Assessing the opportunities for deep value and dividend value investors
“Lower for longer” is a common perception about the state of oil prices today. But what do the fundamentals tell us? In this excerpt from the recent Invesco Interactive webcast, we talk to Tom Keene of Bloomberg News about our views on the energy sector, including:
• Why supply/demand was much more out of balance in the 1980s than it is today.
• The outlook for mergers and acquisitions among energy companies.
• How our deep value and dividend value strategies are assessing the sector’s opportunities and risks.Continue
Previous stimulus measures still need time to play out
The Bank of Japan (BoJ) announced at its April 28 policy meeting that it would keep monetary policy unchanged. Invesco Fixed Income has been inclined to think that the BoJ would wait. It was only in January that it eased policy last, and we had anticipated that it would want to fully assess the impact of those actions before easing further. Furthermore, the recent increase in oil prices and weakening in the yen may have bought the central bank some additional thinking time. However, recent polls indicated that many non-Japanese investors had expected easing.
This means that:Continue
The Fed leaves interest rates unchanged, while leaving the door open to a June hike
The US Federal Reserve (Fed) left interest rates unchanged today, according to its policy statement, noting that it remains concerned about growth, inflation and global financial and economic developments. It, did, however, leave open the possibility of action at its June meeting. Today’s outcome did not surprise investors, but the Fed’s overall dovish tone in recent months may be puzzling to some.
Recent US data have pointed to moderate growth, inflation has generally surprised to the upside and the US labor market continues to improve at a healthy pace. Investors might have expected this positive economic picture plus a recovery in global financial conditions to have resulted in a more hawkish policy tone. In fact, such a view was summed up in a recent speech by Fed Vice Chair Stanley Fischer, “… a persistent large overshoot of our employment mandate would risk an undesirable rise in inflation thatContinue
Given the uncertain environment, our focus is on high-quality companies
Since early January, metals prices have turned sharply higher, thanks in part to a weaker US dollar and improved sentiment about China. In turn, we have seen a strong reaction in the bonds of metals and mining companies — investment grade and high yield metals and mining bond yields are tighter by 300 and 500 basis points, respectively.1 Following such strong moves, the question now is whether there is still value in metals and mining bonds.Continue
When is tracking error not really an error?
Traditional indexes were never intended to define what makes a sound investment opportunity, which has fueled the popularity of factor-based investing. But they do serve as useful benchmarks for investment performance. How closely a portfolio or index tracks a particular benchmark index is referred to as “tracking error.”
Tracking error is often considered in the context of a portfolio relative to an underlying index. But tracking error can also exist between two indexes, which raises questions. Take, for example, the case of low volatility investing – one of the most popular investment factors in use today. Could the S&P 500 Low Volatility Index – a commonly used barometer of low volatility stock performance – result in too much tracking error relative to its parent index, the S&P 500 Index? Because the S&P 500 Low Volatility Index selects 100 stocks from its parent index with the lowest realized volatility over the previous year, the S&P 500 Low Volatility Index can have sector exposure that is materially underweight or overweight relative to the S&P 500 Index.
Should this be a concern?Continue
The European Central Bank keeps rates level, but provides broader-than-expected details on its bond purchase program
The European Central Bank (ECB) surprised markets once again today with the timing of some important announcements and also the scope of its bond purchasing program. While the ECB kept all three of its policy interest rates on hold — as expected — and the size of its asset purchase program unchanged at EUR80 billion a month, ECB President Mario Draghi provided new details in a news conference on the implementation of the bank’s program and on the scope of what assets it can buy. At a high level, Draghi summarized by saying that the ECB’s monetary policies are working, but they need time to be more effective.
Markets react positively — for a momentContinue
Understanding your portfolio returns: Part 3
There are several different ways to measure portfolio returns. But only one takes into full account the complexity of the investor experience — the internal rate of return. This video explains what the internal rate of return is, as well as the advantages and disadvantages of judging a portfolio based on this measurement.
• The internal rate of return considers an investor’s account balance at the beginning and end of the period, as well as any contributions, withdrawals, growth or declines in the value of the account’s assets during that time.
• On the plus side, the internal rate is the calculation that’s most relevant to an investor’s personal investment experience.
• On the other hand, calculating the internal rate of return requires specialized software or a financial calculator. However, financial advisors can supply this for their clients.Continue
Part of the High-Conviction Investing series
Quality is a word associated with endurance and excellence. Products engineered with quality tend to stand the test of time. And so it is with factor-based investing, in my view. Quality stocks aren’t always glamorous. But they are typically issued by companies with strong balance sheets and stable earnings growth – hallmarks of long-term financial strength that set them apart from flash-in-the-pan upstarts and weaker competitors.
The importance of the balance sheetContinue
Firms that repurchase shares have tended to outperform the broader market
There’s no substitute for a well-run company with solid fundamentals, steady earnings growth and a seasoned management team. But investors in even the most profitable firms are always looking to add value. Two commonly used methods for bolstering corporate shareholder value are dividends and stock buybacks.
A company may decide to repurchase outstanding stock for many reasons — to telegraph confidence in the company’s financial future, return cash to investors in a tax-efficient manner (shareholders typically pay taxes on dividends) or simply to reduce the number of shares outstanding. In some cases, buying back shares just makes good financial sense – particularly when a company’s stock is trading at a discount .
A positive buyback performance track recordContinue
Understanding your portfolio returns: Part 2
There are several different ways to measure portfolio returns, and it’s important for investors to understand the significance of what they represent. This video explains what average annual returns are, as well as the advantages and disadvantages of judging a portfolio based on average annual returns.
• Average annual returns represent the effect of gains and losses on an investment.
• Importantly, this type of return measurement is a helpful guide for measuring long-term performance, and it allows investors to easily compare different investments.
• However, average annual returns can have a “smoothing” effect on long term results. In other words, an average can hide underlying volatility.Continue