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Wednesday, August 27, 2014

Interesting Charts

Year to Date:
GMF emerging asia
IEMG total emergind markets

But the 10 year chart looks like this:

Tuesday, August 26, 2014

The US Stock Market Looks Expensive..What About Markets Around the World ?

The  US stock market continues to rise and despite good reported earnings for the second quarter valuations seem stretched.

Here is the earnings growth of the sp/500 which at 14.99% is well below the long term mean of 28%
All charts from

And the S+P 500 p/e ratio which at 19.85 is 28% above its long term median of  15.5:

Since august of last year the S+P 500 total return is up 22% but earnings rose 15% that means that over 1/3 of the appreciation in the stock market was driven by P/E expansion (higher valuations) rather than earnings growth,

I have written before about Robert Shillers CAPE ration (his recent nyt article is here   ) in the article he argues the US stock market as very highly valued

As shown in the  chart. at 26.48  the current value is well above its long term mean value of 16.55

How does the Us market valuation based on CAPE compare to other markets around the world. A useful  i article over at seeking alpha gives some interesting data in this table of comparable CAPE ratios around the world (table below text)

Although many of these markets certainly deserve a healthy discount to the US due to political and other sovereign risk the US stlll stands out as one of the three markets in the world with the highest CAPE trading at  a very large premium to some of the world's major stock markets.

Monday, August 25, 2014

Two Charts of Interest

3 month chart ETF HYG  Intermediate Term High Yield Bonds

Note the volume spike at the low

And HYS Short Term High Yield Bond ETF

Bloomberg on German Stocks

German Stocks Tarred by War Find Buyers at Record Value
  Aug 25, 2014 10:11 AM GMT+0300
German stocks, punished for the nation’s trade ties to Russia and Ukraine, have gotten too cheap to turn down for some of Europe’s biggest investors.

After almost tripling between March 2009 and July 2014, the DAX retreated 10 percent in about a month, meeting the definition of a market correction. Escalating conflict between Ukraine andRussia, along with data signaling a slowdown in Germany’s economy, has erased nearly $180 billion from equity values. The DAX lost 0.7 percent on Aug. 22, paring a weekly gain, after Ukraine said Russia was invading the country under the cover of an aid convoy. It rose 1.2 percent at 9:09 a.m. in Frankfurt today.

Relative Valuation

Selling pushed the DAX’s valuation more than 2 percentage points below that of the Stoxx 600, the widest gap since at least 2005, according to data compiled by Bloomberg. Germany’s biggest companies will boost earnings by 21 percent in 2014, compared with increases of 9.6 percent in the European gauge and 10 percent for the Standard & Poor’s 500 Index, estimates compiled by Bloomberg show.

Friday, August 22, 2014

Large Flows Into A Lesser Known Passive Fund Manager: Dimensional Fund Advisors (DFA)

Dimensional Fund Advisors a pioneer in value tlted" passive funds is less known to the gerneral public. It's funds are available to retail investors either through a limited number of advisors, some annuities and some 401k plans.

from the WSJ 

Alongside Vanguard, Dimensional Is Getting Inflows Too

While the mutual fund giant Vanguard Group is nabbing the lion’s share of investor money pouring into “passively-managed” products like index funds, it’s not the only company benefiting.
Little talked-about Dimensional Fund Advisors, an Austin, Texas-based money manager with $380 billion in assets under management, happened to rank among the top five companies experiencing the highest inflows into passively managed products through July this year, according to the research firm Morningstar Inc.
The asset manager has long run a series of proprietary mutual funds that operate like index funds because they are highly diversified – sometimes investing in thousands of stocks, for example – and therefore spread risk, unlike a traditional mutual fund operated by a star manager, Morningstar says. They also have low turnover in their investments and are low cost
Here are numbers for the flows into passive ETFs and funds

Dimensional Fund Advisors2.29616.77125.932
First Trust3986.22210.649
Guggenheim Investments2604.5678.846
Fidelity Investments8389.0238.516
Schwab ETFs6634.1036.609
TIAA-CREF Mutual Funds2671.6352.589

Retail Investors Fleeing European Stocks: Performance Chasing and Selling Low ?

From the Financial Times

US investors cut their European exposure

US investors scaled back significantly their exposure to Europe as the continent’s economic prospects waned and tensions escalated over Ukraine, according to data on exchange traded funds.
US-listed ETFs exposed to Europe including the UK have seen net outflows of almost $4bn in the past six weeks, reported Markit, the financial data company..

The outflows highlighted a sharp shift in global investor sentiment towards Europe.
There were strong inflows into European bonds and equities at the start of the year as economic data improved and the eurozone returned to stability after its debt crisis years.

According to Morningstar here are some valuation measures

Germany (EWG) S+P 5oo Eurozone (FEZ)
P/e    14.2 17 14.9
price to book 1.54 2.35 1.38
Price to Sales 0.72 1.66 0.79
Price to cash flow  6.3 7.4 7.09

Looking at the top holdings in these 2 ETFs  as well as the top 10 holdings in the S+P 500

it seems questionable whether the valuation discounts relative to the US are justifies

Here are the top holdings in EWG

Name Weight (%)
BASF SE 7.88
SAP ORD 6.04

 And Here are the top holdings in FEZ
Name Weight
Total SA 5.96
Sanofi 4.96
Banco Santander S.A. 4.48
Bayer AG 4.25
Siemens AG 4.01
BASF SE 3.64
Anheuser-Busch InBev SA 3.3
Daimler AG 3.13
Allianz SE 2.99
SAP SE 2.87
BNP Paribas SA Class A 2.84
Banco Bilbao Vizcaya Argentaria S.A. 2.71
Eni S.p.A. 2.56
Unilever NV Cert. of shs 2.53
Telefonica SA 2.44
ING Groep NV Cert. of Shs 2.02
AXA SA 1.94
Schneider Electric SE 1.9
LVMH Moet Hennessy Louis Vuitton SA 1.8
Deutsche Telekom AG 1.76
And here are the top 10 holdings in the S+P 500

Apple Inc.AAPL3.36
Exxon Mobil Corporation CommonXOM2.47
Microsoft CorporationMSFT1.89
Johnson & Johnson Common StockJNJ1.65
General Electric Company CommonGE1.47
Chevron Corporation Common StocCVX1.43
Wells Fargo & Company Common StWFC1.42
Berkshire Hathaway Inc Class BBRK.B1.31
JP Morgan Chase & Co. Common StJPM1.27
Procter & Gamble Company (The)PG1.22

Thursday, August 21, 2014

The Money Keeps Flowing Into Index Funds and ETFs

WSJ today reports on the explosive growth in assets at Vanguard--as well as Dimensional Fund Adviors, ishare(Blackrock) s and spdr (State Street) ETFs

Investors Pour Into Vanguard, Eschewing Stock Pickers

Investors are pouring money into Vanguard Group, the epitome of the hands-off approach to investing, flocking to funds that track market indexes and aren't run by stock pickers or star managers....
he surge is part of a sea change in the fund business in which investors are increasingly opting for products that track the market rather than relying on managers to pick winners. Other firms, such as New York behemoth BlackRockInc. BLK +0.18% and Texas-based Dimensional Fund Advisors, are also enjoying an influx of cash.....

It is "a trend that I see continuing on, probably forever," said David Barse, chief executive officer at New York-based Third Avenue Management, which manages $13.5 billion. He said the challenge for active managers, like his firm, is to identify overlooked investments that don't merely track the broad market.
But he acknowledged that is increasingly a tougher sell, particularly to retail investors.
Investors poured a net $336 billion into passively managed stock and bond funds in 2013, handily beating the $53 billion invested in traditional mutual funds of the same type, according to Morningstar. So far this year through July, investors put a net $177 billion into those passive funds, compared with $74 billion in actively managed funds

Vanguard isn't the only company benefiting from the wave of money flowing into passive products. BlackRock, the world's largest asset manager, with about $4.6 trillion in assets under management, has seen $53 billion pour into its iShares' ETF business globally this year through Aug. 18, the largest amount of any fund company, according to the company.
BlackRock is the largest ETF provider. A spokeswoman for the company declined to comment. Vanguard, however, the third-largest provider behind State StreetSTT +0.37% Global Advisors, has seen more investor inflows in the U.S