A Stock Picker’s Market
Posted by Eddy Elfenbein on April 5th, 2016 at 10:20 am

Some interesting numbers from Bloomberg:

An index maintained by Goldman Sachs Group Inc. of the 50 stocks in which mutual fund managers are the least invested has gained 5.3 percent this year, compared with a 3.1 percent decline in a gauge tracking the most popular ones. That’s near the biggest gap in three years, according to data compiled by Bloomberg.

Research from Bank of America Corp. research shows a starker picture: in the first quarter, just 19 percent of mutual funds beat the S&P 500, the fewest since at least 1998, strategists at the bank wrote in a note Monday. That happened even as one measure of variation among stock returns has increased this year.

A mathematical indicator known as dispersion, which measures how far individual equities swing relative to the market, has ticked up. According to data compiled by Bloomberg, the typical year-to-date stock return in the S&P 500 is 12 percentage points above or below the average, the most since 2012. In March, a measure of implied correlation among stocks plunged to the lowest level in a year.

Still, active managers are coming up short as their favorite trades lag behind. One strategy, chasing gains in the market’s biggest winners, backfired on mutual fund and hedge fund managers alike as the stocks in the S&P 500 that did the worst in 2015 added 8.2 percent in the first quarter of 2016, according to Bespoke Investment Group LLC.

(…)

Managers erred in avoiding utility and consumer staples companies, according to Goldman’s index data, which pulls from 489 mutual funds with $1.6 trillion under management. There wasn’t a single utility among managers’ top 50 overweight positions in the first quarter, when the group posted the quarter’s second-best return. At the same time, financials were the second-most represented industry. That group is down 5.3 percent in 2016, the worst return in the S&P 500.

The three most-favored stocks by managers invested in big companies were Alphabet Inc., Visa Inc. and JPMorgan Chase & Co, all of which have trailed the S&P 500.

The Surging Yen
Posted by Eddy Elfenbein on April 5th, 2016 at 10:14 am

After being weak for a long time, the Japanese yen is rallying. It just hit a 17-month high.

The yen is nearing 110. Earlier this year, AFLAC (AFL) said “Our objective is to produce stable operating earnings per diluted share of $6.17 to $6.41, assuming the average exchange rate in 2015 of 120.99.”

Very roughly speaking, for every one point the exchange rate goes below 121, that adds three cents per share to AFL’s annual EPS.

Morning News: April 5, 2016
Posted by Eddy Elfenbein on April 5th, 2016 at 7:05 am

IMF’s Lagarde Says Risks to Weak Global Recovery Are Increasing

Panama Papers Probes Opened, China Limits Access to News on Leaks

The President of Transparency International Chile Resigns After Being Named in the Panama Papers

With Repo Cut and MCLR, Money is Significantly Cheap Now: RBI Governor Raghuram Rajan

Don’t Cry for Argentina’s Investors

Gulf Spill Settlement Could Save BP Billions In Tax Breaks

New U.S. Inversion Rules Threaten Pfizer-Allergan Deal

Disney’s Not Alone in Successing Woes

Peugeot Tumbles as Expansion Spending Weighs on Profit Margins

Amazon Will Announce a New Kindle Next Week

Amazon Mulls Fintech Acquisitions as Valuations Fall

ValueAct Suit Reveals U.S.’s Dim View of Halliburton Deal

Siemens Said Among Parties Interested in Emerson Power Unit

Joshua Brown: Simple Vs. Complex

Roger Nusbaum: First Quarter Ends With a Meh!

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How Containerization Changed the World
Posted by Eddy Elfenbein on April 4th, 2016 at 10:28 pm

Here’s a fascinating video on containerization. It may be the most influential invention that you’ve never heard of.

Two Evening Reads
Posted by Eddy Elfenbein on April 4th, 2016 at 8:16 pm

I wanted to highlight two exceptional posts I read today. The first is from Josh Brown on the importance of simplicity in investing. Josh nails it.

Here’s a sample:

It should not come as any surprise that a sophisticated investment thesis will appeal to funds whose reputations are steeped in the aura of being able to solve market puzzles before the crowd. Sometimes it works beautifully but sometimes the consequences are disastrous. I’ve come to learn that, for most investors, the entire enterprise is completely unnecessary. Year after year, decade after decade, portfolios with simple building blocks and transparent mechanics get the job done. A bet that this will not be the case in the future because of (name your reason) is a low probability one.

Check out the whole thing.

I’ve noticed how often people in finance will make what they do needlessly complex. Even with wording. A simple phrase like “more money” becomes “net capital inflows.” A lower share price becomes “consolidation.” This serves a purpose of scaring away novices.

Investing is routinely made out to be far more complicated than it is. Not only is simple investing easier to understand, but it’s often better as well. I’ve talked about the great performance of JM Smucker (SJM). They make jelly and then sell said jelly for more than it cost them to make it. Simple, easy to understand and insanely profitable.

If something sounds highly complex, there’s a good chance that someone is hiding something.

The other post comes from Cullen Roche who takes aim at a talking point I don’t like. I often hear people dismiss earnings buybacks as somehow being illegitimate. People speak of it as distorting a company’s results. That’s simply not true.

Here’s Cullen:

Corporations are buying back shares because profits are very high and they have determined this to be an efficient way to return capital to investors during a time when they have more cash than they know what to do with. So, every time you read a headline about buybacks “propping up the stock market” you can rewrite that as “Corporate Profits are Propping up the Stock Market”. Of course, that makes for a far less sexy headline, but it’s a much more accurate description of the current state of the stock market.

Coke and McDonalds
Posted by Eddy Elfenbein on April 4th, 2016 at 4:07 pm

Time for Inflation Protection?

Morning News: April 4, 2016
Posted by Eddy Elfenbein on April 4th, 2016 at 6:58 am

BOJ Negative Rates Risk Destroying Loan Market as Freeze Deepens

China’s Companies Poised to Take Leap in Developing a Driverless Car

Insider’s Account of How Graft Fed Brazil’s Political Crisis

Greek Bonds Drop as IMF Says Deal on Additional Loans Is Far Off

Euro-Area Unemployment Declines to Lowest Since 2011

What to Know About the ‘Panama Papers’ Leak

Iceland PM Faces No Confidence Vote Amid Panama Report Leak

Collapse of Orange-Bouygues Deal Adds Poison to Bad Blood

Blackstone Is Buying Indian IT Outsourcer MphasiS From HP Enterprise

A Renewable Energy Boom

Amazon Plans Big Push to Expand Prime Now Fast Delivery

After a Disastrous Year, These Bond Traders Become World-Beaters

Apple’s Push to Flood India With Used iPhones Ignites Backlash

Jeff Miller: Weighing the Week Ahead: Is the Fed Too Optimistic?

Cullen Roche: My “Wisdom” on the Being an Optimist About the Future

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Stocks and Oil Part Ways
Posted by Eddy Elfenbein on April 3rd, 2016 at 9:40 pm

Since late October, oil and stocks have tracked each other pretty closely. Lately, however, they’ve parted ways. In the last week, stocks have climbed while oil has fallen back.

Check out this chart:

There’s an OPEC meeting later this month, and there’s been talk of countries cutting back production. Mostly it’s been talk.

Iran just got off sanctions and they said they’re not cutting production. Then the Saudis said they’re not cutting unless Iran cuts. To me, that sounds like an excuse to say we’re not cutting production. That’s probably what the oil market is responding to.

Dividends Rose 4.6% in Q1
Posted by Eddy Elfenbein on April 2nd, 2016 at 9:21 pm

Dividend growth finally had a meaningful slowdown last quarter. Since the end of the recession, dividends have been growing quite well. In fact, you could say that this bull market was a bull market in dividends as much as it was in stocks. The S&P 500 basically tracked a 2% dividend yield.

From 2010 to 2015, dividends for the S&P 500 rose by 90.9%. But for Q1, dividends rose just 4.6% from last year’s Q1. A lot of that was due to dividend cuts from energy stocks. The March dividend payment from the Energy ETF (XLE) was down 12% from last year. Expect to see more.

March ISM = 51.8
Posted by Eddy Elfenbein on April 1st, 2016 at 10:07 am

For the first time in several months, we got a decent ISM Manufacturing report. The index for March came in at 51.8. Wall Street had been expecting 50.5.