The momentum-value standoff continues

The momentum-value standoff continues

May 2019 Research Signals

The trade war between value and momentum continued as the standoff between the US and China sent equity markets reeling, with stocks capping their worst month of the year. Factor performance in May reflected momentum's latest salvo on valuation (Table 1). High risk names were the casualties of the war as investors sought out traditional safe havens amid worries about the impact of trade tariffs on global economies. Concerns were reinforced by the J.P.Morgan Global Manufacturing PMI's lowest reading since October 2012, falling into contraction territory as international trade flows weighed on the sector. ? US: High momentum names, gauged by Industry-adjusted 12-month Relative Price Strength, outperformed at the

expense of undervalued stocks, captured by TTM EBITDA-to-Enterprise Value ? Developed Europe: Investors reflected trends from other regional equity markets, in addition to signals from securities

lending markets favoring stocks with lower short interest, such as Demand Supply Ratio ? Developed Pacific: High beta names strongly underperformed in Japan in May, with an 18.6 percentage point month-

on-month swing in 60-Month Beta spread performance ? Emerging markets: 60-Month Beta and Industry-adjusted 12-month Relative Price Strength turned in solid

performances last month

Contacts

Research Signals MK-ResearchSignals@

Confidential. ? 2019 IHS MarkitTM. All rights reserved.

IHS Markit | Key drivers: The momentum-value standoff continues

Table 1

Global factor quantile return spread performance snapshot, May 2019

Factor Book-to-Market

Factor Group

US Large Cap

-4.61

Forward 12-M EPS-to-Enterprise Value TTM EBITDA-to-Enterprise Value

Deep Value

-4.92 -7.20

TTM Free Cash Flow-to-Enterprise Value

Industry Relative Leading 4-QTRs EPS to Price

Industry Relative TTM Dividend Yield

Relative Value

-3.30 -1.98 1.92

Fixed Assets Turnover Ratio

-0.89

Inventory Turnover Ratio

Management Quality

2.55

Net Operating Asset Turnover

-3.57

Change in Accruals to Assets

-0.98

Change in TTM COGS vs. Inventory Level

Change in TTM Sales vs. Accounts Receivable

Working Capital Accruals

Earnings Quality

-3.59 -2.75 3.50

1-yr Growth in TTM Free Cash Flow

Reinvestment Rate Average Monthly Trading Volume-toMarket Cap 60-Month Beta

Asset Quality Index

Historical Growth Liquidity, Risk & Size

-1.23 1.49 -8.92 11.74 1.45

Operating Leverage

0.64

Natural Logarithm of Market Capitalization

-3.76

2-Year Ahead EPS Growth

-7.99

3-M Revision in FY2 EPS Forecasts

Earnings Momentum

6.28

Real Earnings Surprise

1.00

24-Month Value at Risk

12.71

5-day Industry Relative Return

Industry-adjusted 12-month Relative Price Strength

Rational Decay Alpha

Price Momentum

-6.92 11.24

6.77

Demand Supply Ratio Implied Loan Rate

6.26 Short Sentiment

3.67

Source: IHS Markit

US Small

Cap -6.80

-0.34

-6.69

1.32

Developed Europe -5.03

-2.90

-3.73

-5.32

Developed Pacific ex

Japan -1.68

0.60

5.13

0.48

Japan Standard

Cap -2.70

-3.95

-4.35

-1.85

Emerging Markets -1.35

0.00

-0.91

0.47

-0.72

-2.40

-2.14

-0.38

0.14

-1.31 0.58 0.97 -4.18 0.22 -1.41

-1.28 -3.14 -1.21 -1.91 -1.07 -3.49

4.06 -3.31 0.79 -2.32 0.37 1.42

-1.04 -2.64 3.34 -4.37 3.23 -0.44

0.49 -0.22 0.14 -2.22 0.13 0.92

-7.57

0.27

-0.97

-1.24

-1.07

3.94 -0.41 -1.97

2.05

-2.48

-2.42

1.35

0.19

3.78

-1.18

1.12

1.47

4.28

0.05

2.74

-8.92

-3.51

3.34

-8.71

-4.76

6.06 3.81 1.83 -6.90 -6.45 0.60 -0.31 10.42 -3.81

10.04 -0.68 0.65 1.11 -3.32 4.31 0.12 7.63 -1.31

6.18 4.95 -1.41 5.90 -6.13 0.14 2.53 11.64 -3.77

10.59 -2.12 -3.22 -1.89 -1.47 5.37 -1.08 10.00 -4.67

4.14 1.06 1.20 -2.76 -2.57 2.07 2.25 4.28 -1.89

8.58

7.51

4.98

2.24

3.50

3.46 6.58 3.13

7.55 5.90 -1.63

5.04 5.71 6.68

3.21

0.65

2.85

4.44

-1.00

2.25

? 2019 IHS Markit

Confidential. ? 2019 IHS Markit. All rights reserved.

2

May 2019

IHS Markit | Key drivers: The momentum-value standoff continues

United States

US Large Cap

US manufacturing registered only a marginal improvement in operating conditions in May, with the PMI (50.5) dropping to its lowest reading since the height of the financial crisis, as new orders fell for the first time since August 2009. Weak demand and ongoing trade tensions led firms to express the lowest confidence regarding future output growth since data on the outlook were first collected in mid-2012. Trade tensions also plagued stocks, capping their worst month of the year.

Factors reversed course once agin in May, with price momentum moving back to the top of the US Large Cap factor performance list (Table 2) and valuation measures falling back down to the bottom (Table 3). 1-Year Price Momentum Indicator (14.31%) was the leading performer, with a hefty double-digit spread (Figure 1) which had not been seen since June 2008. Outside of this group, other key factors include 1-Month Realized Stock Return Volatility (12.09%), a signal of risk aversion juxtaposed with the momentum trade, along with additional Earnings Momentum indicators (not shown here) such as Time Weighted Earnings Revision (8.54%). Conversely, valuation measures traversed the full return spread spectrum, with 60-Month Alpha (-10.38%) and Leading 12 Month Cash Yield (-10.22%) turning in the weakest performance.

Table 2

US Large Cap top decile return spread factor performance, May 2019

Factor 1-Year Price Momentum Indicator 52-Week High 6-Month Active Return with 1-Month Lag 24-Month Residual Return Variance 9-Month Active Return with 1-Month Lag 24-Month Value at Risk 39-Week Return with 4-week Lag Fama-French Momentum 4-52 Week Price Oscillator Std Dev of FY2 EPS Estimates-to-Price 1-Month Realized Stock Return Volatility 12-Month Active Return with 1-month Lag 30-75 Week Stock Price Ratio 1-Month Stock Return Interquartile Range Product of Beta and Sigma

Source: IHS Markit

Decile spread (%) 14.31 13.97 13.83 13.46 13.34 12.71 12.63 12.31 12.18 12.17 12.09 12.08 12.03 11.91 11.86

Factor group Price Momentum Price Momentum Price Momentum Price Momentum Price Momentum Price Momentum Price Momentum Price Momentum Price Momentum Earnings Momentum Liquidity, Risk & Size Price Momentum Price Momentum Liquidity, Risk & Size Liquidity, Risk & Size

? 2019 IHS Markit

Confidential. ? 2019 IHS Markit. All rights reserved.

3

May 2019

IHS Markit | Key drivers: The momentum-value standoff continues

Table 3

US Large Cap bottom decile return spread factor performance, May 2019

Factor 60-Month Alpha Leading 12 Month Cash Yield Time Weighted EBITDA/ EV Leading 12 Month EBITDA/ EV TTM Sales-to-Enterprise Value Cash-to-Price Yield Curve Slope Sensitivity Time Weighted Sales Yield 60-Month Active Return with 1-Month Lag Leading 12 Month Sales Yield

Source: IHS Markit

Decile spread (%) -10.38 -10.22 -10.13 -10.02 -9.67 -9.57 -9.57 -9.53 -9.48 -9.44

Factor group Price Momentum Deep Value Deep Value Deep Value Deep Value Deep Value Macro Deep Value Price Momentum Deep Value

? 2019 IHS Markit

Figure 1

US Large Cap 1-Year Price Momentum Indicator decile return spreads

20%

15%

Decile 1-10 spread

10%

5%

0%

-5%

-10%

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

2018

2019

Source: IHS Markit

? 2019 IHS Markit

US Small Cap

Small cap factor performance closely resembled that of large caps among the top (Table 4) and bottom (Table 5) performing factors in May. 6-Month Active Return with 1-Month Lag (12.59%) and Leading 12 Month EBITDA/EV (10.03%) are two such factors that represent the Price Momentum and Deep Value themes, respectively, and a view of the distribution of returns across deciles (Figure 2) demonstrates systematic trading around both signals. Again, looking beyond the Price Momentum group (results not shown here), strong return spreads were also associated with the riskoff trade and analyst outlook, captured by At the Money Call Option Implied Volatility (9.35%) and Time Weighted Earnings Revision (9.28%), respectively.

Confidential. ? 2019 IHS Markit. All rights reserved.

4

May 2019

IHS Markit | Key drivers: The momentum-value standoff continues

Table 4

US Small Cap top decile return spread factor performance, May 2019

Factor 6-Month Active Return with 1-Month Lag 4-52 Week Price Oscillator 9-Month Active Return with 1-Month Lag 24-Month Active Return with 1-Month Lag Std Dev of FY2 EPS Estimates-to-Price 50-200 Day Stock Price Ratio 52-Week High 18-Month Active Return with 1-Month Lag 39-Week Return with 4-week Lag 15/36 Week Stock Price Ratio 26-Week Relative Price Strength 24-Month Value at Risk 1-Year Price Momentum Indicator 20-Day Volume Volatility to Price Volatility 30-75 Week Stock Price Ratio

Source: IHS Markit

Decile spread (%) 12.59 12.14 12.07 11.49 11.46 11.37 11.21 11.06 11.06 10.93 10.49 10.42 10.21 10.09 9.82

Factor group Price Momentum Price Momentum Price Momentum Price Momentum Earnings Momentum Price Momentum Price Momentum Price Momentum Price Momentum Price Momentum Price Momentum Price Momentum Price Momentum Liquidity, Risk & Size Price Momentum

Table 5

US Small Cap bottom decile return spread factor performance, May 2019

Factor Leading 12 Month Book Yield 36-Month Sharpe Ratio Leading 12 Month EBITDA/ EV Price-to-Book Return-on-Equity Combination (PB-ROE) Time Weighted Sales Yield 60-Month Alpha 3-Month Active Return Leading 12 Month Sales Yield Sortino Ratio 36-Month Active Return with 1-Month Lag

Source: IHS Markit

Decile spread (%) -10.98 -10.29 -10.03 -10.03 -10.01 -9.94 -9.22 -9.18 -9.08 -9.08

Factor group Deep Value Price Momentum Deep Value Deep Value Deep Value Price Momentum Price Momentum Deep Value Price Momentum Price Momentum

Figure 2

US Small Cap decile returns, May 2019

Return

0% -2% -4% -6% -8% -10% -12% -14% -16% -18% -20%

1

Source: IHS Markit

2

3

4

5

6

7

8

9

Decile

6-Month Active Return with 1-Month Lag

Leading 12 Month EBITDA/EV

? 2019 IHS Markit

? 2019 IHS Markit

10 ? 2019 IHS Markit

Confidential. ? 2019 IHS Markit. All rights reserved.

5

May 2019

IHS Markit | Key drivers: The momentum-value standoff continues

Europe

The eurozone manufacturing sector continued to contract in May, with the PMI (47.7) posting below the 50.0 nochange mark for a fourth consecutive month. Weakness remained centered on the intermediate and investment goods sectors, contrasting noticeably with the performance of the consumer goods category, where growth was sustained to a modest degree. At the country level, Germany continues to lead the downturn, while Greece remained the best performing country. Equity markets could not maintain their positive monthly trend in May, turning south for the first such period in 2019.

European markets followed suit with the US, as Price Momentum and valuation signals dominated the top (Table 6) and bottom (Table 7) factor performance lists, respectively, in addition to an investor preference for low volatility shares. Asia-Pacific Sales Exposure (-7.57%) is another factor of interest, where returns to stocks with the most exposure to the region underperformed by the largest margin since September 2008. Lastly, we draw attention to Short Sentiment signals which fell just below the leaderboard cutoff including Short Interest (7.05%), whose decile return distribution (Figure 3) is indicative of investor attention to the securities lending market.

Table 6

Developed Europe top decile return spread factor performance, May 2019

Factor 30-75 Week Stock Price Ratio 9-Month Active Return with 1-Month Lag 12-Month Active Return with 1-month Lag 39-Week Return with 4-week Lag 6-Month Active Return with 1-Month Lag 1-Year Price Momentum Indicator Fama-French Momentum Slope of 66 Week Price Trend Line 18-Month Active Return with 1-Month Lag 60-Month Beta Slope of 52 Week Price Trend Line 24-Month Active Return with 1-Month Lag 52-Week High Product of Beta and Sigma 50-200 Day Stock Price Ratio

Source: IHS Markit

Decile spread (%) 12.53 12.10 11.67 11.56 10.92 10.77 10.76 10.38 10.28 10.04 9.72 9.04 8.96 8.92 8.51

Factor group Price Momentum Price Momentum Price Momentum Price Momentum Price Momentum Price Momentum Price Momentum Price Momentum Price Momentum Liquidity, Risk & Size Price Momentum Price Momentum Price Momentum Liquidity, Risk & Size Price Momentum

? 2019 IHS Markit

Confidential. ? 2019 IHS Markit. All rights reserved.

6

May 2019

IHS Markit | Key drivers: The momentum-value standoff continues

Table 7

Developed Europe bottom decile return spread factor performance, May 2019

Factor 5-yr Relative TTM Sales-to-Price 5-yr Relative TTM Dividend Yield Leading 12 Month EBITDA/ EV 5-yr Relative Leading 12-Month Earnings Yield Time Weighted EBITDA/ EV 5-yr Relative Book-to-Market Asia-Pacific Sales Exposure 60-Month Active Return with 1-Month Lag Leading 12 Month Sales Yield 60-Month Alpha

Source: IHS Markit

Decile spread (%) -8.58 -8.46 -7.97 -7.84 -7.81 -7.66 -7.57 -7.32 -7.24 -7.20

Figure 3

Developed Europe Short Interest decile returns, May 2019

0%

-1%

-2%

-3%

Return

-4%

-5%

-6%

-7%

-8%

-9%

1

2

3

4

5

6

7

Decile

Source: IHS Markit

Factor group Relative Value Relative Value Deep Value Relative Value Deep Value Relative Value Macro Price Momentum Deep Value Price Momentum

8

9

? 2019 IHS Markit

10 ? 2019 IHS Markit

Asia-Pacific

The Japanese manufacturing PMI returned below the 50.0 no change mark in May, resulting in the two largest Asian economies of Japan and China once again on opposite sides of the neutral mark. The headline PMI in Japan edged lower to 49.8, from 50.2 during April, as domestic and external demand conditions deteriorated. In China, the manufacturing PMI remained unchanged at 50.2, on broadly stable production and slight increases in total new work and export sales. Similary, equity markets in China were mostly stable, while stocks in Japan tumbled in May.

In developed Pacific markets outside Japan, the risk-off trade was the most highly rewarded in May. 24-Month Value at Risk (11.64%) topped the factor leaderboard (Table 8), as performance reached a level not seen since October 2018 amid similar steep market declines (Figure 4). Strong corporate fundamentals were also a desired feature, as gauged by NOPAT Margin (8.50%) and 1-yr Growth in TTM Earnings per Share (7.82%). On the other hand, the weakest performing factors in May (Table 9) include a handful of Deep Value measures including Cash-to-Price (-6.57%) and Time Weighted Sales Yield (-6.45%).

Confidential. ? 2019 IHS Markit. All rights reserved.

7

May 2019

IHS Markit | Key drivers: The momentum-value standoff continues

In Japan, May factor performance at the top (Table 10) and bottom (Table 11) tails took on similar themes as the broader region, favoring low volatility, led by Product of Beta and Sigma (11.34%), at the expense of Deep Value, represented by TTM Sales-to-Price (-7.63%). Exchange rates were also an important aspect of factor performance, where we compare and contrast stocks exposed to the local currency captured by Asia-Pacific (6.87%) and EMEA (8.44%) Sales Exposure (Figure 5).

Table 8

Developed Pacific exJapan top decile return spread factor performance, May 2019

Factor 24-Month Value at Risk 52-Week High 30-75 Week Stock Price Ratio Short Loan Concentration Stock Return Volatility 12-Month Active Return with 1-month Lag Regression Error of 60-Month CAPM Product of Beta and Sigma Fama-French Momentum NOPAT Margin 24-Month Residual Return Variance 1-yr Growth in TTM Earnings per Share Return on Invested Capital 39-Week Return with 4-week Lag Cash Flow Return on Invested Capital

Source: IHS Markit

Decile spread (%) 11.64 11.16 10.46 9.78 9.74 9.64 9.42 9.28 8.63 8.50 7.91 7.82 7.72 7.57 7.35

Factor group Price Momentum Price Momentum Price Momentum Short Sentiment Liquidity, Risk & Size Price Momentum Liquidity, Risk & Size Liquidity, Risk & Size Price Momentum Management Quality Price Momentum Historical Growth Management Quality Price Momentum Management Quality

? 2019 IHS Markit

Figure 4

Developed Pacific exJapan 24-Month Value at Risk decile return spreads

Decile 1-10 spread

14%

12%

10%

8%

6%

4%

2%

0%

-2%

-4%

-6%

-8%

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

2018

2019

Source: IHS Markit

? 2019 IHS Markit

Confidential. ? 2019 IHS Markit. All rights reserved.

8

May 2019

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download