Another month and another new high in equity valuations, at least relative to sales. Indeed, the median company in our developed world index (which covers the top 85% of companies in each country) just achieved a price to sales ratio that eclipsed the 2000 peak. There are of course fundamental reasons for this ranging from low interest rates to high profit margins, but the fact that valuations today exceed peak bubble valuations of 2000 is a tough nut to swallow for equity investors expecting to achieve an historically average 7% annual rate of return. What’s more, unlike in 2000 when the median valuation was driven higher primarily by tech stocks, leaving plenty of “value” areas to flock to, valuations today are extended across the board, from staples, to industrials to tech to materials. Save energy as the one sector without peak, or near peak valuations. This scenario should put ever more importance on stock picking and risk management going forward.
Top value fund managers are ready for the small cap bear market to be done
During the bull market, small caps haven't been performing well, but some believe that could be about to change. Breach Inlet Founder and Portfolio Manager Chris Colvin and Gradient Investments President Michael Binger both expect small caps to take off. Q1 2020 hedge fund letters, conferences and more However, not everyone is convinced. BTIG strategist Read More
Article by Bryce Coward, CFA - Knowledge Leaders Capital