This document provides an overview of the current volatile market environment and outlines 10 rules of thumb for navigating periods of increased volatility. It discusses recent declines in major indexes and rise in market volatility. While the authors' base case sees continued slow economic and earnings growth, they note several signs of uncertainty globally. The 10 rules of thumb focus on identifying companies with organic growth opportunities, flexible finances, strong cash flow, and earnings quality to invest successfully through the market cycle.
Mature food companies need to use aggressive cost reduction, portfolio simplification, and substantially new approaches to growth to deliver competitive returns.
Mature food companies need to use aggressive cost reduction, portfolio simplification, and substantially new approaches to growth to deliver competitive returns.
This document draws together our views, observations and analysis of the global trends in the insurance M&A market, including influencing factors and macroeconomic variables.
Our analysis covers five primary regions: Western Europe, North America, Asia, Latin America and the Middle East and North Africa. Each section includes a review and remark on deal activity and current trends, in addition to consideration
of future bearings.
WE BELIEVE that our Eighth Core Portfolio investment strategy provides the answers to the previously mentioned issues and offers a truly balanced approach to investing.
Equities, bonds, real estate and commodities are four asset classes that cover the core of any asset allocation process. The Eighth Core Portfolio is based on the idea that, during any given stage of a global investment cycle, money will flow across these assets, thereby affecting their performance. Rather than time the entry into the outperformer and the exit from the underperformer the Eighth Core Portfolio invests globally across all four in equal measure thereby ensuring that it participates in the best asset class in any environment. Over the investment period a constant exposure is maintained in order to avoid any outperforming asset class becoming a drag when the market turns.
This balanced approach is designed to produce medium to long term returns which exceed those of nominal cash returns. Historical evidence shows that this strategy has had proven outperformance in various timeframes and in all environments (see Tables 1 to 3) More importantly it minimizes volatility by taking advantage of the low correlations between the individual asset classes (see Table 4).
With momentum building towards the UN Climate Change Conference in Peru, new figures from IBR reveal that businesses leaders in emerging markets are more focused on the sustainability of their operations compared with peers in developed markets. In this short report Nathan Goode, global leader for energy & cleantech, calls for a change in the narrative around sustainability arguing that we need to start talking in language that resonates with businesses.
The under-performing of value stocks and lowering of interest rates has compelled the investment managers to re-rate their strategies. Download the report by investment research experts at Aranca on value investing here!
Still keeping your money on the sidelines because you are nervous about the market? Take a look at this article to see some of the unintended risks of inaction.
This document draws together our views, observations and analysis of the global trends in the insurance M&A market, including influencing factors and macroeconomic variables.
Our analysis covers five primary regions: Western Europe, North America, Asia, Latin America and the Middle East and North Africa. Each section includes a review and remark on deal activity and current trends, in addition to consideration
of future bearings.
WE BELIEVE that our Eighth Core Portfolio investment strategy provides the answers to the previously mentioned issues and offers a truly balanced approach to investing.
Equities, bonds, real estate and commodities are four asset classes that cover the core of any asset allocation process. The Eighth Core Portfolio is based on the idea that, during any given stage of a global investment cycle, money will flow across these assets, thereby affecting their performance. Rather than time the entry into the outperformer and the exit from the underperformer the Eighth Core Portfolio invests globally across all four in equal measure thereby ensuring that it participates in the best asset class in any environment. Over the investment period a constant exposure is maintained in order to avoid any outperforming asset class becoming a drag when the market turns.
This balanced approach is designed to produce medium to long term returns which exceed those of nominal cash returns. Historical evidence shows that this strategy has had proven outperformance in various timeframes and in all environments (see Tables 1 to 3) More importantly it minimizes volatility by taking advantage of the low correlations between the individual asset classes (see Table 4).
With momentum building towards the UN Climate Change Conference in Peru, new figures from IBR reveal that businesses leaders in emerging markets are more focused on the sustainability of their operations compared with peers in developed markets. In this short report Nathan Goode, global leader for energy & cleantech, calls for a change in the narrative around sustainability arguing that we need to start talking in language that resonates with businesses.
The under-performing of value stocks and lowering of interest rates has compelled the investment managers to re-rate their strategies. Download the report by investment research experts at Aranca on value investing here!
Still keeping your money on the sidelines because you are nervous about the market? Take a look at this article to see some of the unintended risks of inaction.
The allocator shows in detail our view on the financial markets and give insight on our asset, sector and geographical allocation. It can go from 0 - 100% in equity and is actively rebalanced on a monthly basis.
Over the last year or so, there has been much talk about another impending recession and how it could impact channel management. The recession theory is based upon historical trends, which suggest business cycles tend to last around five to seven years each. That means every five to seven years we experience some sort of a recession. Eventually the economy recovers, and then something else happens to triggers another recession.
No bubble trouble; stocks are still reasonably priced. This credit cycle has unique characteristics that continue to make high-yield bonds attractive. Interest-rate volatility poses greater risk than higher rates themselves.
Five years after the worst economic crisis of our lifetimes, we are still feeling the after-shocks around the world.
Our recent financial past seems to herald one certainty for our collective
financial future: The investment world we grew up with has changed utterly.
Conventional wisdoms shaped by decades of high-return investing — first in equities from 1982 to 2000, then in fixed income markets over most of this century — need to be reexamined, revised, or even scrapped.
Through all the market traumas of recent years, the crises in Greece, slowdown scares in China, US political gridlock, the collapse in oil prices, the wars and the migrant flows, investors prepared to weather short-term volatility have seen handsome returns on developed-economy equities since the depths of the financial crisis in 2008, with EUR and USD investors seeing only one modestly down year in 2011. There has also been good performance from high yield and investment grade corporate bonds, the laggards (since 2011) being investments connected to commodities and emerging markets.
Our analysis, set out in this Outlook, suggests that 2016 may deliver a fairly similar pattern. Temporary traumas could emanate from Federal Reserve tightening, reduced bond liquidity, renewed growth scares in China or geopolitics, but behind these is an underlying picture of ongoing expansion. The global economy is neither pushed up against capacity limits nor facing severe slack (except for commodities and energy), banking systems are healthy and debt levels seem more amber than red. Rapid growth seems unlikely, given aging populations (bar Africa and India) and sharing economy technologies that do not generate much Gross Domestic Product, but sensibly-priced assets do not need a booming economy to generate reasonable returns. At the time of writing (in late 2015), high yield and investment grade credits have spreads just above their quarter-century averages, giving them scope to weather gradual Fed tightening. Developed equities have valuations somewhat above historic norms on a price-earnings basis, but not on a price-book basis, and operational leverage (especially in the Eurozone) and consolidating oil prices should allow earnings growth to move from last year's negatives into the mid- to high-single digits. In short, we think developed equities and credits are well placed for another year of reasonable returns, with the dollar likely to be strong again as the Fed leads the monetary cycle. As for emerging markets, and the commodities on which many depend, a convincing general recovery looks some time away, but there is scope for some to move ahead of the pack, as discussed in a special article.
Of course there can always be risks that are not visible and Fed tightening has a habit of teasing these out, although usually not within its first year. But, equally, there could be upside surprises, if the USA finally moves toward solutions on taxing repatriated corporate cash and infrastructure spending or, more simply, the signals of rising confidence already visible in US and European consumer surveys translate into faster spending. We trust our readers will find the Investment Outlook 2016 to be of considerable interest for the coming year.
C
A
SP
A
R
B
EN
SO
N
/G
ET
TY
IM
A
G
ES
STRATEGY
IN THE AGE OF
SUPERABUNDANT
CAPITAL
MONEY IS NO LONGER A SCARCE RESOURCE.
THAT CHANGES EVERYTHING.
BY MICHAEL MANKINS, KAREN HARRIS,
AND DAVID HARDING
66 HARVARD BUSINESS REVIEW MARCH–APRIL 2017
most of the past 50 years, business leaders viewed fi-
nancial capital as their most precious resource. They
worked hard to ensure that every penny went to fund-
ing only the most promising projects. A generation
of executives was taught to apply hurdle rates that
reflected the high capital costs prevalent for most
of the 1980s and 1990s. And companies like General
Electric and Berkshire Hathaway were lauded for the
discipline with which they invested.
Today financial capital is no longer a scarce
resource—it is abundant and cheap. Bain’s Macro
Trends Group estimates that global financial capital
has more than tripled over the past three decades and
now stands at roughly 10 times global GDP. As capital
has grown more plentiful, its price has plummeted.
For many large companies, the after-tax cost of bor-
rowing is close to the rate of inflation, meaning that
real borrowing costs hover near zero. Any reasonably
profitable large enterprise can readily obtain the capi-
tal it needs to buy new equipment, fund new product
development, enter new markets, and even acquire
new businesses. To be sure, leadership teams still need
to manage their money carefully—after all, waste is
waste. But the skillful allocation of financial capital is
no longer a source of sustained competitive advantage.
The assets that are in short supply at most compa-
nies are the skills and capabilities required to translate
good growth ideas into successful new products, ser-
vices, and businesses—and the traditional financially
driven approach to strategic investment has only com-
pounded this paucity. Indeed, the standard method
for prioritizing strategic investments strives to limit
the field of potential projects and encourages compa-
nies to invest in a few “sure bets” that clear high hur-
dle rates. At a time when most companies are desper-
ate for growth, this approach unnecessarily forecloses
too many options. And it encourages executives to
remain committed to investments long after it’s clear
that they’re not paying off. Finally, it leaves companies
with piles of cash for which executives often find no
better use than to buy back stock.
Strategy in the new age of capital superabundance
demands a fundamentally different approach from the
traditional models anchored in long-term planning
and continual improvement. Companies must lower
hurdle rates and relax the other constraints that reflect
a bygone era of scarce capital. They should move away
from making a few big bets over the course of many
years and start making numerous small and varied
investments, knowing that not all will pan out. They
must learn to quickly spot—and get out of—losing
ventures, while ag ...
Ideas:
-Get away from the U.S. bias - think tactical globally
-Keep an eye on USD / Oil / China / Earnings
-Europe is cheap and growth potential creates opportunities
-Japan: both hedged and unhedged opportunities to explore
-Global consumer markets: credit space and EM consumer markets
Proactive Alternatives strategies for the sophisticated HNW investor with actively managed accounts. A currency hedge works well against rising interest rate volatility.
how can I sell my pi coins for cash in a pi APPDOT TECH
You can't sell your pi coins in the pi network app. because it is not listed yet on any exchange.
The only way you can sell is by trading your pi coins with an investor (a person looking forward to hold massive amounts of pi coins before mainnet launch) .
You don't need to meet the investor directly all the trades are done with a pi vendor/merchant (a person that buys the pi coins from miners and resell it to investors)
I Will leave The telegram contact of my personal pi vendor, if you are finding a legitimate one.
@Pi_vendor_247
#pi network
#pi coins
#money
If you are looking for a pi coin investor. Then look no further because I have the right one he is a pi vendor (he buy and resell to whales in China). I met him on a crypto conference and ever since I and my friends have sold more than 10k pi coins to him And he bought all and still want more. I will drop his telegram handle below just send him a message.
@Pi_vendor_247
when will pi network coin be available on crypto exchange.DOT TECH
There is no set date for when Pi coins will enter the market.
However, the developers are working hard to get them released as soon as possible.
Once they are available, users will be able to exchange other cryptocurrencies for Pi coins on designated exchanges.
But for now the only way to sell your pi coins is through verified pi vendor.
Here is the telegram contact of my personal pi vendor
@Pi_vendor_247
how can I sell pi coins after successfully completing KYCDOT TECH
Pi coins is not launched yet in any exchange 💱 this means it's not swappable, the current pi displaying on coin market cap is the iou version of pi. And you can learn all about that on my previous post.
RIGHT NOW THE ONLY WAY you can sell pi coins is through verified pi merchants. A pi merchant is someone who buys pi coins and resell them to exchanges and crypto whales. Looking forward to hold massive quantities of pi coins before the mainnet launch.
This is because pi network is not doing any pre-sale or ico offerings, the only way to get my coins is from buying from miners. So a merchant facilitates the transactions between the miners and these exchanges holding pi.
I and my friends has sold more than 6000 pi coins successfully with this method. I will be happy to share the contact of my personal pi merchant. The one i trade with, if you have your own merchant you can trade with them. For those who are new.
Message: @Pi_vendor_247 on telegram.
I wouldn't advise you selling all percentage of the pi coins. Leave at least a before so its a win win during open mainnet. Have a nice day pioneers ♥️
#kyc #mainnet #picoins #pi #sellpi #piwallet
#pinetwork
how to sell pi coins in all Africa Countries.DOT TECH
Yes. You can sell your pi network for other cryptocurrencies like Bitcoin, usdt , Ethereum and other currencies And this is done easily with the help from a pi merchant.
What is a pi merchant ?
Since pi is not launched yet in any exchange. The only way you can sell right now is through merchants.
A verified Pi merchant is someone who buys pi network coins from miners and resell them to investors looking forward to hold massive quantities of pi coins before mainnet launch in 2026.
I will leave the telegram contact of my personal pi merchant to trade with.
@Pi_vendor_247
The European Unemployment Puzzle: implications from population agingGRAPE
We study the link between the evolving age structure of the working population and unemployment. We build a large new Keynesian OLG model with a realistic age structure, labor market frictions, sticky prices, and aggregate shocks. Once calibrated to the European economy, we quantify the extent to which demographic changes over the last three decades have contributed to the decline of the unemployment rate. Our findings yield important implications for the future evolution of unemployment given the anticipated further aging of the working population in Europe. We also quantify the implications for optimal monetary policy: lowering inflation volatility becomes less costly in terms of GDP and unemployment volatility, which hints that optimal monetary policy may be more hawkish in an aging society. Finally, our results also propose a partial reversal of the European-US unemployment puzzle due to the fact that the share of young workers is expected to remain robust in the US.
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how to sell pi coins on Bitmart crypto exchangeDOT TECH
Yes. Pi network coins can be exchanged but not on bitmart exchange. Because pi network is still in the enclosed mainnet. The only way pioneers are able to trade pi coins is by reselling the pi coins to pi verified merchants.
A verified merchant is someone who buys pi network coins and resell it to exchanges looking forward to hold till mainnet launch.
I will leave the telegram contact of my personal pi merchant to trade with.
@Pi_vendor_247
how to sell pi coins at high rate quickly.DOT TECH
Where can I sell my pi coins at a high rate.
Pi is not launched yet on any exchange. But one can easily sell his or her pi coins to investors who want to hold pi till mainnet launch.
This means crypto whales want to hold pi. And you can get a good rate for selling pi to them. I will leave the telegram contact of my personal pi vendor below.
A vendor is someone who buys from a miner and resell it to a holder or crypto whale.
Here is the telegram contact of my vendor:
@Pi_vendor_247
What website can I sell pi coins securely.DOT TECH
Currently there are no website or exchange that allow buying or selling of pi coins..
But you can still easily sell pi coins, by reselling it to exchanges/crypto whales interested in holding thousands of pi coins before the mainnet launch.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and resell to these crypto whales and holders of pi..
This is because pi network is not doing any pre-sale. The only way exchanges can get pi is by buying from miners and pi merchants stands in between the miners and the exchanges.
How can I sell my pi coins?
Selling pi coins is really easy, but first you need to migrate to mainnet wallet before you can do that. I will leave the telegram contact of my personal pi merchant to trade with.
Tele-gram.
@Pi_vendor_247
what is the best method to sell pi coins in 2024DOT TECH
The best way to sell your pi coins safely is trading with an exchange..but since pi is not launched in any exchange, and second option is through a VERIFIED pi merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and pioneers and resell them to Investors looking forward to hold massive amounts before mainnet launch in 2026.
I will leave the telegram contact of my personal pi merchant to trade pi coins with.
@Pi_vendor_247
USDA Loans in California: A Comprehensive Overview.pptxmarketing367770
USDA Loans in California: A Comprehensive Overview
If you're dreaming of owning a home in California's rural or suburban areas, a USDA loan might be the perfect solution. The U.S. Department of Agriculture (USDA) offers these loans to help low-to-moderate-income individuals and families achieve homeownership.
Key Features of USDA Loans:
Zero Down Payment: USDA loans require no down payment, making homeownership more accessible.
Competitive Interest Rates: These loans often come with lower interest rates compared to conventional loans.
Flexible Credit Requirements: USDA loans have more lenient credit score requirements, helping those with less-than-perfect credit.
Guaranteed Loan Program: The USDA guarantees a portion of the loan, reducing risk for lenders and expanding borrowing options.
Eligibility Criteria:
Location: The property must be located in a USDA-designated rural or suburban area. Many areas in California qualify.
Income Limits: Applicants must meet income guidelines, which vary by region and household size.
Primary Residence: The home must be used as the borrower's primary residence.
Application Process:
Find a USDA-Approved Lender: Not all lenders offer USDA loans, so it's essential to choose one approved by the USDA.
Pre-Qualification: Determine your eligibility and the amount you can borrow.
Property Search: Look for properties in eligible rural or suburban areas.
Loan Application: Submit your application, including financial and personal information.
Processing and Approval: The lender and USDA will review your application. If approved, you can proceed to closing.
USDA loans are an excellent option for those looking to buy a home in California's rural and suburban areas. With no down payment and flexible requirements, these loans make homeownership more attainable for many families. Explore your eligibility today and take the first step toward owning your dream home.
What price will pi network be listed on exchangesDOT TECH
The rate at which pi will be listed is practically unknown. But due to speculations surrounding it the predicted rate is tends to be from 30$ — 50$.
So if you are interested in selling your pi network coins at a high rate tho. Or you can't wait till the mainnet launch in 2026. You can easily trade your pi coins with a merchant.
A merchant is someone who buys pi coins from miners and resell them to Investors looking forward to hold massive quantities till mainnet launch.
I will leave the telegram contact of my personal pi vendor to trade with.
@Pi_vendor_247
US Economic Outlook - Being Decided - M Capital Group August 2021.pdfpchutichetpong
The U.S. economy is continuing its impressive recovery from the COVID-19 pandemic and not slowing down despite re-occurring bumps. The U.S. savings rate reached its highest ever recorded level at 34% in April 2020 and Americans seem ready to spend. The sectors that had been hurt the most by the pandemic specifically reduced consumer spending, like retail, leisure, hospitality, and travel, are now experiencing massive growth in revenue and job openings.
Could this growth lead to a “Roaring Twenties”? As quickly as the U.S. economy contracted, experiencing a 9.1% drop in economic output relative to the business cycle in Q2 2020, the largest in recorded history, it has rebounded beyond expectations. This surprising growth seems to be fueled by the U.S. government’s aggressive fiscal and monetary policies, and an increase in consumer spending as mobility restrictions are lifted. Unemployment rates between June 2020 and June 2021 decreased by 5.2%, while the demand for labor is increasing, coupled with increasing wages to incentivize Americans to rejoin the labor force. Schools and businesses are expected to fully reopen soon. In parallel, vaccination rates across the country and the world continue to rise, with full vaccination rates of 50% and 14.8% respectively.
However, it is not completely smooth sailing from here. According to M Capital Group, the main risks that threaten the continued growth of the U.S. economy are inflation, unsettled trade relations, and another wave of Covid-19 mutations that could shut down the world again. Have we learned from the past year of COVID-19 and adapted our economy accordingly?
“In order for the U.S. economy to continue growing, whether there is another wave or not, the U.S. needs to focus on diversifying supply chains, supporting business investment, and maintaining consumer spending,” says Grace Feeley, a research analyst at M Capital Group.
While the economic indicators are positive, the risks are coming closer to manifesting and threatening such growth. The new variants spreading throughout the world, Delta, Lambda, and Gamma, are vaccine-resistant and muddy the predictions made about the economy and health of the country. These variants bring back the feeling of uncertainty that has wreaked havoc not only on the stock market but the mindset of people around the world. MCG provides unique insight on how to mitigate these risks to possibly ensure a bright economic future.
US Economic Outlook - Being Decided - M Capital Group August 2021.pdf
Rules of Thumb for a Volatile Market
1. FEBRUARY 2016
INVESTMENT MANAGEMENT
Investment View
10 Rules of Thumb
for a Volatile Market
Over the past 18 months, investors have witnessed a significant
“repricing” of risk in specific areas of the market such as high yield
bonds, Energy and Materials stocks, and Small Caps. Until recently,
however, broad-based measures (such as the SP 500, the Dow
Jones Industrial Average, and equity volatility indicators) had
registered little more than modest fluctuations. With major indexes
having now posted notable declines to start the year, this is no
longer the case. And while measures of volatility have yet to climb
to alarming levels, we have seen the CBOE SP 500 Volatility
Index (VIX) climb off of the historically low levels seen for most of
the economic and equity market expansion over the past six years.
Given the current uncertainty in the global economy, questions about the path of
corporate earnings, and increasing signs of stress in the debt markets, we thought it
appropriate to frame the current market environment before outlining 10 suggestions
for negotiating periods of increased volatility. As bottom-up stockpickers, we have
found them to be of critical importance when attempting to successfully invest through
a cycle. And we have seen countless instances—a few firsthand—of what can happen
when one or more of these characteristics are missing from the investment framework.
AUTHORS
MARSHALL KAPLAN
Managing Director
Morgan Stanley
Investment Management
STEVEN HOWARD
Managing Director
Morgan Stanley
Investment Management
ROCHELLE WAGENHEIM
Executive Director
Morgan Stanley
Investment Management
2. 2
INVESTMENT VIEW
Putting the recent volatility in context
Historically, equity markets have experienced meaningful
pullbacks (7%-18%) with surprising regularity, as we witnessed
in every year of the recovery except 2013. These are painful
but by no means unprecedented parts of any market upcycle.
Our work suggests that these become something more sinister
when accompanied by recessionary conditions; they are what
tend to end bull markets, in our view. As of February 16, 2016,
the Russell 3000 is down 13% from its June 2015 high. More
worryingly, though, the average stock in the index is down
nearly 35% from its 52-week high, implying a fairly severe
bear market for the average stock. This is what has made the
pullback feel much worse than the indices would have us
believe. As a result, the recent market action has led to more
questions about where we are in the economic cycle (despite
notable strength in employment and consumption). Our base
case has been predicated upon a “lower for longer” mentality
for economic growth, given the friction that deleveraging has
placed on growth.
While no economic or market cycle mimics another exactly,
there are typically a number of important preconditions needed
to see the end of an expansion or a bull market. Currently,
we see only a few warning signs out of more than a dozen
reasonably reliable indicators. In our view, the top causes for
concern include high yield bond spreads (~800 bps up from
the low of ~330 in mid-2014), MA volumes (at historic
highs), and net debt to EBITDA at corporations (while not
outright worrisome, they do show the impact of a full cycle of
very attractive borrowing costs). Other factors that look more
comforting include valuations, sentiment (investor and analysts),
EPS growth (globally and in the U.S.), employment trends,
capex growth (not at all frothy), and the yield curve.
Potential Positives
• Corporate earnings, ex-Energy, remain solid
• Corporations have taken structural costs out of the system,
and many have an action plan in place to deal with
a slowdown
• Employment is improving
• Central bankers remain ready to “do whatever it takes” to
ensure growth1
• Flows away from cash and bonds continue to be a potential
source of marginal demand for equities
• Economic data in the U.S. remain a relative bright spot when
looked at from a global perspective
• Credit conditions remain quite conducive for growth, though
concerns in the Energy sector have rippled through other areas
of the high yield market
• Valuations remain reasonable
• Lower energy prices may help boost consumer discretionary
spending in the U.S.
Potential Negatives
• Earnings growth has stagnated, with “beats” not driven by
sales growth
• Margins have little room to expand, and recent wage inflation
may begin to act as a headwind
• High yield bond spreads have expanded to worrisome levels
• The move toward a “normalization” of monetary
policy has begun
Display 1: CBOE SP 500 Volatility Index (VIX) Performance
90
80
70
60
50
40
30
20
10
0
1/23/07 2/16/161/23/08 1/23/09 1/23/10 1/23/11 1/23/12 1/23/13 1/23/14 1/23/15
CBOE SP Volatility Index (VIX) Average
Source: Bloomberg.
This index performance is provided for illustrative purposes only and is not meant to depict the performance of a specific investment. Past performance is no guarantee
of future results.
1
Jeff Black and Jana Randow, “Draghi Says ECB Will Do What’s Needed to
Preserve Euro: Economy,” http://www.bloomberg.com.
3. 3
10 RULES OF THUMB FOR A VOLATILE MARKET
• Economic growth globally remains sluggish despite
unprecedented stimulus
• European recovery remains fragile
• Emerging market growth is slowing
• China’s economy has endured numerous growing pains
in recent years, and rising debt levels could limit a policy
response to further growth
• Plenty of geopolitical issues
• Developed markets’ fiscal deficits restrict flexibility and may
reduce growth
• Approximately 30% of employment gains made since 2008
have come from “Energy” states2
Opportunities Exist
Our base case continues to argue for a slow grind higher for
corporate earnings and the broader economy. We believe it
continues to be prudent to stick with companies that possess
strong financial flexibility, those that can take market share
from peers and can opportunistically flex their muscle with
pricing, and companies that are critical to their customers. In
addition to these structural winners, we continue to look for
“self-help” stories. In sum, we do not believe that the current
expansion is over, though at this point in the cycle we as investors
remain extremely focused on factors that could tilt our generally
constructive base case towards something more threatening.
10 Rules of Thumb For a
Volatile Market
Focus on Organic Growth Opportunities
With economists calling for below-trend GDP growth (trend
considered to be approximately 3% real growth) over the next
year, we believe investors will place a premium on companies
possessing the ability to increase their sales and earnings at
rates in excess of the broader market through organic (non-
acquisitive) growth. Companies in the early stage of a new
product cycle or brand line extensions of popular products often
offer superior opportunities for organic growth and economic
resilience, in our opinion. In a suboptimal growth environment,
we also recommend looking for companies that have the ability
to capture an increasing share of their end markets.
Identify Long-Term Growth Trends
Shifting demographic patterns or new legislation can often
lead to critical behavioral changes that influence the products
and services consumers and corporations purchase. Often,
these trends are less affected by economic conditions because
of necessity. In many cases, companies enjoying either critical
mass or “first mover” status reap the benefits of these changes
and develop strong customer loyalty, which, in turn, can lead to
strong recurring revenues.
Focus on Companies That Make Other Companies
More Productive
With productivity gains and resulting cost savings becoming
more difficult to achieve given the age of the current expansion
and macroeconomic headwinds, we believe that companies
will focus on those products and services offering a “value
proposition” or enhanced return on investment (ROI). We
have seen examples of this in a host of different areas, ranging
from companies that utilize software to help streamline their
customers’ operations to those new media companies that can
help advertisers allocate spending more efficiently.
Maintain an Emphasis on Companies Possessing
Financial Flexibility
During periods of heightened uncertainty, access to additional
capital might become more difficult to obtain and viewed as
a sign of weakness by the investment community. We believe
companies that possess the financial strength to fund internal
or external growth opportunities through strong and rising
free cash flow (and low debt service costs) tend to exhibit lower
volatility and more stable returns over time. Metrics that take
on added importance in the late stages of a credit cycle include:
interest coverage, working capital efficiency and sustainable free
cash flow. We believe companies that possess low debt levels
as a percentage of total capital will be rewarded by investors,
particularly when access to financing is perceived to be limited.
Make Sure “Perception” Can’t Become Reality – Avoid
Companies That Need to Roll Debt or Access the Capital
Markets During Adverse Conditions
Recent market events show that companies with high leverage
and/or operating in beleaguered industries needing to raise
capital or roll maturing debt can suffer severe consequences in
the current environment. What would normally be a regular
occurrence can quickly become a source of worry, given the
heightened risk aversion in certain segments of the market.
Furthermore, share price weakness can raise questions about
the perceived (or real) ability for a company to raise capital
for growth plans and put a company into financial distress,
provided they don’t have the ability to shift to internal funding.
Pay Attention to the Quality of Earnings
Over time, we believe the market’s performance has generally
been driven by the path of corporate earnings, so having
conviction in the quality of a company’s earnings is critical. As
market cycles progress, we have found that corporate earnings
tend to settle into a pattern of modest earnings “beats.” At the2
Source: Bureau of Labor Statistics and Fundamental Equity Advisors.
4. 4
INVESTMENT VIEW
end of a cycle, however, we have found that investors tend to get
complacent. Underlying earnings quality begins to deteriorate,
as corporations stretch to meet earnings expectations. For
a time, a corporation may be able to mask an underlying
deterioration in fundamentals through financial engineering
and by pointing investors toward “Adjusted Earnings” and
away from GAAP earnings. The use of Adjusted Earnings has
increased considerably in recent years; in its purest form, this
non-GAAP measure is designed to provide clarity to investors,
removing one-time items, non-cash items, and other non-core
distortions. However, the definition of “Adjusted Earnings”
is quite malleable and at the discretion of management; this
allows the potential for exploitation, in our view. To us, a good
measure of a corporation’s quality of earnings is how closely
its free cash flow (net income + depreciation amortization
+/- changes in working capital – capital expenditures) matches
its net income.
Focus on/Scrutinize Free Cash Flow
We believe free cash flow is the clearest measure of a company’s
financial flexibility. Companies generating excess free cash flow
may choose to reward shareholders through the payment of a
dividend or a share repurchase program. Other corporations
may choose to direct cash flow toward strategic acquisitions
or internal growth opportunities. Investors should closely
monitor corporations where significant changes in depreciation
schedules can have a meaningful impact on near-term earnings.
Additionally, a large increase in receivables or inventories can be
an indication of potential trouble ahead.
Avoid Value Traps
In our view, investors should focus on forward earnings
projections because many economically sensitive companies,
particularly at or near cyclical peaks, tend to appear attractively
valued based on trailing earnings. Beyond the normal economic
cycle, we have seen numerous instances where a particular
industry has undergone significant but often temporary changes
that can have a meaningful impact on profitability (both
negative and positive). These changes often prove transitory and
can have a meaningful impact on what earnings multiple an
investor is willing to ascribe to that company or industry. More
myopically, a focus on consensus earnings estimate revisions can
provide investors with some insight into near-term operating
momentum. Often, particularly during a period of slowing
economic growth, the first earnings shortfall may act as a
harbinger of future earnings disappointments.
Merger Acquisition (MA) Selection Criteria
Shouldn’t Be Dismissed
Over shorter periods, the share price of a company can be
driven by a host of nonfundamental factors, such as sentiment,
technical factors, fund flows, and nonrecurring fundamental
factors. Over the longer term, however, we believe there are
several durable drivers of value for a company, many of which
are sought out by financial and strategic buyers (leveraged
buyouts and MA). These include strong free cash flow,
low leverage and ample opportunity for margin expansion.
Screening for companies that have minimal leverage and
free cash flow yields well in excess of prevailing borrowing
costs can be a good starting place for evaluating potential
investment ideas.
Focus on the Long Term and Keep Emotions in Check
Successfully negotiating difficult market environments requires
a willingness to act quickly on investor misperceptions that
frequently occur due to “panic selling” or “group-think.”
Emotionally charged markets are often driven by fear rather
than the careful analysis of fundamentals. In our view, a
disciplined investment process, emphasizing strong or rising
free cash flow, profit margin expansion, attractive valuation,
positive changing internal dynamics, incremental market
share opportunities, and strong management teams, can help
maintain clarity in volatile markets.
5. 5
10 RULES OF THUMB FOR A VOLATILE MARKET
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