Should investors beware of ‘Friday 13th’?
RWC Partners’ Ian Lance looks at thirteen bizarre goings on in financial markets that should make investors wary.
RWC’s equity income team looks at unnatural events occurring within financial markets, leaving investors deeply confused. These events range from central banks spending billions to bring rates down despite bond yields being at an all time low; to the average holding period in UK equities falling from ten years in the 1950s to twenty two seconds in today’s markets.
Nick Purves and Ian Lance are value investors looking for strong free cash flows at the right price. The various contradictory indicators in today’s investment markets lead them to believe that dividend yield and value remain hard to find despite the relative attractiveness of equities against other asset classes.
13 Unnatural Events
1. The financial situation of many developed economy governments has never been worse… yet the rates at which they can borrow money have never been lower. The US has 3.3 times more debt outstanding than a decade ago and yet the yield demanded by the market has fallen from 6.1% to 2.0%.
2. Investors are lapping up corporate bonds (P&G 10 year at 2.3% and McDonalds 30 year at 3.7%) whilst selling the same companies equity where the well covered equity dividend yield is higher than the corporate bond yield.
3. Bond yields are below 2% indicating that there is a very low probability of inflation and a high probability we are turning Japanese. Meanwhile, gold races onwards and upwards as central bank money printing points to a probability of inflation.
4. Bond yields are at all time lows, and no one wants to borrow money even at this rate… but central banks keep spending billions to try to get rates down just a little bit more.
5. Some of the smartest investors in the world (Warren Buffett, Seth Klarman, Jeremy Grantham) think bonds are hideously over valued and yet most pension funds are looking to increase their allocations to bonds and bond funds continue to top the best selling fund tables.