Combining value, momentum factors can help avoid hidden dangers of inexpensive stocks
The idea of purchasing stocks that are inexpensive relative to their peers, or to their intrinsic value, can make value investing an attractive investment strategy. After all, value has a well-earned reputation for being a rewarded factor, with famous investors like Benjamin Graham and Warren Buffet known for their value-based investment approaches. Value is also grounded in academic research. The groundbreaking Fama-French Three Factor Model incorporates value, along with the size and market factors, to help portfolio managers improve the security evaluation process.
What is a value trap?Continue
Likelihood of a ‘Frexit’ decreases, but geopolitical risks abound closer to home
Yesterday saw the much-awaited presidential election in France, and many advocates of the European Union are breathing a collective sigh of relief. Centrist Emmanuel Macron and far-right candidate Marine Le Pen garnered the most votes — 23.75% and 21.53%, respectively — and will therefore advance to the runoff election on May 7. For those who wanted to see as little impact on capital markets as possible, a Macron–Le Pen matchup is as close to a “best-case scenario” as possible. (The “worst-case scenario” for the continuation of the EU was a matchup between Le Pen and far-left candidate Jean-Luc Melenchon, who are on opposite sides of the political spectrum, but both anti-EU.)
Many pundits are now expectingContinue
A high-conviction, bottom-up approach to finding sustainable profit margins
As dividend value investors, my team is focused on sustainability of profit margins over a full profit cycle. I believe that we are in the later stages of the profit cycle, with corporate profit margins at about 1%1 below their peak levels in late 2014. What does that mean for us as high-conviction, bottom-up investors?Continue
Uncertainty leads to a drop in stocks and a boost for gold
The last six months have been notable in that political developments have had a far greater impact on capital markets than they did for the past several years. That doesn’t look like it will stop any time soon given recent events.
Last week we experienced greater geopolitical uncertainty involving the US:
- The US bombed Syria, which in turn resulted in a deterioration in American relations with Russia.
- The US sent warships off the coast of North Korea and implored China to take a tougher stance on the country, offering trade incentives.
- The US dropped its largest non-nuclear bomb on ISIS in Afghanistan.
Adding to the uncertainty is thatContinue
Growth and momentum strategies make a comeback as other factors take a breather
The breadth of factor performance narrowed significantly in the first quarter of 2017. During this time, only four factor-based indices outperformed the broad-market S&P 500 Index, compared with 17 in the previous quarter. The large- and mid-cap growth and momentum factors were the clear winners during the first quarter, outperforming the S&P 500 Index by sizeable margins.
Headwinds following November’s elections
Many factors faced headwinds following a strong post-election equity rally, with market gains highly concentrated. In fact, nearly a quarter ofContinue
Invesco Fixed Income shares its views of rates around the world
At Invesco Fixed Income, we believe strong global growth should ultimately pressure US interest rates upward as global monetary policy tightens. In the short term, however, the US Federal Reserve (Fed) has indicated that it does not intend to tighten interest rates quickly. Moves from other central banks, such as the European Central Bank (ECB), will likely drive price action in longer-dated US Treasuries, in our view. As global growth continues to improve, other global central banks’ actions may catalyze a move higher in US Treasury yields.
Below is an overview of the Invesco Fixed Income team’s outlook for interest rates in other key world economies:Continue
FOMC minutes reveal an unexpected focus on unwinding its balance sheet
Interest rate hikes may not be the only form of monetary policy tightening we’ll see from the US Federal Reserve (the Fed) this year. After the release of the Federal Open Market Committee’s (FOMC) minutes last week, a new catch phrase should be gaining popularity with economists: “balance sheet normalization.”
Balance sheet normalization is a fancy term for the unwinding of the Fed’s bloated balance sheet. The minutes from the FOMC’s March meeting, released last week, revealed that the FOMC is contemplating this approach. This came as a surprise to some investors. Below, I look at how the Fed got to this point, and what balance sheet normalization could mean for the markets.
How did we get here?Continue
A June rate hike is still possible given longer-term employment trends
Today’s jobs report from the US Bureau of Labor Statistics was headlined by a much lower-than-expected number, with nonfarm payrolls growing by just 98,000 in March. Yet, we at Invesco Fixed Income don’t think the results are as bad as the headline indicates, and it does not change our view of future Federal Reserve interest rate hikes.
Analyzing the jobs reportContinue
Invesco Fixed Income shares its views of currencies around the world
Stronger global growth environments, like the current one, are typically mixed for the US dollar. The US Federal Reserve (Fed) demonstrated at its March meeting that it is not aiming to disrupt financial markets. This backdrop — above-potential growth and a benign Fed — should translate into mixed US dollar performance versus developed market currencies, in the view of Invesco Fixed Income. We believe the US dollar should underperform emerging market currencies broadly.
See below for the Invesco Fixed Income team’s outlook for other key world currencies.Continue
New SEC guidance provides effective ways for advisors to comply with disclosure regulations
Robo-advisors continue to represent a fast-growing trend in the investment advice industry, changing the way firms engage with and service their clients. However, given the automated and online nature of their business models, there are unique considerations for robo-advisors when complying with traditional regulations.
Following collaboration with industry participants, the Securities and Exchange Commission’s (SEC) Division of Investment Management released a Guidance Update1 on February 23, which includes suggestions to help robo-advisors meet disclosure, suitability and compliance obligations under the Investment Advisers Act of 1940 (IM Guidance Update No 2017-2).
The result of this collaborative approach isContinue