Mike Lipper’s Monday Morning Musings
Transactional Signals
Editors:
Frank Harrison 1997-2018, Hylton Phillips-Page 2018
When my term as President of the New York Society of Security Analysts (NYSSA)
expired, I turned down staying on the Board feeling that comments by the former
President may not be welcomed. I offered to provide inputs privately when asked.
I made a similar offer when I moved on from my position as a USMC officer. With
that as a background, I found myself in a somewhat analogous position as a
member of the Finance Committee of the Board of the Stevens Institute, where I review
an extensive report containing the student managed investment fund.
While the other trustees were highly complementary as to the work of the
students, I thought they should get a real education from this exercise. I felt
the analysis was lacking any discussion of management and its expected
retirement. This was logical, as their time period was the length of the
current academic term. To me this was trading, as it was not long enough for an
investment period. To me, investment periods begin with five years (roughly the
average length of many CEOs). I suggested there was a reasonable chance of a
new CEO over the 5-year period.
With this as
background, I noted with interest the Barron’s article titled “A Trio of
Transitions Will Rock Wall Street”. The three are Larry Fink, Jaime Dimon, and
Stephen Schwarzman. The article would have been more useful if it had discussed
the likely cause of the retirements: recession, unfavorable regulation,
stronger competition, new products/services, shrinking internal political
support. With aspects of technology and finance coming closer together, changes
in the management of Apple, Microsoft, and the Stock/Commodity exchanges, among
others, should be expected within the next five years.
I will briefly
discuss some of the characteristic changes that may impact stock prices within
five years.
Possible Recession
Risk
Any student of economic and financial history knows that there will be
periodic recessions caused by the mistakes of leaders and others. If one looks
carefully there is usually a small signal that most ignore. One may be what is
happening with the ISM data on the manufacturing side of the economy.
The ISM Manufacturing PMI survey for May had a reading of 48.7, a
contraction from the April reading of 49.2, a fall of 0.5. The survey for new
orders fell to 45.4 from 49.1 in April, a sharp drop of 3.7.
Manufacturing
employment on the other hand went up to 51.1 from 48.5 in April!!! A possible
explanation could be manufacturers hiring younger and cheaper people to replace
older and more expensive people. Or perhaps there is a miscommunication between
the different functions.
Two Positive Signals
In May the S&P
600 small-cap index grew 4.87%, slightly better than the S&P 500, both
without dividends. If the market continues to rise on speculation, the 600 will
be the leader. In May, seven of eleven sectors in the 600 did better than the
500.
Small banks,
contrary to their larger brethren, sharply increased their purchases of mortgages
on commercial real estate. Local banks quite possibly have a better feel for local
real estate value than larger banks, which are hundreds to thousands of miles
away.
Some Investment
Managers Can Repeat Being First among Peers.
The London Stock Exchange Group has continued the Lipper Analytical practice
of tracking the best performing mutual funds for periods as short as one month through
10 years.
This weekend I
reviewed what is usually the toughest competition for the eight periods. Eight is
listed as the denominator to the extent the category existed for all eight periods,
otherwise a smaller number is listed. (Year
to date, 1 & 3 months, 1, 2, 3, 5, and 10 years). I then looked for fund
houses that had two or more entries. The data below shows the results of the
major peer groups.
# of
Repeaters
Peer Groups Winners
Losers
Large-Cap Growth 6/8 6/8
Large-Cap Core 4/8 4/8
Large-Cap Value 6/8 5/8
Multi-Cap Growth 3/8 7/8
Multi-Cap Core 5/8 2/8
Multi-Cap Value 5/7 0/7
Mid-Cap Growth 4/8 3/8
Mid-Cap Core 5/8 4/8
Mid-Cap Value 7/8 2/8
Small-Cap Growth 5/7 4/7
Small-Cap Core 6/8 6/8
Small-Cap Value 8/8 3/8
Remember, I was
looking for repeaters in terms of fund management companies, as there are fund name
changes and portfolio manager changes over 10 years. Additionally, portfolio managers
can manage two or more funds. The winners tend to stay with their portfolios, although
markets rotate. The losers change portfolios in an attempt to get off the
bottom, if they still have a job.
A Sign of the Times
Due to a money
shortage, the Department of Labor announced it is planning to reduce the number
of inputs to their surveys starting in 2025.
Question: What
should we be watching?
Did you miss my blog last week? Click here to read.
Mike
Lipper's Blog: Investment Markets are Fragmenting - Weekly Blog # 839
Mike
Lipper's Blog: The Rhyme Curse -Weekly Blog # 838
Mike Lipper's Blog: The Most
Dangerous Message - Weekly Blog # 837
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