The Compelling Case for Value

Transcription

1 The Compelling Case for Value July 2, 2018 SOLELY FOR THE USE OF INSTITUTIONAL INVESTORS AND PROFESSIONAL ADVISORS 0

2 Jan-75 Jan-77 Jan-79 Jan-81 Jan-83 Jan-85 Jan-87 Jan-89 Jan-91 Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17 Jan-75 Feb-77 Mar-79 Apr-81 May-83 Jun-85 Jul-87 Aug-89 Sep-91 Oct-93 Nov-95 Dec-97 Jan-00 Feb-02 Mar-04 Apr-06 May-08 Jun-10 Jul-12 Aug-14 Sep-16 Cumulative Return Cumulative Return Cumulative Performance of Value/Growth Indices Value has outperformed Growth since 1975, but the effect has been stronger outside the US January 1975 May 2018 MSCI World xus 15,00 14,00 13,00 12,00 Value Growth Value - Growth 15,00 14,00 13,00 12,00 MSCI World ex USA Value MSCI World ex USA Growth WorldxUS Value - Growth 11,00 Sub-Period (Annualized) 11,00 Sub-Period (Annualized) 10,00 9,00 8,00 7,00 6,00 Jan-75 to Dec % Jan-85 to Dec % Jan-95 to Mar % Apr-00 to Oct % Nov-07 to Feb % Mar-09 to Dec % Jan-17 to May % 10,00 9,00 8,00 7,00 6,00 Jan-75 to Dec % Jan-85 to Dec % Jan-95 to Mar % Apr-00 to Oct Nov-07 to Feb % Mar-09 to Dec Jan-17 to May ,00 5,00 4,00 4,00 3,00 3,00 2,00 2,00 1,00 1,00 Note: Cumulative returns represent the compounded gross US Dollar (USD) total return performance of the Value/Growth Indices and the MSCI WorldxUS Value/Growth Indices from January 1975 to May See important disclosures at the end of the presentation. Source: MSCI, FactSet 1

3 Sector Differences: Value Index Weight Growth Index Weight IT and Financials have contributed to the Value Growth performance gap between US and ex-us May MSCI WorldxUS VALUE GROWTH -3 IT Consumer Discretionary Industrials Health Care Real Estate Materials Telecom Utilities Consumer Staples Energy Financials Note: Data represent differences in sector weights between the Value Index and the Growth Index as well as the sector weight differences between the MSCI WorldxUS Value Index and the MSCI WorldxUS Growth Index, as of May 31, See important disclosures at the end of the presentation. Source: MSCI, FactSet 2

4 Dec-77 Dec-79 Dec-81 Dec-83 Dec-85 Dec-87 Dec-89 Dec-91 Dec-93 Dec-95 Dec-97 Dec-99 Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11 Dec-13 Dec-15 Dec-17 Dec-77 Dec-79 Dec-81 Dec-83 Dec-85 Dec-87 Dec-89 Dec-91 Dec-93 Dec-95 Dec-97 Dec-99 Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11 Dec-13 Dec-15 Dec-17 Cumulative Beta-Adjusted Returns Average beta of Growth Index is 1.06 vs for Value Index January 1975 May 2018 MSCI World xus 9 Value Growth 9 MSCI World ex USA Value MSCI World ex USA Growth Note: Index returns are beta-adjusted by calculating the aggregate full-period betas of the Value and Growth Indices to the Index and the MSCI WorldxUS Value and Growth Indices to the MSCI WorldxUS Index and subtracting the beta-adjusted market return from the Value and Growth returns. Gross US Dollar (USD) monthly total return performance from January 1975 to May Beta is a measurement of sensitivity to the benchmark index. See important disclosures at the end of the presentation. Source: MSCI, FactSet -6 3

5 Value Index Return (Last 5 Years, Annualized) MSCI World xus Value Index Return (Last 5 Years, Annualized) Annualized 5-Year Rolling Performance Value has outperformed in 46% of 5-year periods in the US and 79% of periods outside the US January 1975 May MSCI World xus 35% 35% 3 25% 2 15% 1 5% % 3 25% 2 15% 1 5% % -1 Index Return (Last 5 Years, Annualized) -1 MSCI World xus Index Return (Last 5 Years, Annualized) Note: 5-year cumulative returns represent the compounded gross US Dollar (USD) total return performance of the Index / Value Index and the MSCI WorldxUS Index / Value Index from January 1975 to May See important disclosures at the end of the presentation. Source: MSCI, FactSet 4

6 Cumulative Causeway Risk Model Factor Returns Pure Value has outperformed Momentum and Growth January 1991 May Value Factor Growth Factor Cyclicality Factor Momentum Factor 97% % 34% 2 17% -2 Note: Lines represent the cumulative performance of the Causeway risk model s Value, Growth, Cyclicality, and Momentum factors, after controlling for market, country, currency, sector, and other style effects, from January 1991to May The universe is the MSCI ACWI Investable Market Index (IMI). See important disclosures at the end of the presentation. Source: Causeway Analytics 5

7 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q U.S. GDP Growth % (Trailing 4Q, YoY) U.S. GDP Growth % (Trailing 4Q, YoY) Comparing Value Performance to Market and GDP Growth No strong link between Value s performance and market or economic cycles Q Q MSCI World xus 1 9% 8% 7% U.S. GDP Growth % (Trailing 4Q, YoY) (LHS) Value - Growth (Trailing 4Q) (RHS) (Trailing 4Q) (RHS) % 8% 7% 9 U.S. GDP Growth % (Trailing 4Q, YoY) (LHS) MSCI WorldxUS Value - Growth (Trailing 4Q) (RHS) 7 MSCI WorldxUS (Trailing 4Q) (RHS) 6% 5% 5 6% 5% 5 4% 3% 3 4% 3% 3 2% 1% 1 2% 1% 1-1% -1-1% -1-2% -2% -3% -3-3% -3-4% -4% -5% -5-5% -5 GDP refers to Gross Domestic Product. See important disclosures at the end of the presentation. Source: MSCI, Federal Reserve Economic Data (FRED), Causeway Analytics 6

8 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 NTM P/E NTM P/E Premium % (Growth / Value) NTM P/E NTM P/E Premium % (Growth / Value) Value/Growth Index P/E Multiple and Growth Premium Growth trading at largest premium to Value since pre-gfc in both US and ex-us June 2003 (inception of MSCI NTM P/E data) May 2018 MSCI World xus 24 x Value Index NTM P/E 6 24 x MSCI WorldxUS Value Index NTM P/E 6 22 x 20 x 18 x Growth Index NTM P/E Growth Premium % (Right Scale) 20.3x 5 48% 22 x 20 x 18 x MSCI WorldxUS Growth Index NTM P/E Growth Premium % (Right Scale) 53% x 16 x 4 16 x 4 14 x 13.8x 14 x 12 x 3 12 x x 10 x 10 x 8 x 2 8 x 2 6 x 6 x 4 x 1 4 x 1 2 x 2 x 0 x 0 x The NTM P/E or Forward P/E of a stock is its price divided by the consensus earnings per share (EPS) estimate for the next twelve months. Growth Premium % is the forward P/E ratio (or Price / Book Value ratio) of the MSCI World Growth Index divided by the forward P/E ratio (or Price / Book Value ratio) of the MSCI World Value Index, less 10. GFC refers to the global financial crisis of See important disclosures at the end of the presentation. Source: FactSet, MSCI 7

9 Drawdown (%) Causeway Risk Model Factor Drawdowns Momentum has experienced more numerous and dramatic drawdowns relative to Value January 1991 May % -4% -6% -8% -1-12% -14% -16% -18% % of Weeks Value Momentum Drawing Down 43% 34% Recovering 24% 58% Setting New Highs 33% 8% -2 Value Factor Momentum Factor Note: Lines represent the drawdowns of the Causeway risk model s Value and Momentum factors, after controlling for market, country, currency, sector, and other style effects, from January 1991 to May The universe is the MSCI ACWI Investable Market Index (IMI). See important disclosures at the end of the presentation. Source: Causeway Analytics 8

10 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Ratio of Valuation Multiple of Least Expensive Quintile / Most Expensive Quintile Ratio of Valuation Multiple of Least Expensive Quintile / Most Expensive Quintile Ratio of Cheapest to Most Expensive Stocks Using Valuation Multiples Value stocks are trading at a discount to historical averages in both the US and outside the US January 1991 May 2018 for / August 1997 May 2018 for MSCI WorldxUS MSCI World xus 0.9 Forward Price / Earnings 0.9 Forward Price / Earnings 0.8 Price / Book 0.8 Price / Book Note: Measures the ratio of valuation multiples, next 12 months (NTM) Price/Earnings ratio (P/E) and Price/Book ratio (P/B), between the median stock in the first and fifth value quintiles from January 1991 May See important disclosures at the end of the presentation. Source: Causeway Analytics 9

11 End of Quarter U.S. 10-Year Yield - Last 4 Quarter Average Value s Relationship with Interest Rate Changes Value s relative performance is positively correlated to rising interest rates (U.S. 10-Year) Q Q MSCI World Index 3% 2% 1% Correlation = % -6% -4% -2% 2% 4% 6% 8% -1% -2% -3% MSCI World Value Return - MSCI World Growth Return (Quarterly) Note: Each data point represents a quarterly observation, using the 2 of most extreme 10-Year U.S. Treasury yield changes (up or down) from Q to Q Returns to the MSCI World Value Index and MSCI World Growth Index are gross USD total returns. 10-year U.S. Treasury Yield changes calculated as end of quarter yield minus average yield over last four quarters. See important disclosures at the end of the presentation. Source: Federal Reserve Economic Data (FRED), MSCI 10

12 Summary o Value has outperformed momentum and growth over the long term o Past market and economic cycles have been poor predictors of value s performance o Growth stocks are currently trading at extreme premiums to value stocks, and valuation dispersion within the market is well above average o Higher interest rates should cause long-duration stocks to underperform 11

13 Important Disclosures This presentation expresses the presenters views as of July 2, 2018 and should not be relied on as research or investment advice regarding any investment. These views and characteristics are subject to change, and there is no guarantee that any forecasts made will come to pass. Forecasts are subject to numerous assumptions, risks and uncertainties which change over time, and Causeway undertakes no duty to update any such forecasts. Information and data presented has been developed internally and/or obtained from sources believed to be reliable; however, Causeway does not guarantee the accuracy, adequacy or completeness of such information. Past performance is no guarantee of future performance. In addition to the normal risks associated with investing, international investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Investments in smaller companies involve additional risks and typically exhibit higher volatility. Style Analysis. The universe is the MSCI ACWI Investable Market Index (IMI). Every security in the universe is scored on each of 8 style dimensions. These standardized scores range from +3 to -3, with a score of 0 being equal to the weighted average score across the universe, +3 being most representative of the style, and 3 being least representative of the style. Representative account style exposures are the weighted average of the style scores of all portfolio holdings. Value style scores are calculated relative to country. Momentum style scores are calculated on a global basis. Active style exposures measure the difference between the portfolio style exposures and the benchmark style exposures. The MSCI World Index is a free float-adjusted market capitalization weighted index, designed to measure developed market equity performance, consisting of 23developed country indices, including the U.S. The Index is designed to measure the performance of the large and mid cap segments of the US market. With 631 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in the US. The Value Index captures large and mid cap US securities exhibiting overall value style characteristics. The value investment style characteristics for index construction are defined using three variables: book value to price, 12-month forward earnings to price and dividend yield. The Growth Index captures large and mid cap securities exhibiting overall growth style characteristics in the US. The growth investment style characteristics for index construction are defined using five variables: long-term forward EPS growth rate, short-term forward EPS growth rate, current internal growth rate and long-term historical EPS growth trend and long-term historical sales per share growth trend. The MSCI World ex USA Index captures large and mid cap representation across 22 of 23 Developed Markets (DM) countries --excluding the United States. With 1,013 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. The MSCI World ex USA Value Index captures large and mid cap securities exhibiting overall value style characteristics across 22 of 23 Developed Markets countries. The value investment style characteristics for index construction are defined using three variables: book value to price, 12-month forward earnings to price and dividend yield. The MSCI World ex USA Growth Index captures large and mid cap securities exhibiting overall growth style characteristics across 22 of 23 Developed Markets (DM) countries. The growth investment style characteristics for index construction are defined using five variables: long-term forward EPS growth rate, short-term forward EPS growth rate, current internal growth rate and long-term historical EPS growth trend and long-term historical sales per share growth trend. The MSCI World Value Index captures large and mid cap securities exhibiting overall value style characteristics across 23 Developed Markets (DM) countries. The value investment style characteristics for index construction are defined using three variables: book value to price, 12-month forward earnings to price and dividend yield. The MSCI World Growth Index captures large and mid cap securities exhibiting overall growth style characteristics across 23 Developed Markets (DM) countries. The growth investment style characteristics for index construction are defined using five variables: long-term forward EPS growth rate, short-term forward EPS growth rate, current internal growth rate and long-term historical EPS growth trend and long-term historical sales per share growth trend. The MSCI ACWI Investable Market Index (IMI) captures large, mid and small cap representation across 23 Developed Markets (DM) and 24 Emerging Markets (EM) countries. With 8,559 constituents, the index is comprehensive, covering approximately 99% of the global equity investment opportunity set. The performance of the indices is gross of withholding taxes, assumes reinvestment of dividends and capital gains, and assumes no management, custody, transaction or other expenses. It is not possible to invest directly in an index. MSCI has not approved, reviewed or produced this report, makes no express or implied warranties or representations and is not liable whatsoever for any data in the report. You may not redistribute the MSCI data or use it as a basis for other indices or investment products. 12