Charts for the Beach– 2017

It’s time for our annual August report called “Charts for the beach.”

Take a look at five of our favorite charts that highlight what we think consensus is currently missing. Remember to wear your official RBA baseball cap while sitting in the sun!

 

An example of why you should ignore politics

We have repeatedly pointed out that politics is about what should be, but investing is about what is. Listening to politicians for investment advice has rarely been worthwhile.

A recent example is the significant outperformance of the South Korean stock market. Our first chart shows that the performance of the South Korean stock market has year-to-date roughly tripled the performance of the U.S. market, and is up more than 30% in USD terms. Importantly, that outperformance comes despite the geopolitical risks posed by North Korea. Politicians have focused on North Korea, but it’s been beneficial for investors to focus on South Korea’s improving fundamentals.

 

Investors are warming to risk, but certainly aren’t risk takers

RBA’s three main investment factors are profits, liquidity, and sentiment, and we follow a host of proprietary sentiment indicators to gauge whether investors are too scared or too willing to take risk. Our indicators almost uniformly show that investors are warming to risk, but have yet to become true risk takers.

Our second chart shows the relative valuation of high beta and low beta stocks in the U.S. One can see that investors have been very risk averse during this cycle, but that aversion is beginning to subside. The valuation of higher beta stocks has risen, but higher beta stocks are still selling at a discount to the broader market. It has generally been a cautious signal when high beta stocks sell at premium valuations.

 

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Learn more about Redwood Global Equity Strategy Fund

 

Certain statements in this document are forward-looking. Forward-looking statements (“FLS”) are statements that are predictive in nature, depend on or refer to future events or conditions, or that include words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” intend,” “plan,” “believe,” “estimate” or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS. FLS are not guarantees of future performance and are by their nature based on numerous assumptions. Although the FLS contained in this document are based upon what Purpose Investments [and the portfolio manager] believe to be reasonable assumptions, Purpose Investments [and the portfolio manager] cannot assure that actual results will be consistent with these FLS. The reader is cautioned to consider the FLS carefully and not to place undue reliance on the FLS. Unless required by applicable law, it is not undertaken, and specifically disclaimed, that there is any intention or obligation to update or revise FLS, whether as a result of new information, future events or otherwise.

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