Accuvest Core Brands – Q3 Highlights

The Accuvest Core Brands Strategy returned 7.66% during Q3 2017, outperforming the S&P500 by 3.18%.   The primary driver of outperformance during Q3 was security selection, or “stock picking”, within the Consumer Discretionary, Healthcare, and Industrial Sectors.  To that point, please use the link below to review Q3’s Top Core Brands:

Accuvest Core Brands – Q3 2017 Highlights

IF CONSUMPTION DRIVES THE ECONOMY,  SHOULDN’T THE MOST POWERFUL BRANDS BE DRIVING YOUR INVESTMENT PORTFOLIO?

Accuvest Global Advisors® tracks the leading brands in consumer-facing industries, as well as influential corporate brands and those critical to the “consumption supply-chain.” Our quantitative & qualitative selection process establishes a clear “investable universe” of superior companies, carved out of the overall stock market. It allows us to build you a dynamic portfolio of only the best stocks, constantly vetted and rebalanced using our favorite fundamental factors that rank revenues, revenue growth, operating margins, free cash-flow generation and other market metrics.

Accuvest Core Brands – July Highlights

IF CONSUMPTION DRIVES THE ECONOMY,  SHOULDN’T THE MOST POWERFUL BRANDS BE DRIVING YOUR INVESTMENT PORTFOLIO?

The Accuvest Core Brands portfolio had a great month of July, continuing an impressive 2017.  Please use the link below to review July’s Top Core Brands:

Accuvest Core Brands – July 2017 Highlights

Accuvest Global Advisors® tracks the leading brands in consumer-facing industries, as well as influential corporate brands and those critical to the “consumption supply-chain.” Our quantitative & qualitative selection process establishes a clear “investable universe” of superior companies, carved out of the overall stock market. It allows us to build you a dynamic portfolio of only the best stocks, constantly vetted and rebalanced using our favorite fundamental factors that rank revenues, revenue growth, operating margins, free cash-flow generation and other market metrics.

INTL Momentum Has Shifted

International Relative Strength has shifted, and the time to increase your International exposure is now.

INTL Now – Relative Strength 05.2017

 

https://www.etftrends.com/etf-investing/3-reasons-why-the-price-is-right-for-international-opportunities/

Accuvest Core Brands – April Highlights

IF CONSUMPTION DRIVES THE ECONOMY,  SHOULDN’T THE MOST POWERFUL BRANDS BE DRIVING YOUR INVESTMENT PORTFOLIO?

The Accuvest Core Brands portfolio had a great month of April, continuing an impressive 2017.  Please use the link below to review April’s Top Core Brands:

Accuvest Core Brands – April 2017 Highlights

Accuvest Global Advisors® tracks the leading brands in consumer-facing industries, as well as influential corporate brands and those critical to the “consumption supply-chain.” Our quantitative & qualitative selection process establishes a clear “investable universe” of superior companies, carved out of the overall stock market. It allows us to build you a dynamic portfolio of only the best stocks, constantly vetted and rebalanced using our favorite fundamental factors that rank revenues, revenue growth, operating margins, free cash-flow generation and other market metrics.

Investing Insights: Why Global and Why Now

Here is a look as to why investors should re-think their overweights to the U.S. right now.

Since 1970, there have been five periods where the U.S. has outperformed International markets, and five periods where International has outperformed the U.S. The average cycle length for the U.S. outperforming is 68.6 months with an average outperformance over International markets of 79%. Our current U.S. outperformance cycle is over 107 months, the longest we’ve seen since 1970 (as far back as the data goes).

PDF imageWhy Global and Why Now

Top Brands Hold Valuable Intangible Assets

What  is the definition of a “Brand”?

When asked “What is a brand”, Jeff Bezos CEO of Amazon replied “Your Brand is what people say about you when you’re not in the room”. I can’t think of a better explanation. Brands are intangible assets that Wall Street analysts have a hard time valuing. Perhaps that’s why there are few investment strategies focused solely on the leading Brands.

Every company’s name is its calling card but a highly recognizable & still relevant Brand distances itself from peers. Does Coke have the best tasting soda? Maybe, maybe not but if you polled 100 people, gave them 3 choices , and tasked them with identifying the Brand they feel they know the best, it would likely be Coke. No offense to Pepsi, Monster Beverage,etc. How about in technology. You think Apple, Google, Facebook and Amazon are front of mind? Absolutely they are. Top Brands spend an enormous amount of time and money building a strategy to build trust and loyalty with consumers. It’s not easy or cheap, but it absolutely translates into customer loyalty, persistent purchasing of their products, and pricing power. Once a Brand accomplishes high recognition, trust and loyalty, the benefits to the company, its revenues, margins, and stock prices can be quite dramatic.

Top Brands – Multiple Sub-Brands:

Investing in Top Brands gives you ownership in many important sub-brands.  The hidden value in owning the stocks of leading brands is the embedded ownership you get in all the other important brands owned by the mothership.  Trends evolve and consumer interests change as we age. Another hidden benefit of owning the leading Brands is their interest in keeping their leadership by acquiring emerging Brands that breakaway from the pack in their categories.  The top brands understand their markets, who is taking share, and often roll up emerging brands under their umbrella and offer them highly valuable distribution and shelf-space. The best brands are often the most savvy acquirers.

Below I have highlighted some of the most Iconic Blue Chip Brands and the sub-Brands they control.  This list is a sub-segment of the Top 200 Brands that make up the Alpha Brands Consumer Spending Index.  Ownership in a basket of the leading Brands also offers exposure to an enormously powerful group of sub-brands. That’s the real value of investing in the intangible assets of the leading Brands.

 

footnotes

Reasons to be Patient with Equities

Please click to link below for a “multi-factor” review of the U.S. equity market.

asset-class-review-q3-sept-2016

Please let us know if you have any questions.

Best regards,

James

Disclosures: This piece was written by a Senior Portfolio Manager at Accuvest Global Advisors. The opinions expressed in this report are those of the author. The materials and commentary are strictly informational and should be used for research use only. This brochure should not be construed as advertising material. The opinions expressed are not intended to provide investing or other advice or guidance with respect to the matters addressed in this brochure. All relevant facts, including individual circumstances, need to be considered by the reader to arrive at investment conclusions to comply with matters addressed in this brochure. Past performance is not indicative of future results. Remember that investing involves risks, as the value of your investment will fluctuate over time and you may gain or lose money. Investment risks are born solely by the investor and not by AGA. AGA is an independent investment advisor registered with the SEC. All disclosures, marketing brochures, and supplemental firm sheets are available upon request.

Why Europe? Why Now?

Why Europe? Why Now?

Earnings and Margins Recovery

  • MSCI EMU earnings and profit margins are significantly below previous peak levels, offering recovery potential. Earnings and Margins should improve with business confidence.
  • The IFO institute’s business climate index for Germany climbed to 108.3 from 108 in July. The Bundesbank said in its August monthly bulletin that the German economy is poised for “solid” growth in the rest of the year. Domestic spending, bolstered by record-low unemployment and borrowing costs, could provide a bulwark against weakness in China
  • Euro-area exports to China were 6.8% of total euro-area exports to the world in 2014

Strong Balance Sheets

  • European Bank balance sheets have stopped contracting and are quite healthy post AQR
  • Euro Area companies have historically high cash positions
  • The supply of credit is close to post-2007 highs
  • The ECB bank lending survey indicates that EMU private banks expect a pick-up in demand for loans.

Attractive Valuations

  • Entering 2015, the European CAPE (Cyclically Adjusted P/E) relative to global equities was at an all-time low – 1.8std below average.
  • The weaker euro is helping earnings, as nearly 60% of revenues are coming from outside Europe. A 10% fall in the euro trade-weighted index is estimated to add about 8% in European EPS
  • The fall in the euro area BBB corporate bond yield suggests that the interest charge could fall by 40bps and the ECB measures so far are helping to repair the monetary transmission mechanism (with bank lending rates, for example, falling in the periphery). This could add 11% to EPS

 Economic Turnaround

  • According to OECD and IMF models, the depreciation of the euro, combined with the fall in oil prices could boost European GDP.
  • First quarter GDP growth recorded a comfortable 0.4% qoq (non-annualized) print, the EMU’s highest in recent years, borne by sturdy consumption and exports. In nominal terms, the 2.35% growth is the highest print recorded since Q3 2011.
  • The recovery has potential to carry on in an environment where activity should be propped up by the still supportive low rates, weak Euro and cheap oil.
  • Fiscal drag is easing and there is substantial pent-up domestic demand – Entering 2015, car sales were 27% below their pre-crisis average (back at 1993 levels), the net business investment share of GDP is a third of normal levels, the age of the capital stock is close to record levels, while household savings ratios are still high in the core (and 12.9% in the Euro area as a whole).

Disclosures: This piece was written by a Senior Portfolio Manager at Accuvest Global Advisors. The opinions expressed in this report are those of the author. The materials and commentary are strictly informational and should be used for research use only. This brochure should not be construed as advertising material. The opinions expressed are not intended to provide investing or other advice or guidance with respect to the matters addressed in this brochure. All relevant facts, including individual circumstances, need to be considered by the reader to arrive at investment conclusions to comply with matters addressed in this brochure. Past performance is not indicative of future results. Remember that investing involves risks, as the value of your investment will fluctuate over time and you may gain or lose money. Investment risks are born solely by the investor and not by AGA. AGA is an independent investment advisor registered with the SEC. All disclosures, marketing brochures, and supplemental firm sheets are available upon request.

Does China still make Dollars and Sense?

The recent inflection point in Chinese equities provides us with an opportunity to re-evaluate the investment thesis on China.  Entering June, China was the #1 overall ranked country in the Accuvest Global Core Equity universe.  China has been ranked #1 since January 2015 and has been a top 2 overall country since September 2014.  Over the last 6 months, the MSCI China Index has returned 10x the MSCI USA Index (in local currency terms), and this level of divergence certainly warrants a review of the relative attractiveness of Chinese equities.

Our data suggests that the powerful medium term momentum seen in China is supported by a unique blend of strong growth, attractive valuations, and below average risk.  While momentum is very strong (ranked #1 overall), there is plenty of data supporting the case for continued China out-performance.  For one, the MSCI China Forward PE, currently at 12.6x, sits at its 10-year average, while the MSCI United States Forward PE, currently at 17.4, is two standard deviations above its 10-year average.

Relative to the MSCI USA Index, the MSCI China Index has:

  • 6x the US Long Term Sales per Share growth
  • 6x the US earnings yield
  • About half the P/B ratio (1.7x vs. 2.9x)
  • A Growth to P/E Ratio (PEG Ratio) of 1 versus 0.5 in the US
  • 10x the 6 month returns of the MSCI US Index in LCL terms
  • 5x the 12-1 month returns of the MSCI US Index in LCL terms
  • A more competitive currency

The MSCI China Index is very attractive relative to the US and the 32 country Accuvest Global Core Equity universe.  Entering June 2015, China was ranked:

  • 4th in overall fundamentals (vs. 7th for the US)
  • 4th in valuation (vs. 28th for the US)
  • 1st in momentum (vs. 18th for the US)
  • 13th is risk (vs. 1st for the US)

Overall risk is higher in China, but not above average.  Beyond the quantitative risk data, we see concrete signs of China’s willingness and ability to defend growth and protect against a significant credit event.  Recent reforms have allowed local municipalities to roll over debt to lower interest rates and longer maturities. Last week we received data showing that China’s home prices fell in fewer cities for a third straight month as buyers’ confidence returned after the government removed some property curbs and interest rates fell.  China eased mortgage policies and down-payment requirements for some home buyers at the end of March, adding to easing measures since September to aid an industry that has been weighing on economic growth. We anticipate that the government will act to keep the equity bull market intact. New broker accounts, at 30 million (in April and May), exceeded the records set in the last bull market.  Going forward, authorities will likely reduce the pace of initial public offerings, and clarify margin trading rules.  We would consider market sell offs on prudent reforms to margin requirements a buying opportunity.  Additional upside performance catalysts include progress on macro-themes such as e-commerce, the new Silk Road of trade routes, clean energy/pollution control, further tail risk reduction as LGFVs debts are restructured, capital account liberalization, and M&A.

Our research suggests that 1 month momentum is not an optimal investment indicator.  Medium-term momentum is much more statistically significant, and blending momentum factors with strong fundamentals, attractive valuations, and a low risk profile yields better long-term risk adjusted returns.  Accordingly, we will remain constructive on the MSCI China Index until momentum, fundamentals, valuation and risk suggest otherwise.

Why Invest in Europe (FX Hedged)?

  • Leading indicators show tentative signs of stabilization (relative PMIs), and there is still substantial pent up demand (savings ratio of 13% and net investment is 1/3 its normal levels).
  • Bank balance sheets have stopped contracting and money supply is now accelerating.
  • The ECB has crossed the sovereign QE threshold with 60B Euro/Month in purchases through Sept 2016.
  • European equities are cheap on a P/B basis, Shiller P/E, and relative to bonds.

Please use the following link for the full investment update on European Equities: Europe Equity (FX Hedged)