Thus, Levkovich mapped out his “Panic/Euphoria Model”, also known as the “Other PE Model”, which made for some interesting analysis in terms of “where we were” and “where we are” currently in terms of real investor sentiment measured outside of the limitations of the VIX. During Levkovich’s presentation, a quick rewind in my mind had me recalling the third anniversary of the notorious Flash Crash which occurred on May 6th of 2010. Secondly, rewind the clock five years from today to the spring of 2008 and we were embroiled in the worst financial crisis that the markets have ever seen, and the full effects of the contagion had not shown themselves completely for many months to come. “Decoupling” was mentioned by Tobias, which was one of the catch phrases of yesteryear during the 2008/2009 crisis, a term barely mentioned anymore in investment circles and media just five years later. It makes one wonder that if today’s investment catch phrases such as “Sequestration” and “QE” will be distant memories and no longer entirely relevant five years from now in 2018.
Following Levkovich’s presentation, Barry Knapp of Barclays (U.S. Portfolio Strategy) continued the debate on the state of the U.S. equity markets and immediately pointed to the action since the Fed began the implementation of their post financial crisis programs. He stated that the “valuation of stocks with bond-like characteristics have richened considerably while the parts of the equity market most leveraged to growth are little changed.” Such an observation is hard to deny, given the price appreciation in stocks in sectors such as Health Care, Utilities, and Consumer Staples and related ETFs, and once again these comments had me thinking about the immense asset growth that has occurred in USMV since its debut in late 2011, having grown to $3.5 billion in AUM while focusing on the historically “low volatility” segment of the equity markets, and quickly becoming a household name among managers of ETF portfolios.
Taking us on a trip down memory road, Knapp stated that the last time the Fed capped interest rates at 2.5% back in 1948; stocks that historically had high dividends posted very strong returns. Because history should not be ignored, I immediately considered some of the high yield equity offerings from iShares that should be relevant to this discussion, such as DVY (iShares DJ Select Dividend, Expense Ratio 0.40%) and HDV (iShares High Dividend Equity, Expense Ratio 0.40), which own names including Lorillard (LO), Lockheed Martin (LMT), Chevron (CVX) and in the case of HDV, AT&T (T), Johnson & Johnson (JNJ), and Microsoft (MSFT). Not to be lost when one thinks about high yield equity investing through ETFs, relatively newer, and smaller offerings from iShares also crossed my mind at this juncture in the presentation, including IDV (iShares Dow Jones EPAC Select Dividend, Expense Ratio 0.50%), DVYA (iShares Asia/Pacific Dividend 30, Expense Ratio 0.49%), and DVYE (iShares Emerging Markets Dividend, Expense Ratio 0.49%) which are relatively new to the marketplace and perhaps should be on radars especially of those ETF portfolio managers that have an international equity focus in their methodologies.
Knapp moved along and spoke a bit about Japanese central bank intervention in the marketplaces historically, which of course is very timely given the massive inflows we have seen this year in EWJ (iShares MSCI Japan, Expense Ratio 0.51%), adding $4.2 billion in AUM YTD.
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