Earnings Before Interest and Tax

Revisions to FY19 earnings expectations for the S&P/ASX 200


Source: Evans & Partners



Flows of capita…

Copper Got Hot

Image
We're finalising a "State of the Market" presentation for clients of Equitable Investors and have been thinking about different ways to look at how "hot" the Australian sharemarket got.

Here's one chart we put together showing a surge in the level of interest in the daytraders chat forum, HotCopper, as measured by Google Trends

















The AFR, the local must-read for investors, has maintained steady interest levels since 2010HotCopper, the home of speculators and daytraders, has experienced a surge in interest“Peak” HotCopper appears to have been January 2018Interest in speculative micro-cap and tech stocks was curbed ahead of the broader market decline in October amid scandals that played out earlier in calendar 2018 such as the collapse of online video review business BigUn and the implosion of logistics app player GetSwift.

Ten Thousand Words - November 2018

Image
Apparently, Confucius didn’t say “One Picture Worth Ten Thousand Words” after all. It was an advertisement in a 1920s trade journal for the use of images in advertisements on the sides of streetcars. Even without the credibility of Confucius behind it, we think this saying has merit. Each month we share a few charts or images we consider noteworthy.

This month, the stock price of listed hedge fund giant Och-Ziff shows that buying things just because they have plunged in price doesn't mean they will go up again; high-flying ASX listing with P/E multiples greater than 26x were the most heavily sold in October; while The Reformed Broker highlighted just how significant changes in P/E multiples are to returns; historic data shows there's no reason, based on seasonality, to expect a bounce in ASX small industrials in November; Pimco sets out how correlated with equities different debt instruments are;  and Stratfor charts out how the top 15 cities hold ~11% of the world's wealt…

October Sell-Off Hit High-Altitude PE Stocks Hardest

Image
Companies listed on the ASX with high price to earnings multiples bore the brunt of last month's sell-off.

Equitable Investors reviewed the data on the torrid month for learning and insight. Figure 1, below, shows the worst hit companies were those with price-to-earnings (PE) multiples greater than 26 times the earnings reported in the last 12 months.

Almost 90% of companies with PE multiples of between 40.4x and 80.3x declined in October, compared to about 78% of all stocks.

The least impacted stocks amid the negativity were those trading on multiples close to the market average in the band of 16.3x to 19.6x.


Figure 1: October share price performance sorted by Price-to-Earnings (PE) multiples (using earnings from the last 12 months) at the beginning of the month

Source: Equitable Investors, Sentieo
Note we have excluded most negative PE bands from this table


As noted in this column for livewire markets, a high-flying company like logistics software group Wisetech Global (WTC), priced…

Rocky - tober

Image
We keep hearing about the "October Effect" - it even has a definition at investopedia.com.au. October 2018 has clearly been a shocker for equity markets. The S&P/ASX 200 Index is down 6.5% and the indices covering smaller Australian stocks are down at least 10%.

Earlier this year we pulled together five years of weekly price data for the S&P/ASX Small Industrials Index and reviewed the week-by-week average performances. So we've returned to that data to have a look at how this index performed in Octobers past.

We counted a week as belonging to a month if its last trading day was in that month - so the week ended September 1, 2017, was grouped in September even though it started in August.

Based on this data, October does not stand out as such a troublesome month: only the first week of October had a negative return on average, with the other weeks up on average. The first and third weeks of October have been negative more often than positive - but other months we…

Ten Thousand Words - October 2018

Image
Apparently, Confucius didn’t say “One Picture Worth Ten Thousand Words” after all. It was an advertisement in a 1920s trade journal for the use of images in advertisements on the sides of streetcars. Even without the credibility of Confucius behind it, we think this saying has merit. Each month we share a few charts or images we consider noteworthy.

This month, Grandeur Peak shows that the benchmark return can be reliant on just a handful of stocks, while JP Morgan reminds us that when you've really picked the wrong stock, its a long way back. Checking in on S&P/ASX 200 weightings, we see that the financials and materials sectors are just over half of the market benchmark. Cannabis stocks, meanwhile, continue to be favourites with traders and the Wall Street Journal sets out some stark valuation comparisons. And research into private equity deals shows that its increasingly normal for deals such as the transaction this week where accounting software firm MYOB's private equ…

Turning the Spotlight Back on Investment Managers

As investors in listed companies we often highlight the importance of alignment - we want executives and boards to have bought into the ordinary shares of their company just like we have. The data shows - as highlighted in Equitable Investors' "Seeking Advantage" paper (you can read it here) - that listed companies with executives that own a material shareholding perform better than other companies.

So it only seems logical that investors in funds and other investment scheme structures would like to know that the fund managers, similarly, have committed capital alongside the investors.

The Financial Times recently reported that "Half of the 15,000 mutual funds in the US are run by portfolio managers who do not invest a single dollar of their own money in their products". It went on to name funds management giants like Vanguard, Black Rock and State Street as organisations where the majority of their funds were run by managers who had not invested anything in th…

Ten Thousand Words - September 2018

Image
Apparently, Confucius didn’t say “One Picture Worth Ten Thousand Words” after all. It was an advertisement in a 1920s trade journal for the use of images in advertisements on the sides of streetcars. Even without the credibility of Confucius behind it, we think this saying has merit. Each month we share a few charts or images we consider noteworthy.

This month State Street demonstrates that buying stocks based on valuation has usually worked - but not in the current calendar year. Does that mean growth is in a bubble? Others ask if there are bubbles in cannabis or in the bond market. Fund managers are fearing trade wars. But Morgan Stanley shows that pulling money in and out of the market is often a flawed approach.

Meanwhile, fund services group Mainstream (ASX code: MAI) and drug prescription adherence tech play Medadvisor (ASX code: MDR) chart out some of their target markets (equitable Investors Dragonfly Fund has positions in both companies).

Value is usually rewarded in both high…

Disclaimer

Nothing in this blog constitutes investment advice - or advice in any other field. Neither the information, commentary or any opinion contained in this blog constitutes a solicitation or offer by Equitable Investors Pty Ltd (Equitable Investors) or its affiliates to buy or sell any securities or other financial instruments. Nor shall any such security be offered or sold to any person in any jurisdiction in which such offer, solicitation, purchase, or sale would be unlawful under the securities laws of such jurisdiction.

The content of this blog should not be relied upon in making investment decisions.Any decisions based on information contained on this blog are the sole responsibility of the visitor. In exchange for using this blog, the visitor agree to indemnify Equitable Investors and hold Equitable Investors, its officers, directors, employees, affiliates, agents, licensors and suppliers harmless against any and all claims, losses, liability, costs and expenses (including but not limited to legal fees) arising from your use of this blog, from your violation of these Terms or from any decisions that the visitor makes based on such information.

This blog is for information purposes only and is not intended to be relied upon as a forecast, research or investment advice. The information on this blog does not constitute a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Although this material is based upon information that Equitable Investors considers reliable and endeavours to keep current, Equitable Investors does not assure that this material is accurate, current or complete, and it should not be relied upon as such. Any opinions expressed on this blog may change as subsequent conditions vary.

Equitable Investors does not warrant, either expressly or implied, the accuracy or completeness of the information, text, graphics, links or other items contained on this blog and does not warrant that the functions contained in this blog will be uninterrupted or error-free, that defects will be corrected, or that the blog will be free of viruses or other harmful components.Equitable Investors expressly disclaims all liability for errors and omissions in the materials on this blog and for the use or interpretation by others of information contained on the blog.