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Monthly Archives

August 2015

Top 10 things smart investors never say

By General

With the market in flux, it’s important to think rationally and practice patience. To accomplish that, here are 10 phrases you should NOT be telling yourself:

  1. I got a great stock tip from a friend of a friend.” – Herding
  2. “This time is different.” – New Era Thinking
  3. “I should have seen the crisis coming.” – Hindsight Bias
  4. “I check my account on the hour.” – Myopic Loss Aversion
  5. “This is can’t miss!” – Overconfidence
  6. “It just feels right.” – Affect Heuristic
  7. “…but Jim Cramer said…” – Appeal to Authority
  8. “Rebalance? Why bother?” – Status Quo Bias
  9. “I’m on a hot streak right now!” – Gambler’s Fallacy
  10. “I can always start saving later.” – Hyperbolic Discounting

(Note: The above is a re-post from the Brinker Capital Blog)

China Market Valuation Update

By Endowment Index™

China Large and Small Cap Indices seem to be approaching longer term valuation levels. Also:

  • China’s margin debt is substantially lower. Outstanding margin debt on the Shanghai and Shenzhen stock exchanges fell to 1.25 Trillion Yuan on Monday from a record high of 2.27 Trillion Yuan on June 18th. Stock market peaked on June 12th.
  • Large Cap Stocks estimated P/E ratio is approx. 10 which represents 2013 P/E 5 Year lows.
  • While valuation multiples have contracted globally, the Chinese P/E multiple has contracted more. Chinese Large Cap Stocks are now cheaper than the S&P 500 and the Dow Jones Industrials.
  • Chinese Small Cap Stocks are still trading at a higher P/E relative to US Small Cap Stocks.

We continue to maintain an allocation to China A Shares in the Endowment Index.

Perspective on Equity Market volatility

By General

Bob Doll’s comments on recent equity market volatility share many of our same viewpoints:

Possible reasons for recent market decline:

  1. Multi-month decline in earnings
  2. Widening credit spreads
  3. Economic weakness from China/devaluation of the Yuan
  4. Slowing growth and commodity price weakness (deflation fears)
  5. Fed Policy uncertainty
  6. Market technicals
  7. Investor nervousness, skepticism, and uncertainty

Near term thoughts-

  1. China’s economy is slowing, but not enough to cause a global recession
  2. US economy continues to perform well
  3. He doesn’t see this correction as indication of recession, since he see’s no inflation/Fed tightening

Market dynamics- The belief that this swing is likely caused by technical factors and not fundamental weakness in the economy, when combined with the fact that previous declines during this bull market have been buying opportunities, there is belief that this is one as well.

Of course, past performance is no guarantee of future results.

Various Recent Inflation Measures Trending towards 2%

By Inflation Watch

There are various ways to measure inflation including the headline CPI, as below:

  • CPI or Headline Inflation=0%
  • Core CPI=1.8%
  • Cleveland Median CPI=2.3%
  • Sticky Price CPI by Atlanta Fed=2.2%
  • Dallas Fed Trimmed Mean Personal Consumption Expenditures (PCE) preferred by FOMC=1.7%

These are year over year numbers. Hence, despite the decline in commodity prices the Fed believes that inflation is heading towards its 2% target.

Why we continue to own Emerging Market Stocks?

By Market Outlook

When we talk about emerging market equities today, we find that people are disappointed: there has been under-performance of late. Additionally, there remain key risks:

• The U.S. Federal Reserve (Fed) raises short-term interest rates
• Commodity prices decline

While each of these well-publicized risks can contribute to further volatility, it’s also quite possible that they are already reflected in emerging market equity valuations today.

Dividend Yield as a Barometer for Valuation Opportunities

There are many ways to measure equity valuation, and in this case we look at dividend yields. Specifically, we break the available history (starting in 1988) of the MSCI Emerging Markets Index into high- and low-dividend-yield years.

High-Dividend-Yield Years: Years that began with a dividend yield above the median dividend yield for all calendar years.
Low-Dividend-Yield Years: Years that began with a dividend yield below the median dividend yield for all calendar years.
Squarely High Dividend Yields: The median dividend yield was about 2.3% for the full period. 2015 began with a dividend yield of 3.1%1. As of June 30, 2015, the MSCI Emerging Markets Index had a dividend yield of about 3.0%.

The Bottom Line: Since high-dividend-yield years indicate lower prices relative to dividends, the key question is whether they exhibited different returns, on average, than the low-dividend-yield years, when price levels relative to dividends were higher.

Dividend Yield is a Potential Measure of Relative Valuation in Emerging Markets
(12/31/1987 to 6/30/2015)

Div-Yield-is-a-Potential-Measure-of-Relative-Value-in-EM

  • High-Dividend-Yield Years: When a year began with a high dividend yield, the average return for that year was over 28%. In fact, such values were followed by negative years in only five instances, the worst of which was a negative 25% return in 1998.
    Low-Dividend-Yield Years: When a year began with a low dividend yield, the average return for that year was below 4%. Such values were followed by negative years seven times, the worst of which was 2008’s negative 53% return.
    Years That Started with Dividend Yields above 3.0%: Actually, we started 2015 not only with a high dividend yield but with one above 3.0%. There have been only five such years before, and although past performance can never predict future returns, the returns were strong in those years, averaging 58%. The lowest return of any of these years was 2012, when the MSCI Emerging Markets Index was up over 18%.

Is It Time for the Turnaround?

While we strongly believe that emerging markets will come back into favor, it is extremely difficult to predict when this turnaround will occur. There remain very real risks, but the more critical question regards whether the higher dividend yield reflects these risks.

Some things that we’re being particularly watchful of:

  • Stabilization and/or rebound in commodity prices.
  • Further stimulus in China or other activity relating to China’s currency.
  • U.S. Federal Reserve raising short-term interest rates to help people put this in the rear view mirror so that other things can move back into focus. There is concern as to how emerging market currencies might react.

1Refers to 12/31/2014.

Important Risks Related to this Article

Dividends are not guaranteed, and a company’s future ability to pay dividends may be limited. A company currently paying dividends may cease paying dividends at any time.

Investments in emerging, offshore or frontier markets are generally less liquid and less efficient than investments in developed markets and are subject to additional risks, such as risks of adverse governmental regulation and intervention or political developments.

(Source: Wisdomtree Blog)

Endowment Wealth Management® Named Finalist For Wisconsin Innovation Awards

By News

Appleton, WI.  August 13, 2015.  APPLETON, Wis.—ETF Model Solutions and its affiliate, Endowment Wealth Management have been named finalists for the Wisconsin Innovation Awards based on their development of the Endowment Index® (symbol: ENDOW) and related index-based investment strategies.  The Endowment Index® calculated by Nasdaq OMX® has created national awareness, assisted in the development of new strategic partnerships, attracted investors in the firm, and have allowed the firms to expand their respective client bases.  The firms have developed Endowment Index-based investment strategies for individuals and families, endowments and foundations, and retirement plans.

The Wisconsin Innovation Awards (“WIA”) seek to celebrate and inspire innovation. The WIA highlights and honors the development of groundbreaking and innovative ideas. By celebrating transformational ideas, the WIA hope to encourage an even greater environment of innovation by bringing innovators together from various business sectors (e.g. tech, food, healthcare, agriculture, nonprofits, education, government), and from throughout the State of Wisconsin.  The Wisconsin Innovation Awards are led by a steering committee of business, community and entrepreneurial leaders.  The second annual WIA ceremony will take place on August 18, 2015 at the Discovery World in Milwaukee.

ETF Model Solutions® designs ETF-based investment solutions for advisers, institutions, retirement plans and individual investors based upon the Endowment Investment Philosophy®. The Firm is the investment manager for the Endowment Multi-Asset Collective Investment Fund (CUSIP 26923F105), a Collective Investment Trust which can be added as an investment option in most 401(k) plans.

Endowment Wealth Management® is a fee-based investment advisor serving individuals and families, foundations and endowments, and retirement plans.   The firm seeks to build sustainable wealth solutions for its clients through the implementation of the Endowment Investment Philosophy®.

Contact:            Tim Landolt, MBA | Managing Director, ETF Model Solutions®   |  920.785.6012

Info: ETFModelSolutions.com | EndowmentWM.com| EndowmentIndex.com | WI Innovation Awards

Disclosure: You cannot invest directly in an index. Indexes do not have fees. Award recognition does not qualify as an endorsement of any particular index, investment firm, investment, or investment strategy. The firms do not make any solicitation payments to award sponsors in order to be nominated or to qualify for nomination of an award.