Showing posts from January, 2020

Epidemics and Market Volatility

Historical precedents indicate that epidemics may cause short-term market volatility but recent examples have had limited sustained impact. For China, the travel, entertainment and retail sectors have been most affected in prior epidemics, according to Morgan Stanley's Asian strategy team. The SARS experience in 2003 led to under-performance of local share markets with the MSCI Hong Kong and Korea indices under-performing by 10% and 11% through the escalation phase... " However, corrections have historically been short-lived". The more recent MERS and Avian Flu epidemics reinforce that conclusion, as the charts below set out. Figure 1: Morgan Stanley charts Asian equity indices against epidemic events Figure 2: JP Morgan (via FT) shows regional equity market recoveries post crisis peak Citigroup went back to the 2002-2003 SARS outbreak, noting it featured ~8,000 confirmed cases across 26 countries with nearly 800 people killed; and that it was

Five Year Returns

(adapted from the Dragonfly Fund Quarterly Update - December 2019 ) Stock performance is rarely linear with ebbs and flows through time. Equitable Investors is focused on the medium-to-longer term window and while very conscious of managing volatility, fully expects there to be good and bad interim windows for investment performance. We are fans of the question posed by quantitative investor Wesley Gray, PhD, author of Quantitative Value , several years ago: “If God is omnipotent, could he create a long-term active investment strategy fund that was so good that he could never get fired?” The answer was that God would get fired . Not because God would be a bad investor, of course, but because picking the investments that would deliver top decile (top 10%) returns over five years then sitting back and waiting would mean that God’s clients would have to hold their nerve in the interim period when the “perfect foresight” portfolio suffers drawdowns of as much as 76%. Equitable I

10k Words - Jan 2020

Apparently , Confucius didn’t say “One Picture is 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. The big have been getting bigger as momentum continues for passive, market-cap weighted index investing, as Morgan Stanley has set out for the US market (S&P 500); at the same time US stocks with negative tangible assets have outperformed the market according to Bloomberg. There once was a time when revenue multiples were hardly ever referred to but these days they are all the rage - and Equitable Investors shows they have increased across high and low percentiles. Then returning to Price-to-Earnings (PE) multiples, Morgan Stanley shows that Australian "value" stocks are trading at a discount to "growth" sto

Dash for Cash

(adapted from the Dragonfly Fund Monthly Update - November 2019) In the current investment climate, there appears to be a fatal attraction to the next new shiny toy - be it IPOs or capital raisings. But we are very sceptical of the merits of many of the deals on offer. There has been approximately $1.2b raised in the first two weeks of December alone, across 55 ASX-listed companies, according to data from Fresh Equities. Similar activity levels continue at the time of writing, based on the deal flow we’ve seen. We were interested to read a report ASIC has just released on IPOs in the mining and exploration space. We think the findings are also reflective of what occurs across the broader market: There “can be an environment encouraging a rapid return on the initial investment rather than an investment aimed at the medium to longer term returns” “Promotional materials such as investor presentations, explanatory material and email marketing methods are often subject to substandar


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