For your holiday weekend viewing pleasure I submit the most recent edition of the PBS program Wealthtrack. This week Consuelo Mack interviews Robert Arnott, chair of Research Associates with $145 billion under management. She titles the program "Contrarian Investor" with the theme being that successful investing comes from going against the crowd. But it would be more appropriately titled "Investing In Times of COVID-19" as much of the advice is in regards to going against the crowd in this time of crisis by sticking with tried and true convention. It's well worth the 24 minutes of your time. Enjoy the holiday. This official opening of summer is really going to feel like summer.
5-21-20 CONTRARIAN INVESTOR - A message from Consuelo - May 21, 2020
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MAY 21, 2020
Dear WEALTHTRACK Subscriber,
Can investing be simple? With the 20/20 vision of hindsight it sure looks that way. Had investors just decided to stay in the U.S., invest in growth stocks, especially mega cap tech stocks they would have hit the trifecta over the last decade or more.
Has the COVID-19 pandemic changed that formula for success? It has not. If anything it seems to have accelerated and accentuated it.
The extended FAANG family known by the acronym FAANGM for Facebook, Amazon, Apple, Netflix, Google’s parent Alphabet and Microsoft recently comprised close to 24% of the total market cap of the S&P 500, topping what dot com stocks reached at the height of the tech bubble. And their performance has dominated with them outperforming the market and leaving the rest of the S&P family far behind. Since 2013 (Facebook went public in 2012) the performance of the group has delivered cumulative returns of nearly 400% while the rest of the S&P 500 only advanced 60%.
Left in the dust by this juggernaut combination of U.S mega cap tech are other stock market sectors including value stocks, small company stocks and international markets, particularly emerging markets.
It just so happens that those are the very areas that this week’s guest believes we should be focusing on now.
He is financial thought leader, innovator and investor Robert Arnott, Chairman of the Board of Research Affiliates, which he founded in 2002 as a self-described “research intensive asset management firm that focuses on innovative products.” Among the innovations that he has pioneered is fundamental indexation - building indexes with stocks based on the size of their fundamentals, such as sales, profits, cash flow, book value and dividends, not their stock price.
Research Affiliates has created numerous fundamental indexes for a wide variety of markets and asset classes around the world with an estimated $145 billion in assets.
The firm just published its new forecast for various smart beta strategies. Here are the highlights:
The Covid Crash has disrupted equity markets the world over. Our updated Smart Beta Interactive tool shows the impact of these dislocations:
- Every value strategy in the US and International markets is in the bottom decile by historical valuation.
- Quality and Momentum strategies in all regions are priced to deliver near- or below-zero expected five-year excess returns.
- US small caps, beaten down by bankruptcy fears, are priced to outperform US large caps by over 6% per year for the next five years.
Before getting into these contrarian assumptions I will ask Arnott how the pandemic and the policy responses to it have changed his investment views.
In this week’s EXTRA feature on our website, Arnott reflects on how COVID-19 has affected him personally.
As always, if you miss the show on public television, you can watch it on our website over the weekend. You can also find the WEALTHTRACK podcast on Stitcher and SoundCloud as well as iTunes and Spotify.
Thank you for spending time with us on this Memorial Day weekend. We are so grateful to the men and women who have sacrificed their lives so we can live in freedom and peace. Make the week ahead a healthy, profitable and a productive one.
Best regards,
Consuelo |
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