Tuesday, 06 May 2014 - 20:00
Charts
Seed Weekly - Global Equity or Bonds?
As multi managers we spend a great deal of our time researching the best areas to allocate our clients’ capital – both at the underlying fund manager level, but often more importantly into which asset class and what region.
The end of the Global Financial Crisis (GFC) came some 5 and a bit years ago and now seems like ancient history, but during the GFC investors couldn’t see how it was going to end – there truly were Armageddon stories going around. After a solid 5 years of performance from global equity markets investors can rightly be questioning the wisdom of remaining in global equities over other asset classes, like global bonds, that haven’t performed as well in this period.
The chart below shows the relative performance of the Dow Jones Industrial (DJIA) and MSCI All Country World indices versus Global Bonds over the past 5 years. While the equity indices have more than doubled over this period (returning in excess of 17% pa) global bonds have largely tracked sideways, returning just under 4% pa. Should one be switching to bonds?
At Seed our emphatic answer would be “No!”
Firstly, we do expect equities to deliver materially higher returns than bonds over time. Secondly, and more importantly, global equities (here proxied by the DJIA) continue to offer significantly better value when compared to global bonds (here proxied by the US Government 10 Year Bond (US Govt 10 Yr).
One of the best ways to value an asset is to determine the yield that it is offering and then the prospects in the growth of that yield. Higher yielding assets are naturally preferred to lower yielding assets. One unemotional way of valuing asset classes relative to one another is to compare the relative yields offered by different asset class compared to their historical relationship. This method is used as each asset class will have a different equilibrium yield dependant on its risk profile. When making an asset allocation decision we therefore want to determine whether we are being sufficiently compensated for taking on extra risk.
The chart below shows the difference in yield offered by the DJIA and the US Govt 10 Yr over the past 40 years. It is evident from the chart that the current difference in the yield of the DJIA and US Govt 10 Yr is significantly (more than 1 standard deviation) higher than average. The conclusion from this chart is that equities are offering investors significantly better value than bonds.
A factor that is further in favour of equities is strong expected economic growth in developed markets that will potentially have the impact of stronger earnings for longer (good for equities) and also rising interest rates (bad for bonds) as central banks around the world look to tighten monetary policy.
Where our Fund mandates allow for global exposure, Seed has taken advantage of this valuation differential by being materially overweight global equity, while holding a minimum in global bonds. We have held this position for a while (as this valuation gap has been apparent for a while) and will continue to hold it as long as the valuation gap remains.
Take care,
Mike Browne
www.seedinvestments.co.za
info@seedinvestments.co.za
021 914 4966
Tue, 06 May 2014
Top News
South African stocks ended flat on Tuesday ahead of a national election but shares of Mediclinic International soared after the private hospital group said its annual earnings likely more than quadrupled. Full story
South Africa's rand firmed against a broadly weaker dollar as some risk appetite returned to emerging markets on Tuesday, but the local currency was expected to stay within a narrow range ahead of a national election. Full story |
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Both sides
have been burying their dead as Ukraine slides further towards
war, with supporters of Russia and of a united Ukraine accusing
each other of tearing the country apart. Full storyThailand's Constitutional Court is almost certain to rule against Prime Minister Yingluck Shinawatra on abuse of power charges on Wednesday, forcing her from office and raising the possibility of fresh mass protests by her supporters. Full storyNATO's top military commander in
Europe said on Monday he no longer thought regular Russian
troops would enter eastern Ukraine, predicting Moscow could
achieve its goals through the unconventional forces stirring up
trouble there. Full story |
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Markets | European stock markets fell
broadly on Tuesday, apart from Lisbon which swam against the
tide in response to new signs of economic recovery. . . Full story | | Stock markets around the world
fell on Tuesday, pressured by ongoing geopolitical uncertainty,
which pushed investors to take profits with major indexes near
record. . . Full story | | Britain's top share index
retreated from a nine-week high on Tuesday, knocked by weak
results from Barclays and Aberdeen Asset Management
, while falls. . . Full story | | The dollar slid to an eight-week
low against the euro on Tuesday on bullish European data and the
growing belief that the dollar. . . Full story |
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| Wall Street edged lower on
Tuesday, led by losses in financial stocks, while the technology
sector was weighed by a selloff in shares. . . Full story | | Gold prices fell on Tuesday,
surrendering early gains as weak physical demand made investors
wary about the outlook, though tensions in Ukraine and. . . Full story | | Wall Street edged lower at the
open on Tuesday as investors hesitated to push the market
higher, with major indexes near record levels.. . . Full story | | European stocks were flat on
Tuesday as upbeat outlook statements from chemical groups Solvay
and DSM were offset by sharp falls in Barclays. . . Full story |
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SA Business | World no. 2 platinum producer Impala Platinum said on Tuesday that if a 15-week strike continued at its South African operations. . . Full story | | South Africa's treasury sold 2.35 billion rand ($223 million) worth of 2030, 2036 and 2041 bonds on Tuesday.. . . Full story | | David Jones Ltd said a takeover proposal from South Africa's Woolworths Holdings Ltd has been approved by Australia's foreign investment review. . . Full story | | South Africa's seasonally adjusted HSBC Purchasing Managers' Index fell further in April, dipping into contraction territory as companies felt the pinch. . . Full story |
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| South Africa has revised its 2013 maize output to 11.811 million tonnes from 11.69 million tonnes after reviewing deliveries to silos. . . Full story | | South Africa produced 1.87 million tonnes of wheat in 2013, unchanged from 2012, the government's Crop Estimates Committee said on Tuesday.. . . Full story | | South Africa's Harmony Gold has scaled back the size and expenditure on building its Papua New Guinea Wafi-Golpu mine, enabling it. . . Full story | | Russian stocks touched a one-week
high on Tuesday, benefiting from lack of military intervention
by Moscow in Ukraine. Broader emerging markets took support. . . Full story |
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| South African bullion producer Harmony Gold said on Tuesday it had swung back to a quarterly profit despite a fall in production as it benefited from a smaller foreign-exchange loss on a U.S. denominated loan.. . . Full story |
World Markets (Spot Prices)
Name | Time | RP | Move | % Move | JSE Overall | 17:00 | 48942.02 | 61.21 | 0.13% | JSE Top 40 | 10:18 | 43810.78 | 34.05 | 0.08% | JSE Gold | 17:00 | 1556.45 | -18.74 | -1.19% | JSE Financial | 17:00 | 36515.01 | 58.99 | 0.16% | JSE Industrial | 17:00 | 62871.88 | 196.39 | 0.31% | JSE Indust 25 | 17:00 | 55375.94 | 183.46 | 0.33% | JSE Resource | 17:00 | 57171.20 | -148.36 | -0.26% | DJ Futures | 19:58 | 16355.00 | -202.49 | -1.22% | DJ Ind | 19:58 | 16416.72 | -113.83 | -0.69% | SP 500 | 19:58 | 1871.27 | -13.39 | -0.71% | Nasdaq | 19:58 | 4095.53 | -42.52 | -1.03% | FTSE 100 | 16:33 | 6800.22 | -22.20 | -0.33% | DAX | 18:08 | 9467.53 | -61.97 | -0.65% | CAC40 | 18:08 | 4428.07 | -34.62 | -0.78% | Nikkei | 02/05 | 14457.51 | -27.62 | -0.19% | Shanghai | 09:28 | 2028.04 | .69 | 0.03% | Hang-Seng | 05/05 | 21976.33 | -284.34 | -1.28% | All Ords | 08:40 | 5462.70 | 19.30 | 0.35% | NZSE 50 | 07:48 | 5174.90 | -25.35 | -0.49% |
| | Name | Time | RP | Move | % Move | Gold $ | 19:59 | 1308.59 | -1.15 | -0.09% | Gold R | 19:58 | 13709.60 | -86.99 | -0.63% | Gold R/kg | 19:58 | 440822 | 6903 | 1.59% | Silver $ | 19:59 | 19.6170 | .0380 | 0.19% | Platinum $ | 19:59 | 1452.20 | 7.55 | 0.52% | Palladium $ | 19:59 | 815.25 | 1.65 | 0.20% | R157 | 17:28 | 6.68 | -.05 | -0.74% | R186 | 17:28 | 8.32 | -.07 | -0.83% | R204 | 17:30 | 7.66 | -.05 | -0.71% | R207 | 17:28 | 7.86 | -.07 | -0.95% | Brent Crude | 19:58 | 107.39 | -.33 | -0.31% | Rand / Dollar | 19:59 | 10.4788 | -0.0548 | -0.52% | Rand / Pound | 19:55 | 17.7597 | 0.0173 | 0.10% | Rand / Euro | 19:55 | 14.5949 | -0.0238 | -0.16% | Rand / NZD | 19:58 | 9.1844 | 0.0367 | 0.40% | Rand / AUD | 19:55 | 9.8116 | 0.0348 | 0.36% | Yen / Dollar | 19:59 | 101.5300 | -0.6220 | -0.61% | Euro / Dollar | 19:55 | 0.7175 | -0.0030 | -0.42% | Dollar / Euro | 19:59 | 1.3930 | 0.0055 | 0.40% | Pound / Dollar | 19:55 | 0.5886 | -0.0040 | -0.67% |
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Click here for the Sharenet Spot Price page
The JSE Today
Trading Statistics
Date | Adv. | Decl. | Unch. | Actives | Volume | Value | Trades | Orders |
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06/05/2014 | 208 | 155 | 67 | 430 | 215,999,098 | R10,867,240,928 | 138431 | 1389287 | 05/05/2014 | 186 | 189 | 74 | 449 | 147,987,410 | R7,487,451,474 | 91251 | 881292 | 02/05/2014 | 214 | 140 | 79 | 433 | 172,573,019 | R12,621,056,899 | 150519 | 1338071 | 30/04/2014 | 181 | 167 | 74 | 422 | 228,452,065 | R17,318,068,564 | 154025 | 1239902 | 29/04/2014 | 174 | 175 | 67 | 416 | 191,249,276 | R14,581,653,768 | 161312 | 845905 |
* Includes all listed instruments on the JSE
Index Summary Index Name | RP | Move | % Move | Top 40 | 43,810.78 | 34.05 | 0.08% | Industrial | 62,871.88 | 196.39 | 0.31% | Mid Cap | 63,825.87 | -112.16 | -0.18% | Small Cap | 53,452.65 | 250.15 | 0.47% | Resource 20 | 57,171.20 | -148.36 | -0.26% | Industrial 25 | 55,375.94 | 183.46 | 0.33% | Financial 15 | 13,974.76 | 34.74 | 0.25% | Financial & Ind. 30 | 59,307.85 | 201.61 | 0.34% | All Share | 48,942.02 | 61.21 | 0.13% | Oil & Gas | 44,950.69 | 106.70 | 0.24% | Mining | 34,162.34 | -132.57 | -0.39% | Gold Mining | 1,556.45 | -18.74 | -1.19% | Platinum Mining | 51.18 | -.17 | -0.33% | GENERAL MINING | 9,826.51 | -28.17 | -0.29% | Oil & Gas Producers | 24,169.16 | 57.38 | 0.24% | Basic Materials | 30,026.56 | -82.82 | -0.28% | Chemicals | 23,985.08 | 34.30 | 0.14% | Forestry & Paper | 29,623.54 | 280.14 | 0.95% | Industrial Metals | 20,568.12 | 95.78 | 0.47% | Industrials | 45,519.90 | 16.48 | 0.04% | General Industrials | 144.26 | -.10 | -0.07% | Consumer Goods | 59,649.13 | -32.64 | -0.05% | Automobiles & Parts | 9,578.66 | -45.29 | -0.47% | Household Goods | 365.68 | -1 | -0.17% | Health Care | 78,465.89 | 1011.62 | 1.31% | Beverages | 195.14 | .04 | 0.02% |
| | Index Name | RP | Move | % Move | Food Producers | 70,715.67 | 97.45 | 0.14% | Personal Goods | 1,046.80 | -1.70 | -0.16% | Consumer Services | 10,728.11 | 15.22 | 0.14% | General Retailers | 62,804.49 | 32.07 | 0.05% | Travel & Leisure | 5,752.79 | -2.96 | -0.05% | Media | 224.13 | .87 | 0.39% | Support Services | 2,690.38 | 45.18 | 1.71% | Telecommunications | 10,311.97 | 148.24 | 1.46% | Financials | 36,515.01 | 58.99 | 0.16% | Banks | 62,844.27 | 198.92 | 0.32% | Non-life Insurance | 52,575.75 | -255.22 | -0.48% | Life Insurance | 34,995.40 | -29.53 | -0.08% | General Financial | 3,802.38 | 32.62 | 0.87% | Technology | 42,561.90 | 551.33 | 1.31% | SHARIAH TOP40 | 4,206.50 | 7 | 0.17% | FTSE/JSE SHARIAH ALL | 4,321.18 | 6 | 0.13% | COAL MINING | 18,383.64 | -73 | -0.40% | FTSE JSE Fledgling | 6,819.47 | 33 | 0.49% | FTSE/JSE Alt X | 1,204.50 | -4 | -0.30% | SA LISTED PROPERTY | 508.05 | | -0.59% | CAPPED PROPERTY | 441.63 | | -0.32% | RESOURCE | 31,313.07 | -85 | -0.27% | DIVIDEND PLUS | 224.93 | 1 | 0.28% | FTSE/JSE RAFI 40 | 9,848.72 | 5 | 0.06% | Capped Top 40 | 23,207.80 | 42 | 0.18% | Capped All Share | 24,779.98 | 32 | 0.13% | JSE TABACO | 7,709.24 | -0 | -0.00% |
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Click here for the Sharenet Index Summary page
Latest Consensus Changes** Code | Company Name | Status | Updated | CFR | COMPAGNIE FIN RICHEMONT | HOLD | 05/05/2014 | ABL | AFRICAN BANK INVESTMENTS ... | BUY | 02/05/2014 | BTI | BRITISH AM. TOBACCO PLC | BUY | 30/04/2014 | APN | ASPEN PHARMACARE HLDGS | BUY | 30/04/2014 | SOL | SASOL LIMITED | HOLD | 30/04/2014 |
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Results Expected** Expected | Company Name | Fin. Date | 08/05/2014 | CULINAN5.5 | March 2014 (Interim) | 08/05/2014 | CULINANPR | March 2014 (Interim) | 08/05/2014 | CULLINAN | March 2014 (Interim) | 08/05/2014 | CULPREF3 | March 2014 (Interim) | 08/05/2014 | GFIELDS | March 2014 (Q) |
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Recent Dividends** Share Name | Dec-Date | LDT | Pay-Date | Amount | RIPLC | 30/04/14 | 16/05/14 | 05/06/14 | GBP 0.0150 | CLICKS | 24/04/14 | 27/06/14 | 07/07/14 | ZAR 0.5350 | REBOSIS | 24/04/14 | 16/05/14 | 26/05/14 | ZAR 0.4850 | CMH | 23/04/14 | 06/06/14 | 17/06/14 | ZAR 0.5000 | PSG | 16/04/14 | 09/05/14 | 19/05/14 | ZAR 0.9000 |
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Ex Div** Share Name | Dec-Date | LDT | Pay-Date | Amount | NTC PREF | 01/04/14 | 30/04/14 | 12/05/14 | ZAR 3.5667 | MPACT | 05/03/14 | 30/04/14 | 12/05/14 | ZAR 0.5800 | FPT | 10/04/14 | 30/04/14 | 12/05/14 | ZAR 0.2900 | KAYDAV | 26/03/14 | 30/04/14 | 12/05/14 | ZAR 0.0750 | BLACKSTAR | 16/04/14 | 30/04/14 | 30/05/14 | GBP 0.0080 |
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Upcoming AGMs** Code | Company Name | Date | Status | BGA | Barclays Africa Group Ltd. | 06/05/2014 | Confirmed | MRF | Merafe Resources Ltd. | 06/05/2014 | Confirmed | RNG | Randgold - Exploration Co Ltd. | 08/05/2014 | Confirmed | JSE | JSE Ltd. | 08/05/2014 | Confirmed | GFI | Gold Fields Ltd. | 09/05/2014 | Confirmed |
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