Upload
ian-lancaster
View
196
Download
1
Tags:
Embed Size (px)
DESCRIPTION
The Global Equity Style Monitor, a quarterly feature that will examine investment trends across global equity markets.
Citation preview
2. ISLAMIC INVESTORFEATUREEquity review in 2011RELIANCE ASSET MANAGEMENT (MALAYSIA) introduces the Reliance Global Equity Style Monitor, aquarterly feature that will examine investment trends across global equity markets.Looking back 2011 was certainly an Chart 1 Equity performance & volatility in 2011eventful year. From the Arab Spring in300300the Middle East to a nuclear disaster in VIX (RHS) +31.8%Japan and a debt crisis in the Eurozone, BMI Shariah Global Developed (LHS) -2.4%the last 12 months have been nothing BMI Global Developed (LHS) -6.3%250250if not dramatic. Although marketvolatility has subsided from the extremelevels of uncertainty experienced during200200the third quarter, investors clearlyremain nervous. At the end of 2011, the150150VIX Index, a widely followed measureof estimated future volatility for theS&P 500 Index, remained around one100100third higher than at the end of 2010.Despite the heightened uncertainty and50 50 0 111111 11 1111 1111 1relentlessly negative news headlines of c1r11 1 111 c1 1 n b prayn l1gpct ovecthe past 12 months, it might therefore st Deth Ja th Fe M and AM th Ju th Ju Au th Se th ON ndDeth D 28 th th th31 2522 17 1597 th 30come as something of a surprise to25 20 12 4 2learn that global equities posted only Source: Reliance Asset Management Malaysia, S&P Total Return Indices, Bloombergmoderate declines in 2011. Total returnDate: 30th December 2011indices across the global developedeconomies finished the year 6.3% lower,Table 1 Style preference by region in 2011with Shariah compliant equities once Dec 2011ValueGrowth Momentum Quality Financial StrengthLow Volatilityagain outpacing their conventionalcounterparts with a marginal 2.4%US2 (-5) 4 (+1)5 (0) 5 (+1)10 (+2)6 (+5)decline. However, this performance Canada3 (-4) 6 (+1)7 (+1)7 (+4)7 (0)6 (+4)mainly reflects the relative strength of UK4 (+1) 6 (-1)4 (-3)6 (+1)5 (-2) 7 (+6)the US equity market, which managed aEurope2 (-2) 6 (-1)3 (-6)3 (+1)8 (+1) 5 (+4)flat performance in 2011, helping to offset Asia4 (-2) 5 (+1)7 (+1) 4 (0)6 (-3) 4 (+3)steep declines in European and Asian Japan 6 (-2) 6 (+2)4 (+3) 3 (-1) 7 (0)4 (-2)equity indices. Source: Reliance Asset Management MalaysiaHow then are we to make sense of Date: 30th December 2011the events of 2011 and their influenceon investor behaviour? Fortunately, a system which observes most of the against those where it assigns a less thanquantitative approach allows us to shed indicators that traditional investors equal weight. This has the advantage ofsome light on the underlying trends. By analyze, but in a systematic, data- ignoring the relative size of sectors andcombining a broad array of fundamentalintensive way. The calculations derivecountries and focusing on the breadth ofmetrics, such as the price to earningsa score that rates each company by itsthe style trend in question. Each cell inRatio (PER), revisions to analysts relative attractiveness within its sector.Table 1 displays the number of sectorsforecasts and measures of managementThe investment approach is to examine in which Cognition was overweightefficiency such as return on equity each economic sector within six key for each style at the end of December(ROE), we are able to describe a rangegeographic regions independently. This2011, followed by the 12-month changeof investment styles, such as Value,helps ensure that our style analysis is not in brackets. Red shading indicates areasGrowth, Momentum or Quality. Usingbiased towards the largest market, andwhere more than 50% of the sectors incorrelation analysis, we can identify does not overlook potentially significant a region are overweight a given stylewhich styles have best predicted sharevariations across the world. We can use (hot). Blue shading is used to indicateprice performance over the past 12the style building blocks that create the where less than 50% of sectors aremonths, providing a constantly evolving Cognition score to take a snapshot of overweight (cold).picture of how equity investors are equity market style preferences at anyreacting to economic events.point in time.So what can we say about 2011? Twokey messages stand out. First, FinancialThis type of style analysis forms the In order to draw a heat map of global Strength and Low Volatility werebasis of Cognition: the in-house stockstyle preferences we tally the number ofclearly hot investment styles. Investorsselection model utilized by Reliancesectors where analysis by Cognition overretained a cautious stance, continuingAsset Management Malaysia. Cognitionthe past twelve months assigns a greateris a proprietary computer-driven expert than equal weight to any given style,continued... 1st February 201225 3. ISLAMIC INVESTOR FEATUREContinued Table 2 Change in Style preference by Region Q4 2011 that further downgrades may causeapparently cheap stocks to continue to Dec 2011ValueGrowth MomentumQualityFinancial Strength Low Volatilityget cheaper. US+1(-3)(-2)(-1)+5+2 Canada+1+2 +0+3 +0+0 The picture for 2011 is, then, quite clear. UK+1+0 +1+3(-1) +1 But what about more recent trends? If Europe+0+1(-4)(-1)+2+0 we focus our style analysis on changes to Asia+1(-1)(-2) +0 +2+2style preferences during the final quarterof 2011, an interesting pattern emerges. Japan +0(-1) +3+1(-1) +3Whilst defensive styles clearly remain in Source: Reliance Asset Management Malaysia demand, we note a shift towards Value in Date: 30th December 2011 four of the six regions we monitor.to emphasize a preference for defensive The US, Canada, the UK and Asia all sawinvestment styles across most sectorsand regions around the world. This was Defensivea single sector move to an overweightValue position, with Europe and Japanaccompanied by a shift towards the LowVolatility style during the year, with styles clearly unchanged. This does not necessarilysignal a bullish shift to investoronly Japanese investors moving awayremain inexpectations. Significant macro-economicfrom this style. Such a trend shouldrisks remain, not least a resolution to thecome as no surprise given the increasing demand Eurozone debt crisis. However, havingconcerns over a double dip recession in underperformed as a style for some timeEurope and the US, with a combinationmoved lower in all regions apart fromnow, it is quite possible that investorsof private sector de-leveraging and fiscal the UK. At times of economic uncertainty have begun to see an improvement in thetightening likely to remain a drag onValue tends to be the least trusted of risk/reward profile of a Value investmenteconomic growth. all investment styles. This reflects the consultingstyle. www.IslamicFinanceConsulting.com www.IslamicFinanceEvents.com fact that, at this stage of the economicwww.IslamicFinanceNews.com www.IslamicFinanceTraining.com cycle, the cheapest stocks in the market www.MIFforum.comSecond, it is also clear that investors wereReliance Asset Management Malaysia is the www.MIFmonthly.com www.MIFtraining.comcold on Value. With the exception of also tend to be the most economicallyinvestment manager of the WSF Reliance www.REDmoneyBooks.comJapan, all regions were net underweightsensitive. This is compounded by the factGlobal Shariah Growth Fund. This fundValue by the end of the year, and thethat consensus earnings forecasts oftenutilizes the Cognition investment process.number of sectors overweighting Valuelag behind economic reality, meaning Bank Negara Malaysia has 335 subscribers to Islamic Finance news, and pays less than US$36 per subscription. IFN is for everyone, not just the CEOs Contact us now and see how we can help your entire team Call: +603 2162 7800 or Email: [email protected] 1st February 201226