International & US CAPE: Research Affiliates, Barclays, StarCapital

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lazyday
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International & US CAPE: Research Affiliates, Barclays, StarCapital

Post by lazyday » Thu Jul 27, 2017 11:06 am

Code: Select all

Sep 30 2017	RA	Barclays	StarCapital	Average		
						
PE10 US 	30.3	29.65		29.0	   	29.7
PE10 EAFE	16.6	23.37	*	20.2	*	20.0
PE10 EM 	14.1	18.01	*	16.5	 	16.2
						
* my estimate						
						
EP10 US 	3.3%	3.4%	 	3.4%	 	3.4%
EP10 EAFE	6.0%	4.3%	 	5.0%	 	5.0%
EP10 EM 	7.1%	5.6%	 	6.1%	 	6.2%
Research Affiliates: Data as of 09/30/2017
Barclays: Sep 30 2017 (My estimates use Barclays CAPE, Oct 11 EFA & IEMG weighting)
StarCapital: as of 09/30/2017 (My estimate uses StarCaptial CAPE and weighting)

RESEARCH AFFILIATES:

https://interactive.researchaffiliates. ... rrency=USD
Sources: Research Affiliates, Bloomberg, MSCI

The RA site graphically shows current CAPE compared to the historical range, median, and 25 & 75 percentiles. There's also a chart comparing regional CAPE over time, though it is hard to read.
On the left side, click “Equities”. Then find the CAPE section and click the top right corner to expand it. Click “CAPE Ratio” on the top to switch to Time Series.

BARCLAYS:

http://shiller.barclays.com/US/29/en/st ... c-cape.app
The CAPE® Ratio for each country above has been calculated by Barclays Research using levels of country-specific indices published by MSCI Inc. ("MSCI") representing the equity markets for the relevant country, adjusted for inflation using data from DataStream.

The Barclays site charts historical CAPE and allows several countries to be overlaid.

STARCAPITAL:

http://www.starcapital.de/research/stockmarketvaluation
Source: StarCapital, Thomson Reuters Datastream (Worldscope / IBES), corporate information et al.
[other data is included on the website, only CAPE shown above]
Last edited by lazyday on Thu Oct 12, 2017 2:22 pm, edited 5 times in total.

lazyday
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Re: International and US CAPE

Post by lazyday » Thu Jul 27, 2017 11:06 am

Older data:

Code: Select all

June 2017	 	RA		Barclays		StarCapital	Average			
	 									
US   PE10	 	29.8		28.47			28	   		28.8
EAFE PE10	 	16	  	22.7	*		19.6	*		19.4
EM   PE10	 	13.1		17.3	*		15.6	 		15.3
	 									
* my estimate	 									
	 									
US   EP10	 	3.4%		3.5%	 		3.6%	 		3.5%
EAFE EP10	 	6.3%		4.4%	 		5.1%	 		5.1%
EM   EP10	 	7.6%		5.8%	 		6.4%	 		6.5%
Research Affiliates: Data as of 06/30/2017
Barclays: June 2017 (My estimates use Barclays CAPE and late July ishares weighting)
StarCapital: as of 06/30/2017 (My estimate uses StarCapital CAPE and weighting)


earlier post:
I find it a bit odd that Barclays reports over 21 for Europe, while Star Capital reports under 18 for Developed Europe and RA reports 16 for EAFE. EAFE probably has higher CAPE than Europe.
Last edited by lazyday on Thu Oct 12, 2017 1:20 pm, edited 1 time in total.

AlohaJoe
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Re: International and US CAPE

Post by AlohaJoe » Thu Jul 27, 2017 11:20 am

I don't understand. What's the question?

lazyday
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Re: International and US CAPE

Post by lazyday » Thu Jul 27, 2017 11:50 am

AlohaJoe wrote:I don't understand. What's the question?
Do you have a better source for CAPE data? How much do you trust the three sources above? Any idea why the big difference for Europe?

asif408
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Re: International and US CAPE

Post by asif408 » Thu Jul 27, 2017 12:23 pm

Research Affiliates is legit, though of course the people running them also run funds that use fundamental indexing, so I'm sure they have some bias towards that.

The CAPE differences are for good, legitimate reasons, as things look better in the US vs. elsewhere in the world. And that is consequently priced in the CAPE ratios. Look at the headlines coming out of the lowest CAPE countries (e.g, Russia, Brazil, Turkey, Poland, Spain, Italy, etc.). Corruption, presidential impeachments, Zika Virus, high unemployment, etc. The news is bad, and it's hard for most people to invest in countries where the news is terrible and returns have been terrible for the last 5-10 years. It's a lot easier to invest in the USA because it's been one of the stars of the investing world the last several years and over the last 100 or so years.

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Portfolio7
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Re: International and US CAPE

Post by Portfolio7 » Thu Jul 27, 2017 12:41 pm

Thanks for the info!

Jumping to the punch line, applying reversion to the mean, current p/e vs historical seems to suggests one should overweight in EM, underweight in US.

My understanding of CAPE is that it's a notoriously poor market-timing tool (e.g. Cape data has been supportive of an overweight position in EM since 2008, but only in 2017 has that approach born much advantage. Europe/EAFE is very similar in that Cape is on the low end of the historical range, and it has endured sub-par returns for almost a decade, with a few false starts at recovery along the way.) At a high level, a direct application of cape to the investing process likely de-optimized one's portfolio.

While these 10 year outlooks may be directionally indicative (not sure I buy that entirely), the pathway to get there is incredibly unpredictable. Staying the course has generated stronger returns at lower risk vs trying to use Cape to direct your investing dollars. This is my Boglehead-like stance, and it covers 95% of my portfolio.

I tend to think of Cape as a form of technical analysis. When fundamentals and Cape align, you may have something worthy of consideration, i.e. the probability may be higher than normal that this particular asset may be mispriced AND primed to adjust.

By way of disclosure, ~5% of my portfolio is set to the side and I play with it. I am very heavy EM and Int'l in that portfolio, since December of last year. One of several things I considered in advance was the length of time that Cape predictions were out of line with actual returns. I see that as a period of time where tension for an adjustment in price may be building. Conversely, it could reflect a permanent change in conditions underlying the valuations. After deliberation, I settled on the former... but am entirely aware I could be wrong. Caveat emptor.
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Re: International and US CAPE

Post by munemaker » Thu Jul 27, 2017 12:53 pm

deleted
Last edited by munemaker on Thu Jul 27, 2017 5:54 pm, edited 1 time in total.

asif408
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Re: International and US CAPE

Post by asif408 » Thu Jul 27, 2017 12:58 pm

Portfolio7 wrote:My understanding of CAPE is that it's a notoriously poor market-timing tool (e.g. Cape data has been supportive of an overweight position in EM since 2008, but only in 2017 has that approach born much advantage. Europe/EAFE is very similar in that Cape is on the low end of the historical range, and it has endured sub-par returns for almost a decade, with a few false starts at recovery along the way.)
I'm not sure where you're getting your data from, but CAPE data has only been supportive of an EM overweight in the last few years: http://mebfaber.com/wp-content/uploads/ ... INLINE.jpg. Surely in 2008 there wasn't any evidence for an overweight EM, maybe an underweight if anything.

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Re: International and US CAPE

Post by lazyday » Thu Jul 27, 2017 3:26 pm

Portfolio7 wrote:.... At a high level, a direct application of cape to the investing process likely de-optimized one's portfolio.

While these 10 year outlooks may be directionally indicative (not sure I buy that entirely), the pathway to get there is incredibly unpredictable. Staying the course has generated stronger returns at lower risk vs trying to use Cape to direct your investing dollars. This is my Boglehead-like stance, and it covers 95% of my portfolio.
I've sometimes made small changes to asset allocation, moving between different risky assets, based on moderate changes in valuation. But have wondered if it makes more sense to stick with a static allocation until valuations are extreme, and then make moderate (not small) changes.

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Portfolio7
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Re: International and US CAPE

Post by Portfolio7 » Thu Jul 27, 2017 3:33 pm

asif408 wrote:
Portfolio7 wrote:My understanding of CAPE is that it's a notoriously poor market-timing tool (e.g. Cape data has been supportive of an overweight position in EM since 2008, but only in 2017 has that approach born much advantage. Europe/EAFE is very similar in that Cape is on the low end of the historical range, and it has endured sub-par returns for almost a decade, with a few false starts at recovery along the way.)
I'm not sure where you're getting your data from, but CAPE data has only been supportive of an EM overweight in the last few years: http://mebfaber.com/wp-content/uploads/ ... INLINE.jpg. Surely in 2008 there wasn't any evidence for an overweight EM, maybe an underweight if anything.
Thanks, you're right, I misread some of the data (using the AR website) - though CAPE for EM was very low by the end of 2008, it rebounded by mid 2009 until what looks to be mid 2012 or so.

The thing about end of 2008 is that every region was low; the chart you noted shows EM vs US valuation, but I wasn't trying to bring valuation across regions into the discussion. When you do so, it adds another dimension to the discussion.

I think the point still stands for EAFE, but thanks for the correction on EM.
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Portfolio7
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Re: International and US CAPE

Post by Portfolio7 » Thu Jul 27, 2017 4:06 pm

lazyday wrote:
Portfolio7 wrote:.... At a high level, a direct application of cape to the investing process likely de-optimized one's portfolio.

While these 10 year outlooks may be directionally indicative (not sure I buy that entirely), the pathway to get there is incredibly unpredictable. Staying the course has generated stronger returns at lower risk vs trying to use Cape to direct your investing dollars. This is my Boglehead-like stance, and it covers 95% of my portfolio.
I've sometimes made small changes to asset allocation, moving between different risky assets, based on moderate changes in valuation. But have wondered if it makes more sense to stick with a static allocation until valuations are extreme, and then make moderate (not small) changes.
I think a lot of people do. I think that approach makes some sense; ten years ago I was unfamiliar with this site, and operated that way to a large degree. My results seem to support my own view that I won more than I lost, but I wasn't tracking it precisely enough to prove it. However, the older I get, the more I hew to a Bogle-head approach. Not because of any negative outcomes, but just because the more I learn, the more I see why it makes so much sense. My portfolio more closely resembles the market, I cull unnecessary funds, reduce factor tilts, have a smaller 'play' fund on the side. I still think it's fun to discuss the markets, but any skew from my model portfolio will remain contained in that 5% I play with. Everytime I feel like I've developed some insight, I get a reminder or three that the market is nobody's fool. As a self-taught investor, I think I've done ok, but the people on these boards just blow me away with the level of insight and knowledge they bring to the table.
An investment in knowledge pays the best interest.

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Re: International and US CAPE

Post by AlohaJoe » Thu Jul 27, 2017 6:54 pm

lazyday wrote:
AlohaJoe wrote:I don't understand. What's the question?
Do you have a better source for CAPE data? How much do you trust the three sources above? Any idea why the big difference for Europe?
One says Europe. The other says Developed Europe. Do they include the same set of countries?

asif408
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Re: International and US CAPE

Post by asif408 » Fri Jul 28, 2017 10:35 am

Portfolio7 wrote:Thanks, you're right, I misread some of the data (using the AR website) - though CAPE for EM was very low by the end of 2008, it rebounded by mid 2009 until what looks to be mid 2012 or so.

The thing about end of 2008 is that every region was low; the chart you noted shows EM vs US valuation, but I wasn't trying to bring valuation across regions into the discussion. When you do so, it adds another dimension to the discussion.
You are correct that in late 2008/early 2009, both US and EM had low (or at least more normal) CAPEs: https://static.seekingalpha.com/uploads ... origin.jpg

To me, CAPE is really only useful looking at medium to long-term returns among different markets. There are times all markets look similar (e.g., early 90s, 2006-2011), and there are other times that markets diverge (e.g., late 90s, early 2000s, and the last several years).

You see a lot of folks using CAPE to try and predict when to get out of stocks or use it as a short term timing tool, which it was not designed for, and then poo-poo it after it doesn't work for a year or two. But if you use it the way it is designed it is a decent, though not perfect, tool. For anyone who wants a more in-depth look at the proper use of CAPE, I would highly recommend Michael Kitces article here: https://www.kitces.com/blog/shiller-cap ... -planning/

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Re: International and US CAPE

Post by lazyday » Fri Jul 28, 2017 12:53 pm

AlohaJoe wrote:One says Europe. The other says Developed Europe. Do they include the same set of countries?
I didn’t find that info, but Star Capital shows an “EMERGING EUROPE” CAPE of 8.3, much lower than “DEVELOPED EUROPE”. UK is shown by Star and Barclays to have a low CAPE, but since Barclay’s lists “Europe” not “Euro” I suppose that’s not the issue either.

Really I’m trying to reconcile RA’s 16 for EAFE (vs 30 US) with Barclays 21 for Europe (vs 28 US). Japan dominates the AFE in EAFE, and Japan has high CAPE. So I would expect EAFE to have higher CAPE than Europe, not lower. If RA is using an optimistic version of EAFE earnings, then perhaps Ex-US isn’t as relatively cheap as I think.

Using Star’s data to estimate EAFE CAPE by weighting Europe, Japan, Hong Kong, and Australia, I get 19.6 (vs 28 US and 17.8 “DEVELOPED EUROPE”):

( 23.4%*17.8 + 9.1%*26.2 + 4.0%*16.8 + 2.1%*17.2 ) / ( 23.4% + 9.1% + 4.0% + 2.1% )

We could do the same using CAPE data from the Barclays OP link and weighting data from MSCI or iShares. Barclays offers an export to csv, so I hope to do this and post results.

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Re: International and US CAPE

Post by lazyday » Fri Jul 28, 2017 4:38 pm

Updated OP with my estimates. CSV on request.

Research Affiliates and Barclays tell a different story:

Code: Select all

       RA  Barclays  Star Capital

US     29.8  28.47    28.0
EAFE   16.0  22.7 *   19.6 *
EM     13.1  17.3 *   15.6

* my estimate

caliguy1
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Re: International and US CAPE

Post by caliguy1 » Fri Jul 28, 2017 5:00 pm

lazyday wrote:Updated OP with my estimates. CSV on request.

Research Affiliates and Barclays tell a different story:

Code: Select all

       RA  Barclays  Star Capital

US     29.8  28.47    28.0
EAFE   16.0  22.7 *   19.6 *
EM     13.1  17.3 *   15.6

* my estimate
My guess on why RA is lower is because they also take into consideration the historically strong US dollar and then reversion to the mean. I could be wrong though.

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Re: International and US CAPE

Post by lazyday » Sat Jul 29, 2017 3:43 am

caliguy1 wrote:My guess on why RA is lower is because they also take into consideration the historically strong US dollar and then reversion to the mean. I could be wrong though.
When calculating EAFE expected returns in US$, they do assume a partial reversion of currency PPP. However, CAPE is part of the data used to predict expected returns in various currencies; it wouldn't seem to make sense to alter CAPE itself for a strong dollar.

You've made me think more about currencies... I suppose that each source must choose between calculating CAPE using only local currency and inflation, or calculating with US$ and inflation and using the exchange rates at the times profits are earned.

I didn't find info from Barclays on this. Here's RA:
For multi-country indices, CAPE calculations are based on earnings and prices in a common currency consistent with the user setting of this application. For example, if USD is selected, MSCI EAFE CAPE ratio is based on inputs in US Dollars.
Sounds like their conversion is done using exchange rates from the same years as earnings, but that might not be a safe assumption.

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siamond
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Re: International & US CAPE: Research Affiliates, Barclays, StarCapital

Post by siamond » Mon Jul 31, 2017 7:42 am

OP, if you didn't do so already, you might want to read our P/E wiki page, and also follow the link mentioned in Note 1.

You will see that there are significant methodology differences and multiple ways to compute PE (or CAPE), even if we restrict ourselves to Trailing PE. I have no idea what methodology is used by Research Affiliates, Barclays, StarCapital, but I doubt this is the same.

Thank you for sharing though. I didn't know the Barclays site, and their comparative charts are pretty cool.

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Re: International & US CAPE: Research Affiliates, Barclays, StarCapital

Post by Johnnie » Mon Jul 31, 2017 8:27 am

Deleted and moved to one of the international investing argument threads.
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lazyday
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Re: International & US CAPE: Research Affiliates, Barclays, StarCapital

Post by lazyday » Mon Jul 31, 2017 5:36 pm

siamond wrote:OP, if you didn't do so already, you might want to read our P/E wiki page, and also follow the link mentioned in Note 1.

You will see that there are significant methodology differences and multiple ways to compute PE (or CAPE), even if we restrict ourselves to Trailing PE. I have no idea what methodology is used by Research Affiliates, Barclays, StarCapital, but I doubt this is the same.
I had some awareness of issues, but assumed that PE10 would be more uniform than PE1.

TTM vs Forward earnings isn’t important if using 10 years of history, and TTM is the obvious choice. Since a main goal of CAPE is to cover an economic cycle, I’d expect negative earnings to be included--though I’m not sure it always is. No idea if harmonic averaging could make sense for CAPE.

As posted above, I suppose some might use local currency, others US$ with exchange rates from each year.

Thanks for the links, I plan to read these: viewtopic.php?f=10&t=199804#p3058637

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Re: International & US CAPE: Research Affiliates, Barclays, StarCapital

Post by siamond » Mon Jul 31, 2017 5:45 pm

lazyday wrote:Since a main goal of CAPE is to cover an economic cycle, I’d expect negative earnings to be included--though I’m not sure it always is.
Yeah, well, Morningstar goes at length to ignore negative earnings. Which totally baffles me. Vanguard (and S&P) do factor them in. Vanguard uses a harmonic average, S&P and Prof. Shiller do not. When I was investigating the issue, I saw resulting numbers that were strikingly different...
lazyday wrote:As posted above, I suppose some might use local currency, others US$ with exchange rates from each year.
Yes, this is another interesting layer of possible divergence... Fun!

Bottomline: better compare PE or CAPE values from a single source.

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Re: International & US CAPE: Research Affiliates, Barclays, StarCapital

Post by lazyday » Tue Aug 01, 2017 12:47 pm

Added EP10 and averages, and cleaned up top post.

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Re: International & US CAPE: Research Affiliates, Barclays, StarCapital

Post by retireearly » Tue Aug 01, 2017 12:56 pm

lazyday wrote:Added EP10 and averages, and cleaned up top post.


Great chart, thanks for adding. What % of equities do you have allocated to Int?
Age: 44, Married kids 8/12. Over the last six months, moved from 100% stock to 67/33. Desired AA 50/50 Us/INT, with tilt to US SCV, Int SCV and EM.

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Re: International & US CAPE: Research Affiliates, Barclays, StarCapital

Post by lazyday » Tue Aug 01, 2017 3:25 pm

retireearly wrote:What % of equities do you have allocated to Int?
72% of my equity is non-US.

I can be aggressive in changing my asset allocation with valuations. A younger version of me would probably have a year's expenses in I bonds and all the rest in EM value.

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Re: International & US CAPE: Research Affiliates, Barclays, StarCapital

Post by retireearly » Tue Aug 01, 2017 3:58 pm

lazyday wrote:
retireearly wrote:What % of equities do you have allocated to Int?
72% of my equity is non-US.

I can be aggressive in changing my asset allocation with valuations. A younger version of me would probably have a year's expenses in I bonds and all the rest in EM value.
Ha, fantastic! Though my goal is 50/50, I'm organically overweight Int due to great performance of my EM (Vemax, ewx), Int Small (VSS) and total (VTIAX). The issue I have is I don't want to continue to buy in both US and Int at equal weights when I see value as so much better now with Int, esp. EM and Int Small. What are you using for EM? Do you have Int Small? I am considering adding DGS but the thought of holding EWX at the similar high OE is already eating at me, so a second one might be too much, and I'll instead continue to add vemax, and continue to stick with adding to VTIAX and VSS. Thanks again.
Age: 44, Married kids 8/12. Over the last six months, moved from 100% stock to 67/33. Desired AA 50/50 Us/INT, with tilt to US SCV, Int SCV and EM.

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Re: International & US CAPE: Research Affiliates, Barclays, StarCapital

Post by lazyday » Tue Aug 01, 2017 7:29 pm

retireearly wrote:Though my goal is 50/50, I'm organically overweight Int due to great performance of my EM (Vemax, ewx), Int Small (VSS) and total (VTIAX). The issue I have is I don't want to continue to buy in both US and Int at equal weights when I see value as so much better now with Int, esp. EM and Int Small. What are you using for EM? Do you have Int Small? I am considering adding DGS but the thought of holding EWX at the similar high OE is already eating at me, so a second one might be too much, and I'll instead continue to add vemax, and continue to stick with adding to VTIAX and VSS.
I have FNDE for EM large value and FNDF for EAFE large value. No small. I also have individual value/QARP (quality at reasonable price) stocks from before I was willing to use those funds, but am slowly converting them to funds.

When Schwab started their fundamental funds, the non-US funds including SFILX didn’t keep up with their indexes the first few years. Since I’m not fully convinced that Value provides any return beyond compensation for risk, I wasn’t willing to pay a higher ER and also fall behind the RAFI index by more than the ER. Luckily, the newer ETFs like FNDF seem to be mostly keeping up with their indexes after ER.

I’m still wary of smallcap international funds though, where trading costs for the fund are even higher than for international large. I might buy ISCF someday, though would like to wait for more data. FNDC is another possibility.

Another reason I don’t own international small now is that smallcap might be expensive today compared to largecap. RA’s analysis on this may be simplistic, but it does make me want to wait before changing my AA. https://interactive.researchaffiliates. ... -small-cap
If you have other data that tells a different story, let me know.

I’m even more wary of EM small. Maybe I’ll revisit when small doesn’t seem expensive in EM. Right now I don’t even have a fund I’m considering.

For broad ex-US smallcap, I would expect that VSS has kept up with its index after ER, since it’s a marketcap weighted index and probably doesn’t need to trade very much. I haven’t checked lately though.

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Re: International & US CAPE: Research Affiliates, Barclays, StarCapital

Post by comeinvest » Sat Aug 05, 2017 9:33 pm

lazyday wrote: Another reason I don’t own international small now is that smallcap might be expensive today compared to largecap. RA’s analysis on this may be simplistic, but it does make me want to wait before changing my AA. https://interactive.researchaffiliates. ... -small-cap
If you have other data that tells a different story, let me know.

I’m even more wary of EM small. Maybe I’ll revisit when small doesn’t seem expensive in EM. Right now I don’t even have a fund I’m considering.
I see your point. But consider this:
"Size" has an expected 5-year return of -1.2% https://interactive.researchaffiliates. ... large-size
"Small Value" factors, by contrast, have expected returns of 6.7% https://interactive.researchaffiliates. ... -value-p-b
and 6.8% https://interactive.researchaffiliates. ... -composite
- higher than the equivalents for "large value". I would conclude that small value is currently NOT overvalued.
However, "RAFI Fundamental Index Small" has slighly negative expected excess return: https://interactive.researchaffiliates. ... ndex-small

My understanding is that "RAFI Fundamental" is basically a value tilt strategy. "RAFI Fundamental Index Small" should therefore have returns similar to the "Small Value" factor, shouldn't it? I am unable to reconcile the last link with the apparently huge excess return implied by the previous links (negative market vs. 6.x% for small value).

I am unable to find the expected market return at the URL above, but RA has a 3.8% expected real return for "global developed" for the next 10 years. https://interactive.researchaffiliates. ... e=Equities

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Re: International & US CAPE: Research Affiliates, Barclays, StarCapital

Post by lazyday » Sun Aug 06, 2017 5:38 am

comeinvest wrote:"Small Value" factors, by contrast, have expected returns of 6.7%
https://interactive.researchaffiliates. ... -value-p-b

That 6.7% is not the expected return of SV, but the expected benefit of Value, within Small. Not just owning it, but also shorting small stocks that aren’t Value. In the case of Composite:
The Value Composite factor is long in stocks with low Price-to-Fundamental ratios and short in stocks with high Price-to-Fundamental ratios. Fundamentals used to create the four measures are book value, 5-year average sales, 5-year average earnings, and 5-year average dividends. The factor is created within small cap stocks.
Value might be more important in small than in large, but that doesn’t mean SV has better expected returns than LV.
My understanding is that "RAFI Fundamental" is basically a value tilt strategy. "RAFI Fundamental Index Small" should therefore have returns similar to the "Small Value" factor, shouldn't it?
The RAFI indexes are somewhat weak on value.

Expected Excess Return Over Market Benchmark:

RAFI EM 2.5%
RAFI Dev 1.9%
RAFI small Dev -.2%

The market benchmark is the broad market, EM or Developed. You can choose Expected Real Returns for Vertical near the top of the screen, and see RAFI Dev has a ~2% higher prediction than RAFI small Dev; they are indeed using the same benchmark.

I am unable to find the expected market return at the URL above,
Either open the first link in this thread using incognito mode, or use your link and near the top on the far left, change from Full Asset Mode to Portfolio Mode. Then click Equities on the left.

That page is updated monthly, while the Smart Beta page still has 3/31 data. But I doubt that would lead to huge differences in valuations today. I don't know why the 7/31 EAFE expected returns are 4.4% + .4% valuation = 4.8%, while the 3/31 Developed benchmark expected returns are about 2 1/4%. https://interactive.researchaffiliates. ... Type=Gross select Developed Markets

lazyday
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Re: International & US CAPE: Research Affiliates, Barclays, StarCapital

Post by lazyday » Thu Oct 12, 2017 2:23 pm

Updated top post with the latest data.

If anyone has another good source (AQR?) please let me know.

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siamond
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Re: International & US CAPE: Research Affiliates, Barclays, StarCapital

Post by siamond » Sun Oct 15, 2017 10:53 am

Thanks for the reminder, lazyday. Note that one can use the Internet Wayback machine and track the history of the Star Capital Web page. This isn't perfect, between the irregular timing of the author's updates and the irregular timing of the snapshots, but still, this is informative.

Also note that I swapped a couple of e-mails with the author (Norbert Keimling), and he clarified that the data source is MSCI (which requires a paying subscription for such metrics), and that MSCI does the 'right' thing of computing earnings without any filtering (i.e. companies with negative earnings are included). Much better than Morningstar's non-sensical math and (very unfortunately) the way Vanguard recently adopted (see here).

About your question of getting another source, I don't have the answer for CAPE, but I was glad to figure out the following:
- SPDRS computes PE the 'right' way too (they had spirited discussions with Morningstar on the matter a decade ago!)
- Links like SPY (S&P 500) or GWL (Int'l Developed) or SLYV (US SCV) or GMM (Emerging) and more provide a snapshot of the corresponding Index P/E (careful, don't use the 'PE FY1' which a forward-PE).
- and lo and behold, for US and Emerging, this seems consistent with Star Capital. And with a bit of math about market weights, this seems reasonably consistent for Int'l Developed. And well, with PE quantities, it is rare to find such consistency...

I will keep monitoring and archiving those numbers (Star Capital, SPDRS, Vanguard and also ETF.com) every quarter, from now on...

lazyday
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Re: International & US CAPE: Research Affiliates, Barclays, StarCapital

Post by lazyday » Sun Oct 15, 2017 1:15 pm

siamond wrote:
Sun Oct 15, 2017 10:53 am
Also note that I swapped a couple of e-mails with the author (Norbert Keimling), and he clarified that the data source is MSCI (which requires a paying subscription for such metrics), and that MSCI does the 'right' thing of computing earnings without any filtering (i.e. companies with negative earnings are included).
Thanks, good to know.

Note that Barclays lists MSCI as their source (other than inflation data) and RA lists "Research Affiliates, Bloomberg, MSCI". Maybe all three are using MSCI for earnings. I know MSCI already was providing international PE data a couple decades ago, and from a very quick google check, I'm not sure if Bloomberg does that even today.

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siamond
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Re: International & US CAPE: Research Affiliates, Barclays, StarCapital

Post by siamond » Sun Oct 15, 2017 1:40 pm

Yes, I suspect all those guys are using MSCI, period. Now Barclays doesn't seem to get the same CAPE numbers as Star Capital, which is puzzling. Ah man, I was happy with solely using Vanguard as a simple and consistent data source that made sense, and now we have to go all over the place, sigh. I think I'll settle on SPDRS to replace Vanguard, but they don't use the same indices...

lazyday
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Re: International & US CAPE: Research Affiliates, Barclays, StarCapital

Post by lazyday » Fri Nov 10, 2017 1:59 pm

GMO's PE10:

Code: Select all

US   27.3
EAFE 20.7
As of 9/30/17
Source: GMO
https://www.gmo.com/docs/default-source ... f?sfvrsn=2

See Exhibit 7. I've made a separate post to discuss the paper's main arguments.

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