5/10/13

Equity Market relative value

We would like to provide a brief outlook with respect to some reasonably well known equity ETFs and the indexes that they represent. This may provide a starting point for investment committees that want to dissect their equity portfolio and dig deeper into their mutual funds and ETFs in order to see how closely they match these and to determine if their managers are stagnant benchmark huggers.

Price/Revenue Revenue growth Price/cash flow Cash flow growth
ACWI 1.1 -10.4 8.8 -2.3
SPY 1.5 2.9 9.9 6.4
EFA .9 -21.3 8.4 -36.5
AAXJ 1.2 -24.3 8.4 -27.2
DEM 1 -5 5.3 1

We purposely left out EPS and P/E in order to focus on a couple metrics that do not garner the attention that they deserve.

ACWI-I-Shares All Country World Index

SPY-Standard and Poor 500 Domestic Large Cap

EFA-I-Shares Europe, Far East and Asia-Large Cap

AAXJ-I-Shares All country Asia ex-Japan

DEM-Wisdom Tree Emerging Markets Equity Income Fund

It is interesting to note that revenue and cash flow growth is largely negative or flat other than with the S&P 500 ETF SPY.  In part this has to do with the slump in Europe and the Asian slowdown. Flows have been strong in the US and this may continue.

Our suggestion is for firms that own ETFs and mutual funds to examine the fundamental metrics and position for the second half of the year in a combination of ETFs and funds with the best forward looking fundamental growth.

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