Cheap for a reason? Beware the value trap

Combining value, momentum factors can help avoid hidden dangers of inexpensive stocks

Nick KalivasThe 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

Weekly Market Review: While France votes, US faces shutdown

Likelihood of a ‘Frexit’ decreases, but geopolitical risks abound closer to home

Hooper_Kristina_sm_72dpi_RGBYesterday 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 expecting

Continue

Finding dividend opportunities as the profit cycle ages

A high-conviction, bottom-up approach to finding sustainable profit margins

Walsh_Meggan_sm_150dpi_RGB 0814As 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

Weekly Market Review: Political concerns pressure markets

Uncertainty leads to a drop in stocks and a boost for gold

Hooper_Kristina_sm_72dpi_RGBThe 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 that

Continue

Examining factor performance in the first quarter of 2017

Growth and momentum strategies make a comeback as other factors take a breather

Nick KalivasThe 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 of

Continue

Interest rate outlook: Global growth could push US yields higher

Invesco Fixed Income shares its views of rates around the world

Waldner_Rob_sm_150dpi_RGBAt 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