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?

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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

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Tapping into the growth of emerging market water infrastructure

Expanding the world’s access to clean water could present investment opportunities

Boccellari_Thomas_sm_lowrezAuthor’s note: In 2015, I blogged about a growing shortage of fresh water in many parts of the world and how some companies are providing much-needed water infrastructure in these areas. Given continued strong interest in water-related investments, I believe this information bears repeating. – Tom Boccellari

While we in North America tend to take fresh water resources for granted, fresh water is an increasingly scarce commodity in other parts of the world. There is a fixed amount of water available worldwide, with 97.5% of it in the form of salt water unfit for human consumption.1 Of the remaining 2.5%, more than two-thirds of it is frozen in ice caps.1 The world’s population now stands at roughly 7.3 billion, and is expected to grow by a third to 9.7 billion by 2050.2 The United Nations estimates that only 1% of the world’s fresh water supply is accessible enough to meet the needs of a rapidly expanding world population.2

Water demand increasing with population growth

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Fourth-quarter 2016 earnings largely positive for large-cap growth companies

Investments in R&D lay the groundwork for potential future growth

JohnFrank_smAs fourth-quarter earnings season winds down, it appears that US large-cap companies are on solid footing. Average year-over-year earnings for the S&P 500 Index grew two consecutive quarters to close out 2016 — the first time that has happened in more than two years.1

Large-cap growth companies fared especially well during the fourth quarter, with the Nasdaq-100 Index recording its third consecutive quarter of year-over-year earnings growth. Both the Nasdaq-100 Index and the S&P 500 Index exceeded Wall Street earnings expectations in the fourth quarter — beating average consensus estimates by 7.1% and 2.6%, respectively.1

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Fed hikes short-term rates, citing expanding economic activity

Rate hike is third in 15 months, two more likely in 2017

Bloom Jason_sm_150dpi_RGBThe Federal Reserve raised interest rates today by 0.25% — the third such rate hike in the past 15 months. The Fed’s decision was largely priced into the financial markets, which assigned a 98% probability to the rate increase in the days leading up to today’s announcement.1 In keeping with its two previous rate hikes, the Fed explained today’s decision as an appropriate response to an economy expanding at a moderate pace and a labor market experiencing solid jobs gains.

Rate hike seems unlikely to derail US economic growth

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Aerospace and defense: Investment opportunities are on the radar

A potential increase in defense spending and an uptick in commercial aircraft orders could boost the industry’s prospects

Nick KalivasThe defense industry has been a strong performer since the Nov. 8 US elections. Between Nov. 8, 2016, and Feb. 24, 2017, the SPADE Defense Index has rallied 14.54% — outpacing the S&P 500 Index by more than 3%.1 Given the scale of the Trump administration’s proposed defense budget, as well as positive trends in commercial airline orders, I believe prospects are favorable for aerospace and defense firms.

US aerospace and defense orders are rising

After showing flat to declining growth since 2010, US defense orders — which include aircraft, related parts and other military hardware produced by the Department of Defense — have been trending upward and are now approaching

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