361 Capital Weekly Research Briefing

361 Capital portfolio manager, Blaine Rollins, CFA, previously manager of the Janus Fund, writes a weekly update looking back on major moves, macro-trends and economic data points. The 361 Capital Weekly Research Briefing summarizes the latest market news along with some interesting facts and a touch of humor. 361 Capital is a provider of alternative investment mutual funds, separate accounts, and limited partnerships to institutions, financial intermediaries, and high-net-worth investors.

361 Capital Weekly Research Briefing
December 2, 2013
Timely perspectives from the 361 Capital research & portfolio management team
Written by Blaine Rollins, CFA

It was another unhappy week for the bears as the slow markets again posted new record highs…

For the most part, equity markets in the U.S. and Europe continued to glide higher as the U.S. celebrated the Thanksgiving holiday which also kicks off the peak shopping season. Early indications are that Thursday and Black Friday retail sales got off to a good start – online sales on Thanksgiving Day were up 20% overall, and Walmart announced it had processed over 10M transactions at its stores on Thursday night. Despite some concerns being raised about equity markets starting to get “bubbly,” stocks continued to march higher, with the Nasdaq breaking above 4,000 this week for the first time since the internet bubble popped. For the week, the DJIA gained 0.1%, the S&P500 rose 0.1%, and the Nasdaq added 1.7%. November saw the S&P rise 2.8% and the Nasdaq up 3.6%.

(TradeTheNews)

In looking at the Mega Caps making new highs on Friday, there is a strong theme toward a healthy consumer…

For the markets, the relative and absolute outperformance of Small Caps was very important last week…

Although a slow holiday week, the outperformance of Cyclicals and Technology was meaningful as was the underperformance of Utilities. Energy stocks were caught up in the new events surrounding Iran…

While many might think that a 20%+ move in equities is rare, JPMorgan notes that it actually occurs 1/3 of the time…

What may surprise investors is how a 26% YTD gain is rather “un-extraordinary.” Take a look at Figure 4 below. We have listed the annual return of the S&P 500 (and Dow prior to 1928) since 1897 and grouped them according to their annual gain. There are 116 years of data represented below. Of these, 20 years saw returns of between 20%-30%. And an additional 14 years saw returns above 30%.
(JPMorgan)

And if you were looking for a reason to buy a strong market, look no further than this study…

To sum, it shows that over the past 18 years, the market is up 100% of the time 12 months after a +30% year over year gain.

(Paststat)

Speaking of rolling returns, ISI Group notes how the 5 year roll might get investor juices flowing…

At the end of this year, the five-year, cumulative price performance for the S&P will surge to +100% from -3% through 2012. Fear may shift toward greed.

(ISI Group)

When JPMorgan looks at Global Multiples, how do you not want to put more chips into Japan and Europe?

Multiples – the SPX is now at ~15x the ~$120 ’14 EPS estimate (note that this number has expanded more than 2 whole turns in 2013). Some people are using a higher EPS figure (~$122-124) and the multiple under these numbers is lower (~14.6x). The Japanese TOPIX (TPX) is now at ~13.9x (the multiple expansion has been more mild in Japan – a lot of the rally in stocks there has come via higher earnings estimates). Europe’s SX5E saw big multiple expansion this year although still trades at a large discount to the SPX (12.5x vs. ~15x) – many think Japan and European stocks have more room to go on the multiple side while in the U.S. further expansion could be limited.

(JPMorgan)

BlackRock takes a look at Global Bond Yields versus Dividend Yields and prefers Equities…

Investors of all types need income, but today’s investing environment doesn’t make finding healthy stable yields very easy. Indeed, some of the traditional sources of yield such as government bonds and money market funds are delivering negative returns after inflation. So, what are your options? Well, the yields on international stocks are higher than those available from many government bonds today and offer greater protection in the face of rising rates.

(BlackRock)

A good item in the Barron’s interview for yield investors to consider…

Barron’s: What else looks interesting in fixed income?

Gundlach: We see individual investors liquidating out of the worst-performing bonds, notably emerging-market debt. Lining up to buy those bonds are institutions, because the yields are actually pretty reasonable. In dollar-denominated emerging-market debt, you can get yields of 6%, 7%, and there is no currency risk. And look at the dichotomy this year between high-yield bonds and emerging-market bonds. High-yield bonds are up 6% or 7%, but emerging-market bonds are down 6% or 7%. That’s a pretty large swing in the value proposition.

(Barron’s)

Meanwhile, looking to reduce the supply of Equity in the markets is Carlyle who just raised $13 billion…

David Rubenstein, a co-founder and co-chief executive of private equity company Carlyle, said this month that the firm doesn’t set out to beat fundraising targets. But its latest fund has – and comfortably. The private equity firm has $13bn to plough into deals in the U.S. after finishing fundraising for its Carlyle Partners VI fund.

(FinancialTimes)

Howard Marks’ latest memo on the market is another worthwhile read…

(OaktreeCapital)

A great economic cycle chart for global investors…

Remember when Amazon was mocked for its entry into the tablet hardware business?

Even Apple is not immune to this year’s heightened competition. A new Ipsos/Reuters poll found that, among consumers thinking of buying a tablet, 21 percent favored Amazon Inc.’s Kindle Fire, followed by 19 percent for Apple’s iPad and 17 percent for Samsung Electronics Co. Ltd.’s Galaxy. In a rare gesture from the iPad-maker and a nod to intense competition from Samsung, tech giants like Microsoft Corp. and Google Inc., and online retailer Amazon, Apple is offering gift cards worth up to $75 for every purchase on its website.

(Reuters)

As investors continue to turn to professional advisors for help with their portfolios, they are also reducing their reliance on daily business news…

(ZeroHedge)

How 1 second can mean everything in a sporting event. (I’d still give him the Heisman, but it might have a small dent in it.)

@ReillyRick: Here’s what Alabama lost in 1 tick Saturday: a game, an SEC title, a national title, a threepeat, and a Heisman. Never been a game like it.

Geek Menu of the Week…

What could be simpler than a Venn diagram?

(GiddyUpCoffeeLondon)

The most important class that your kids will take…

Trevor Brandt-Sarif had no interest in computer science when he arrived at Harvard in 2011. Philosophy was his thing. Writing code? That was for those kids at MIT. But while taking the requisite Introduction to Ancient Philosophy, Brandt-Sarif also veered about as far as you can from Socrates, Plato, and Aristotle in a Harvard classroom: He enrolled in the wildly popular computer science course, CS50, joining hundreds of other undergrads to learn what has become the language of the 21st century. “Coding is relevant to our world,” said Brandt-Sarif, who credits professor David Malan for making computer science come alive in everyday life. CS50, Brandt-Sarif said, is “very much the thing to do.” In just a few short years CS50 has rocketed from being a middling course to one of the biggest on campus, with nearly 700 students and an astounding 102-member staff that includes teaching fellows, graders, and multimedia producers. Classes are so big lectures are held in Sanders Theatre and office hours so crowded it looks like a tech start-up.

(BostonGlobe)

One to remind the parents of when they start up on all the technology we are using…

@DonnieClapp: It’s really disturbing how anti-social all this new technology is making us.

A weekly forecast that will put a bigger smile on Jeff Bezos’ face…

(NOAA)

It’s going to be a cold one this week for many of us. Stay warm and travel safe. It’s coming your way next week Chrysler Building…

(@MADSOB)

In the event that you missed a past Research Briefing, here is the archive…

361 Capital Research Briefing Archive

The information presented here is for informational purposes only, and this document is not to be construed as an offer to sell, or the solicitation of an offer to buy, securities. Some investments are not suitable for all investors, and there can be no assurance that any investment strategy will be successful. The hyperlinks included in this message provide direct access to other Internet resources, including Web sites. While we believe this information to be from reliable sources, 361 Capital is not responsible for the accuracy or content of information contained in these sites. Although we make every effort to ensure these links are accurate, up to date and relevant, we cannot take responsibility for pages maintained by external providers. The views expressed by these external providers on their own Web pages or on external sites they link to are not necessarily those of 361 Capital.

Blaine Rollins, CFA, is managing director, senior portfolio manager and a member of the Investment Committee at 361 Capital. He is responsible for manager due-diligence, investment research, portfolio construction, hedging and trading strategies. Previously Mr. Rollins served as Executive Vice President at Janus Capital Corporation and portfolio manager of the Janus Fund, Janus Balanced Fund, Janus Equity Income Fund, Janus Aspen Growth Portfolio, Janus Advisor Large Cap Growth Fund, and the Janus Triton Fund. A frequent industry speaker, Mr. Rollins earned a Bachelor’s degree in Finance from the University of Colorado, and he is a Chartered Financial Analyst.