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Commentary

A window of relief for cyclical equities

Problems remain but the global economy may beat deeply pessimistic expectations for the remainder of the year There is logic behind the Fed pausing interest rate hikes at a lower peak than is discounted Well positioned cyclicals operating in supply constrained industries can beat earnings expectations and are at low valuations Index valuations remain constrained over the long term by…
Lightman
1 August 2022
Cyclically Declining InflationCommentary

Cyclically declining inflation and Value vs Growth

Inflation is likely to moderate for a few months. This may bring down bond yields - but to a smaller degree than expected. This scenario may provide some support for expensive equities and value may lag the equity market for a short time. But this is unlikely to last. Valuation polarisation remains extreme and long term fundamentals support the continued…
Lightman
28 June 2022
Commentary

Democracy vs Autocracy and China’s Pending Isolation

A new geopolitical alignment is taking place, separating democracies and autocracies. This is raising the cost of capital for countries that are not democracies – and driving an economic and political wedge between those countries that operate liberal democracies and those that do not. When assessing different countries as an investment destination, favourable characteristics flow from the principle of individual…
Lightman
9 May 2022
Commentary

Has a bear market begun in equities? A framework for assessing scenarios

Multiple compression in equities appears to have started. The more expensive the asset or the index, the more vulnerable. This suggests a cautious outlook may be appropriate for the US equity market. For Europe the message appears more nuanced. Parts of the market are expensive and so may be vulnerable, parts are not. Despite a challenging set-up for passive and…
Lightman
7 February 2022
Commentary

Some modest victories for value in 2021

Value investing posted some modest victories in 2021. Whilst growth outperformed at the index level, the outperformance was narrow, propelled by a handful of large cap companies. Down the market cap scale value mostly outperformed – a notable divergence that may signal further improvements for low priced securities in 2022. 2021 saw broad based returns in European equities, but with…
Lightman
1 January 2022
Commentary

Risks and opportunities into 2022

In this brief note we highlight some risks for markets in 2022 and discuss current portfolio characteristics. As we look forward to 2022 where is the vulnerability for equity markets? Equities can get hurt from two areas. Share prices can fall because earnings decline – and they can also fall because the multiple that the market is willing to pay…
Lightman
13 December 2021
Commentary

Downside risks are already priced into European equities

European equities have priced in a significant growth scare in recent months, such that there is now an attractive asymmetry in the risk profile of cyclical value compared to defensive growth. In the second year of a recovery, investors often become nervous about the durability of the economic cycle. The second derivative in economic growth peaks, some reduction in extraordinary…
Lightman
7 September 2021
Commentary

A buying opportunity for value

Rebuilding the reflation wall of worry Over the last decade, value has had brief bursts of outperformance, only for the outperformance to be given back over subsequent months. Since Q3 2020 European value has outperformed growth by 10%, but over recent weeks value has cooled and post the latest Fed commentary, underperformed. Investors are wondering if value’s recent outperformance was…
Lightman
22 July 2021
Commentary

Wall of worry for reflation rebuilt

The wall of worry for reflation and value appears rebuilt. Whilst absolute returns for indices have been contained recently, relative returns have not. The magnitude of relative sector dispersion in Europe over the last 6 weeks has been identical to the 6 weeks prior to the March 2020 pandemic low. This has reset expectations and valuations in our favoured companies…
Lightman
13 July 2021
Commentary

Policy to reduce inequality and equity market implications

In an earlier note this year we argued that full employment appears to be taking precedence over price stability: a higher tolerance for inflation might be justified by our society today – in the name of reducing unemployment. Underneath this policy shift and catalysed by the current crisis is a growing awareness of inequality – and the appetite to reduce…
Lightman
9 June 2021
Commentary

A radical policy shift

Major crises often legitimise and cement radical policy changes. The 2008 Financial Crisis allowed quantitative easing to become accepted and in time to become mainstream. The current crisis has legitimised government deficit spending – financed by central banks. This policy shift may be a reflection of a change in societies’ priorities. The implications for nominal GDP, equities and bonds could…
Lightman
13 January 2021