schroders equity lens - schroders - schroders
TRANSCRIPT
Marketing material for professional investors or advisers only.
April 2021
Strategic Research Unit
Schroders Equity Lens
2
Table of contents
01 Reflation trades
02 Regional
03 Sectors & Styles
04 Fundamentals
05 Income
Summary (1 of 2)
– Global equities continued their positive momentum in March, but returns varied greatly across regions and sectors.
– In local currency terms, performance was led by European equities (+6.8%) and Japanese equities (+5.0%), but much of these gains were eroded for US dollar investors due to a strengthening dollar.
– Markets seem to have downplayed new waves of Covid-19 in Europe and its resulting economic restrictions, as Eurozone manufacturing PMI data grew at its fastest pace on record since 2006.
– Meanwhile, a major correction in Chinese equities (38% of the MSCI EM Index) resulted in EM equities falling by 1.5%, as lofty valuations and rising global bond yields weighed on market sentiment.
– Such EM index concentration highlights the opportunities and risks facing EM investors. For example, 14 out of the 27 countries in the EM universe have outperformed the MSCI EM Index in the last six months, up from only 9 countries in February.
3
Summary (2 of 2)
– In US dollar terms, the UK is currently one of the best performing equity markets this year (+6.2% YTD), supported by a strong vaccine roll-out and bullish earnings forecasts.
– Among sectors, performance was mixed as a handful of cyclical and defensive industries posted strong returns. Utilities (+7.5%), consumer staples (+6.1%) and industrials (+5.8%) outperformed the global index, while IT (+0.4%), communication services (+0.3%) and consumer discretionary (+1.4%) underperformed.
– Global value stocks posted their best return against growth stocks since 2001, outperforming by 4.9% in March. The prevailing market narrative is that higher bond yields are driving the rotation because they tend to harm long-duration growth stocks more.
– However, our analysis finds that this recent strong positive correlation is an outlier compared to long-term history and may not persist beyond the economic recovery. Neither value nor growth indices hold a constant set of securities over time and this turnover means that their overall relationship with interest rates varies.
– Despite their recent underperformance, US growth stocks are still trading at their largest valuation premium relative to value stocks since the year 2000, as measured on a cyclically adjusted price-to-earnings (CAPE) basis.
4
Reflation trades
Global equities
40
45
50
55
60
65
-15
-10
-5
0
5
10
15
20
1999 2000 2001 2002 2003 2004
Total return rebased to 100
MSCI World (ex US) vs MSCI USA Global PMI Composite Index (RHS)
Non-US equities poised to outperform in economic recovery
6
Cyclical opportunities are less represented in US stock market vs Rest of World
Past performance is not a guide to future performance and may not be repeated.Source: Datastream Refinitiv, MSCI and Schroders. Data to 31 March 2021 in US dollars. Notes: cyclical exposure captures the share of total index market capitalisation in energy, materials, industrials, financials, consumer discretionary and real estate stocks.
In the 2000s, US equities underperformed as global economic activity rebounded...could the 2020s repeat this pattern?
US equities outperformed
Global equities outperformed
Exposure to economically sensitive sectors is significantly lower in the US compared to markets elsewhere
30
35
40
45
50
55
60
65
70
75
2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
Cyclical exposure, %
US UK Europe Japan EM
What’s driving the reflation trade?
7
Banks and energy companies have rebounded over improving economic outlook
Forecasts included are not guaranteed and should not be relied upon. Past performance is not a guide to future performance and may not be repeated. Source: Datastream Refinitiv and Schroders. Data to 31 March 2021 in US dollars.
Steeper yield curve is helping banking sector Higher commodity prices are helping energy sector
-30
-20
-10
0
10
20
30
40
50
-80
-60
-40
-20
0
20
40
60
80
100
120
140
Mar 20 May 20 Jul 20 Sep 20 Nov 20 Jan 21 Mar 21
US energy, yoy % total return Bloomberg Commodity Index, RHS
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
-40
-20
0
20
40
60
80
100
120
Mar 20 May 20 Jul 20 Sep 20 Nov 20 Jan 21 Mar 21
US banks, yoy % total return Yield curve (UST 10yr - 2yr), RHS
Covid-19 laggards continue to make up lost ground
8
Although sluggish vaccine roll-out + travel restrictions dim hopes for quick recovery
Past performance is not a guide to future performance and may not be repeated.Source: Datastream Refinitiv, MSCI and Schroders. Data to 31 March 2021 in US dollars.
-60
-50
-40
-30
-20
-10
0
10
20
30
Jan 20 Feb 20 Mar 20 Apr 20 May 20 Jun 20 Jul 20 Aug 20 Sep 20 Oct 20 Nov 20 Dec 20 Jan 21 Feb 21 Mar 21
Global cumulative total $ return, %
Airlines Banks Energy MSCI AC World
Is inflation good or bad for equities?
9
Low and rising inflation is the sweet spot, but increases above 3% can be damaging
Past performance is not a guide to future performance and may not be repeated.Source: Datastream Refinitiv and Schroders. Data from March 1973 to December 2020,. Notes: based on monthly rolling 12-month returns relative to the contemporaneous rate of inflation, where frequency <50% (red), 50%<X<67% (amber), >67% (green). Low/high inflation is defined as the average inflation rate over the preceding 12-month period. Rising/falling is defined as the change in the inflation rate over 12 months (inflt+0 - inflt-12). % of total periods refers to number of rolling 12-month periods in each inflation regime.
% of rolling 12-month periods when asset class returns exceeded US CPI inflation rate, 1973 to 2020
Inflation regime Rate of occurrence US Treasuries US equities US REITs Commodities
Low (<3%) and rising 24% 57% 90% 69% 67%
High (>3%) and rising 26% 47% 48% 67% 83%
High (>3%) and falling 26% 80% 76% 80% 37%
Low (<3%) and falling 23% 84% 81% 79% 28%
REITs appear to be an “all-inflation-weather” asset class
Price-to-earnings valuations vs inflation
10
Weak relationship between P/E and inflation at low inflation levels (i.e. <3%)
Past performance is not a guide to future performance and may not be repeated.Source: Datastream Refinitiv and Schroders. Data from March 1973 to December 2020
R² = 0.5632
0
5
10
15
20
25
30
35
40
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15Annual US CPI inflation, %
US P/E ratio
Stronger relationship
Weaker relationship
Which equity sectors can combat higher inflation?
11
US equity performance in high (+3%) and rising inflation environments
Past performance is not a guide to future performance and may not be repeated.Source: Datastream Refinitiv and Schroders. Data from March 1973 to December 2020. Notes: based on monthly rolling 12-month returns in excess of US CPI inflation rate. High inflation defined as periods where y/y % change in US CPI is above 3% on average over last 12 months. Rising inflation is defined as the absolute change in the inflation rate over last 12 months. All sectors proxied using US Datastream indices, except real estate which is the FTSE NAREIT All Equity and Mortgage US REITs Index.
Rotation from growth to value stocks holding up globally
12
Performance differential widened significantly in February as bond yields spiked
Past performance is not a guide to future performance and may not be repeated.Source: Datastream Refinitiv, MSCI and Schroders. Data from 6 November 2020 to 31 March 2021 in US dollars.
-5
0
5
10
15
20
25
06 Nov 20 20 Nov 20 04 Dec 20 18 Dec 20 01 Jan 21 15 Jan 21 29 Jan 21 12 Feb 21 26 Feb 21
Global cumulative total $ return, %
Global value, +19.4%
Global growth, +4.5%Joe Biden confirmed by US Congress as president-elect
5-year US Treasury yield spikes by 0.2%
Pfizer vaccine announcement
Inflection points in profit cycle are key for value’s prospects
13
Past performance is not a guide to future performance and may not be repeated.Source: Datastream Refinitiv and Schroders. Data from 30 April 1992 to 31 March 2021. Notes: average based on 9 market episodes of performance of MSCI USA Value less Growth. Inflection point calculated as y/y change in annual EPS growth lagged by 3 months to account for lag in which quarterly profits are reported. Current EPS growth inflection is measured as at 31 August 2020.
-15
-10
-5
0
5
10
15
20
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Months around EPS growth inflection point
US value vs. growth return (%) rebased
10/90th pctAverageCurrent
+3m-3m-6m-9m +0m
Value outperforms
Growth outperforms
+6m
-48%
+15%
+9m
Current US rotation from growth to value appears very strong by historical standards
+12m-12m
Regional performance
Global equities
Could 2021 be the year when the US underperforms?
15
UK equities now top performance leadership board after years of lacklustre gains
Past performance is not a guide to future performance and may not be repeated.Source: Datastream Refinitiv, MSCI and Schroders. Data to 31 March 2021 in US dollars. Europe = Europe ex UK.
Best
Worst
Total $ return, %
EM US Europe US US Japan US EM US US US UK19.2% 2.0% 22.5% 32.6% 13.4% 9.9% 11.6% 37.8% -4.5% 30.6% 21.4% 6.2%Japan UK EM Europe EM US EM Europe Japan Europe EM US15.6% -2.5% 18.6% 28.7% -1.8% 1.3% 11.6% 27.8% -12.6% 25.9% 18.7% 5.5%
US Japan US Japan Japan Japan Japan UK UK Japan Europe15.4% -14.2% 16.1% 27.3% -3.7% 2.7% 24.4% -14.1% 21.1% 14.9% 3.6%
UK Europe UK UK UK UK Europe UK EM Japan Europe EM8.8% -14.5% 15.3% 20.7% -5.4% -7.5% 0.3% 22.4% -14.2% 20.1% 11.6% 2.3%
Europe EM Japan EM Europe EM UK US Europe EM UK Japan2.4% -18.2% 8.4% -2.3% -5.8% -14.6% 0.0% 21.9% -14.4% 18.9% -10.4% 1.7%
YTD
Europe 0.1%
2015 2016 2017 2018 2019 202020142010 2011 2012 2013
Breakdown of YTD equity returns
16
Profits driving returns in EM and Japan, while valuations behind UK, US and Euro gains
Past performance is not a guide to future performance and may not be repeated.Source: Datastream Refinitiv, MSCI and Schroders. Data to 31 March 2021 in US dollars.
-10
-5
0
5
10
15
20
UK US Europe ex UK EM Japan
YTD return source, %
Income EPS growth P/E change FX return Total Return
Global earnings growth has turned a corner
17
More room for UK, Europe and Japan to bounce back given deeper profit declines…
Forecasts included are not guaranteed and should not be relied upon.Source: Datastream Refinitiv, IBES, MSCI and Schroders. Data to 31 March 2021.
-50
-40
-30
-20
-10
0
10
20
30
40
Dec 14 Jun 15 Dec 15 Jun 16 Dec 16 Jun 17 Dec 17 Jun 18 Dec 18 Jun 19 Dec 19 Jun 20 Dec 20
12-month EPS growth, %
US UK Europe ex UK Japan EM
-100
-80
-60
-40
-20
0
20
40
60
80
100
-60
-40
-20
0
20
40
60
80
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
UK equities (local terms), yoy % chg 13w earnings revisions ratio %, RHS
UK’s yearly equity performance vs earnings revisions
18
Share prices have finally caught up with earnings momentum after months of lagging
Forecasts included are not guaranteed and should not be relied upon.Source: Datastream Refinitiv, IBES, MSCI and Schroders. Data to 31 March 2021 in GBP. Notes: 13w earnings revisions = sum of 13 week positive minus negative 12m forward EPS revisions / total revisions.
Cracks begin to emerge in US equities’ leadership
19
Dollar weakness and waning earnings strength is undermining US outperformance
Past performance is not a guide to future performance and may not be repeated.Source: Datastream Refinitiv, MSCI and Schroders. Data to 31 March 2021 in US dollars. Notes: RoW = MSCI AC World ex US Index $.
-25
-20
-15
-10
-5
0
5
10
15
20
25
Mar 2017 Sep 2017 Mar 2018 Sep 2018 Mar 2019 Sep 2019 Mar 2020 Sep 2020 Mar 2021
US vs RoW, 12m $ return, %
Income EPS growth P/E change FX return Total return
Big Tech punches below its weight
20
Recent FAMAG underperformance has become a drag on overall US equity returns
Past performance is not a guide to future performance and may not be repeatedSource: Datastream Refinitiv and Schroders. Data from 9 November 2020 to 31 March 2020. Notes: FAMAG is a market-cap weighted index of Facebook, Amazon, Apple, Microsoft and Alphabet (Google’s parent).
+13.9%
+18.4%
+4.0%
-10
-5
0
5
10
15
20
25
06 Nov 20 20 Nov 20 04 Dec 20 18 Dec 20 01 Jan 21 15 Jan 21 29 Jan 21 12 Feb 21 26 Feb 21 12 Mar 21 26 Mar 21
Cumulative total return (since Pfizer vaccine announcement), %
S&P 500 S&P 500 ex FAMAGs FAMAGs
A weak US dollar may further support EM equities
21
EM vs. DM performance tends to be inversely correlated with the strength of US dollar
Past performance is not a guide to future performance and may not be repeated.Source: Datastream Refinitiv, MSCI and Schroders. Data to 31 March 2021 in US dollars. Notes: EM = MSCI EM index $ and DM = MSCI World Index $.
-15
-10
-5
0
5
10
15
20
25-25
-20
-15
-10
-5
0
5
10
15
20
Dec 14 Jun 15 Dec 15 Jun 16 Dec 16 Jun 17 Dec 17 Jun 18 Dec 18 Jun 19 Dec 19 Jun 20 Dec 20
YoY total return, %
EM vs DM equities US dollar index (inverted RHS)
Broader group of countries driving EM equity returns
22
Hopes for vaccine-fuelled trade recovery are helping others to catch up
Past performance is not a guide to future performance and may not be repeated.Source: Datastream Refinitiv, MSCI and Schroders. Data to 31 March 2021. Notes: MSCI EM Index currently consists of 27 countries in total.
China, Korea and Taiwan account for over 2/3 of EM market cap EM performance showing stronger signs of broadening out
0
10
20
30
40
50
60
70
80
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
% of MSCI EM market cap
China Korea Taiwan
0
2
4
6
8
10
12
14
16
18
20
Dec 15 Jun 16 Dec 16 Jun 17 Dec 17 Jun 18 Dec 18 Jun 19 Dec 19 Jun 20 Dec 20
Number of countries (total 27) in MSCI EM Index outperforming over 6m
Sector and style performance
Global equities
Global small vs. large caps
24
Years of underperformance erased in 2H 2020, but rotation has lost steam in 2021
Past performance is not a guide to future performance and may not be repeated.Source: Datastream Refinitiv, MSCI and Schroders. Data to 31 March 2021.
Small caps outperformed
Large caps outperformed
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Global small vs. large caps, 5-year rolling annualised return %
Global sector returns
25
Past performance is not a guide to future performance and may not be repeated.Source: Datastream Refinitiv, MSCI and Schroders. Data to 31 March 2021 in US dollars. Notes: *Since 9 November 2020 to capture Covid-19 vaccine announcement. Utilities 1-month return is 7.5%, consumer staples since November return is 5.2%.
Energy companies and financials have claimed top spot from Covid-19 winners
37.0
-5.7
-27.7
-3.2
11.8
21.5
24.1
4.6
8.8
15.4
46.1
9.9
12.4
49.9
31.1
18.1
19.4
12.5
4.3
4.4
12.1
1.4
4.3
2.2
4.3
5.8
3.5
0.3
7.5
6.1
2.4
0.4
-40 -30 -20 -10 0 10 20 30 40 50 60
Cons Disc
Real estate
Energy
Financials
Industrials
Materials
Comm Svs
Utilities
Cons Stap
Health care
IT
Global $ sector return, %
1-month return Since Nov-20* 2020 return
5.8
US growth stocks look increasingly expensive on CAPE basis
26
Past performance is not a guide to future performance and may not be repeated.Source: Datastream Refinitiv, MSCI and Schroders. Data to 31 March 2021. Notes: based on total returns of MSCI USA Value less Growth. *March 2021 and December 2016 subsequent 10-year returns are forecasts based on line of best fit.
March 2000
-8
-6
-4
-2
0
2
4
6
8
10
0 5 10 15 20 25 30 35 40
Starting relative CAPE ratio, US growth minus value
Subsequent 10-year annualised return %, US growth minus value
Growth outperformed
January 2011
March 2021*
December 2016*
Value outperformed
Long-term odds increasingly stacked in favour of value stocks…
Global value vs. growth
27
Relative valuations still remain high by historical standards
Opportunity for further mean-reversion still significant given wide valuation dispersion
Forecasts included are not guaranteed and should not be relied upon. Past performance is not a guide to future performance and may not be repeated. Source: Datastream Refinitiv and Schroders. Data to 31 March 2021 in US dollars. Based on MSCI ACWI World.
Relative returns starting to converge towards fundamentals
Relative P/E
0
2
4
6
8
10
12
14
16
18
-20
-10
0
10
20
30
40
50
2003 2005 2007 2009 2011 2013 2015 2017 2019
Growth vs Value (global)
yoy % total return, Growth minus Value Forward 12m P/E, Growth minus Value (RHS)
80
100
120
140
160
180
200
2008 2010 2012 2014 2016 2018 2020
Growth / Value (global), rebased to 100
Growth/value forward 12M EPS Growth/value total return
Relationship between yields and value stocks is unstable
28
Strong correlation of last three years has been an outlier versus long-term history
Past performance is not a guide to future performance and may not be repeated.Source: Datastream Refinitiv, Federal Reserve Bank of Cleveland and Schroders. Data to February 2021. Notes: monthly total returns of MSCI USA Value less Growth and interest rate changes expressed as standard deviation of monthly changes over previous three years. Real yields and inflation expectations from 1982 to 2003 uses Cleveland Fed modelled data, 2003 to present is based on US 10-year TIPS and breakeven rate.
2018-2021
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
0.8
-2 0 2 4 6 8 10 12
10-year US real yields
Rolling 3-year correlation, value vs. growth against monthly changes in real yields
2010-present 2000-2010 1990-2000 1980-1990
Negative relationship between value/growth returns and real yield movements
Positive relationship between value/growth returns and real yield movements
The speed of rates movements matters more for value
29
Value tends to outperform in periods of sharp and sudden real yield increases
Past performance is not a guide to future performance and may not be repeated.Source: Datastream Refinitiv, Federal Reserve Bank of Cleveland and Schroders. Data to February 2021. Notes: monthly total returns of MSCI USA Value less Growth and interest rate changes expressed as standard deviation of monthly changes over previous three years. Real yields and inflation expectations from 1982 to 2003 uses Cleveland Fed modelled data, 2003 to present is based on US 10-year TIPS and breakeven rate.
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
<-2 SD -1 to 0 SD 0 to 1 SD 1 to 2 SD +2 SD
Average US value vs growth 1m % return (since 1982)
1m chg in real yields 1m chg in inflation expectations
Cyclical vs. defensive exposure varies over time
30
US value stocks currently have a strong cyclical bias vs. growth stocks
Past performance is not a guide to future performance and may not be repeated.Source: CopyRight 2021 Morgan Stanley Research and Schroders. Data to 31 March 2021. Notes: estimated weightings based on Morgan Stanley US Top 1000 Value and Growth Index. Weights will not add up to 100% as remainder will capture “secular” stock exposure, which is neither cyclical nor defensive.
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021
US market value vs. growth estimated weightings (rolling 12-month average)
Cyclical Defensive
Overweight
Underweight
Fundamentals
Global equities
Nothing looks cheap these days
32
Valuations vs. 15-year median (31 March 2021)
Bargains are difficult to find, but Japanese and UK equities offer relative value
Source: Datastream Refinitiv, MSCI and Schroders. Data to 31 March 2021. Figures are shown on a rounded basis. Assessment of cheap/expensive is relative to 15-year median in brackets.
Key: >20% 10-20% 0-10% 0-10% 10-20% +20%Expensive Cheap
Equity market CAPE Forward P/E Trailing P/E P/B Dividend yield
16(15)
15(11)
22(14)
2.1(1.7)
1.8(2.6)
23(23)
18(14)
25(16)
1.6(1.3)
1.9(2.0)
22(16)
18(13)
27(16)
2.2(1.7)
2.1(3.2)
US
UK
Europe ex. UK
Japan
EM
23(15)
34(19)
4.6(2.8)
1.4(2.0)
14(13)
13(12)
20(14)
1.7(1.8)
3.3(3.8)
34(23)
US equities most expensive on record vs rest of world
33
History suggests non-US equities are likely to outperform over the coming decade
Past performance is not a guide to future performance and may not be repeated. Forecasts included are not guaranteed and should not be relied upon.Source: Refinitiv Datastream and Schroders. Data from January 1974 to March 2021. Notes: US equities = MSCI USA Index, global equities = MSCI World ex US Index $. *Forecast return based on line of best fit.
-10
-5
0
5
10
15
20
-25 -20 -15 -10 -5 0 5 10 15 20
Starting relative CAPE, US minus global (ex US) equities
Subsequent relative 10-year annualised total return, US minus global (ex US) equities, %
US equities expensive vs RoW
December 2007
March 2021*
US equities cheap vs RoW
Introducing the “Tesla” effect
34
Tesla’s soaring market cap has started to skew US market fundamentals
Past performance is not a guide to future performance and may not be repeated.Source: Datastream Refinitiv, MSCI and Schroders. Data to 31 March 2021.
US P/E multiples have fallen ex Tesla since the summerTesla is rubbing shoulders with Big Tech
0
1
2
3
4
5
6
7
8
9
Dec 19 Feb 20 Apr 20 Jun 20 Aug 20 Oct 20 Dec 20 Feb 21
Market cap ($ billions)
Apple Amazon Microsoft Alphabet Facebook Tesla
10
12
14
16
18
20
22
24
26
Dec 19 Feb 20 Apr 20 Jun 20 Aug 20 Oct 20 Dec 20 Feb 21
Forward price-to-earnings ratio
MSCI USA Index MSCI USA Index ex Tesla
Analysts are projecting a global V-shaped recovery
35
But less severe US downturn limits the 2021 profit recovery vs Rest of World
Forecasts included are not guaranteed and should not be relied upon.Source: IBES, Datastream Refinitiv, MSCI and Schroders. Data to 31 March 2021. Notes: Japan EPS for 2021/2022 is 4 quarter sum until 31 March of next calendar year, e.g. 2022 = 31/03/2022 – 31/03/2023.
-14
25
14
-33
51
12
-23
28
15
-37
33
14
-19
37
12
-50
-40
-30
-20
-10
0
10
20
30
40
50
60
2020 2021e 2022e
YoY EPS growth, %
US UK Europe ex UK Japan EM
Earnings sentiment indicator
36
Net upgrades very positive in Japan, but momentum weakening in US, EM and UK
Forecasts included are not guaranteed and should not be relied upon.Source: Datastream Refinitiv, IBES, MSCI and Schroders. Data to 31 March 2021 in USD. Notes; 13w earnings revisions = sum of 13 week positive minus negative 12m forward EPS revisions / total revisions.
Earnings upgrades > downgrades
-80
-60
-40
-20
0
20
40
60
Jan 16 Jul 16 Jan 17 Jul 17 Jan 18 Jul 18 Jan 19 Jul 19 Jan 20 Jul 20 Jan 21
13-week earnings revisions ratio %, (upgrades – downgrades) / total revisions
US UK Europe ex UK Japan EM
Earnings upgrades < downgrades
Income
Global equities
60
70
80
90
100
110
120
2019 2020 2021 2022
Dividends per share, index (100 = FY2019)
US UK Europe ex. UK Japan EM
Income investors feeling impact of dividend cuts
38
EM, US and Japanese dividends forecast to return to pre-recession peak by end-2021
Forecasts included are not guaranteed and should not be relied upon.Source: IBES, Datastream Refinitiv, MSCI and Schroders. Data to 31 March. Notes: Japan DPS for 2021/2022 is 4 quarter sum until 31 March of next calendar year, e.g. 2022 = 31/03/2022 – 31/03/2023.
Forecast
Dividends may be down, but they are not out
39
Equity income attractive versus bond alternatives, but gap closing…
Forecasts included are not guaranteed and should not be relied upon.Source: IBES, Datastream Refinitiv, MSCI, ICE and Schroders. Data to 31 March 2021.
0
1
2
3
4
5
6
7
8
9
10
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Forward 12m dividend yield vs bond yield, %
US equities US IG corps US Treasuries
Dividend vs. bond yields by region
40
Stocks vastly trump corporate bonds for income in UK, Europe and Japan
Forecasts included are not guaranteed and should not be relied upon.Source: IBES, Datastream Refinitiv, MSCI, ICE and Schroders. Data to 31 March 2021. Corporate bond yield = unhedged local currency yield, except for EM which is in USD.
1.5
4.1
2.8
2.1
2.42.4
1.9
0.5 0.4
3.7
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
US UK Europe ex UK Japan EM
Forward 12-month equity dividend vs. bond yield, %
Equities IG corporate bonds
Appendix
List of indices (1 of 2)
Large cap equitiesUS – MSCI USA Index , or S&P 500 Index where specifiedUK – MSCI UK Index Europe ex UK – MSCI Europe ex UK Index Japan – MSCI Japan Index Developed markets – MSCI World Index Emerging markets – MSCI EM Index China – MSCI China Index Global – MSCI All Country World Index Rest of world – MSCI All Country World ex US Index
Small cap equities US – MSCI USA Small Cap Index UK – MSCI UK Small Cap IndexEurope ex UK – MSCI Europe ex UK Small Cap Index Japan – MSCI Japan Small Cap Index Emerging Markets – MSCI EM Small Cap Index
Factor and sector indices US Value – MSCI USA Value Index US Growth – MSCI USA Growth Index US Cyclical – MSCI USA materials, industrials, consumer discretionary, energy, financials, real estate US Defensive – MSCI USA utilities, IT, consumer staples, health care, communication servicesGlobal Value – MSCI All Country World Value Index Global Growth – MSCI All Country World Growth Index Global Cyclical – MSCI All Country Global materials, industrials, consumer discretionary, energy, financials, real estate Global Defensive – MSCI All Country Global utilities, IT, consumer staples, health care, communication services
42
List of indices (2 of 2)
Bond indicesUS Treasuries – ICE BofA US Treasury IndexUS IG Corps – ICE BofA US Corporate IndexUK IG Corps – ICE BofA Sterling Corporate IndexEurope IG Corps - ICE BofA Euro Corporate IndexJapan IG Corps - ICE BofA Japan Corporate IndexEM IG Corps - ICE BofA Emerging Markets Corporate Plus Index
Currency indicesUS Dollar – DXY US Dollar Currency Index
43
Important information (1 of 3)
Marketing material for professional investors or advisers only. It is not to be provided to retail clients.
The views and opinions contained herein are those of the authors as at the date of publication and are subject to change due to market and other conditions. Such views and opinions may not necessarily represent those expressed or reflected in other Schroders communications, strategies or funds.
This presentation is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument or security or to adopt any investment strategy. The information provided is not intended to constitute investment advice, an investment recommendation or investment research and does not take into account specific circumstances of any recipient. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice. Any references to securities, sectors, regions and/or countries are for illustrative purposes only.
Information herein is believed to be reliable but Schroders does not represent or warrant its completeness or accuracy. No responsibility or liability is accepted by Schroders, its officers, employees or agents for errors of fact or opinion or for any loss arising from use of all or any part of the information in this document. No reliance should be placed on the views and information in the document when taking individual investment and/or strategic decisions. Schroders has no obligation to notify any recipient should any information contained herein change or subsequently become inaccurate. Unless otherwise authorised by Schroders, any reproduction of all or part of the information in this document is prohibited.
Any data contained in this document have been obtained from sources we consider to be reliable. Schroders has not independently verified or validated such data and they should be independently verified before further publication or use. Schroders does not represent or warrant the accuracy or completeness of any such data.
All investing involves risk including the possible loss of principal.
This material has not been reviewed by the regulators.
Exchange rate changes may cause the value of any overseas investments to rise or fall. Past Performance is not a guide to future performance and may not be repeated. This document may contain “forward-looking” information, such as forecasts or projections. Please note that any such information is not a guarantee of any future performance and there is no assurance that any forecast or projection will be realised. For your security, communications may be taped or monitored.
Third party data is owned or licensed by the data provider and may not be reproduced or extracted and used for any other purpose without the data provider's consent. Third party data is provided without any warranties of any kind. The data provider and issuer of the document shall have no liability in connection with the third party data. The Prospectus and/or www.schroders.com contains additional disclaimers which apply to the third party data.
The forecasts stated in this presentation are the result of statistical modelling, based on a number of assumptions. Forecasts are subject to a high level of uncertainty regarding future economic and market factors that may affect actual future performance. The forecasts are provided to you for information purposes as at today’s date. Our assumptions may change materially with changes in underlying assumptions that may occur, among other things, as economic and market conditions change. We assume no obligation to provide you with updates or changes to this data as assumptions, economic and market conditions, models or other matters change.
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Important information (2 of 3)
For readers/viewers in Argentina: Schroder Investment Management S.A., Ing. Enrique Butty 220, Piso 12, C1001AFB - Buenos Aires, Argentina. Registered/Company Number 15. Registered as Distributor of Investment Funds with the CNV (Comisión Nacional de Valores). Nota para los lectores en Argentina: Schroder Investment Management S.A., Ing. Enrique Butty 220, Piso 12, C1001AFB - Buenos Aires, Argentina. Inscripto en el Registro de Agentes de Colocación y Distribución de PIC de FCI de la Comisión Nacional de Valores con el número 15.
Note to readers/viewers in Australia: Issued by Schroder Investment Management Australia Limited Level 20, Angel Place, 123 Pitt Street, Sydney NSW 2000 Australia ABN 22 000 443 274, AFSL 226473
For readers/viewers in Brazil: Schroder Investment Management Brasil Ltda., Rua Joaquim Floriano, 100 – cj. 142 Itaim Bibi, São Paulo, 04534-000 Brasil. Registered/Company Number 92.886.662/0001-29. Authorised as an asset manager by the Securities and Exchange Commission of Brazil/Comissão de Valores Mobiliários (“CVM”) according to the Declaratory Act number 6816.
For readers/viewers in the European Union/European Economic Area: Schroders will be a data controller in respect of your personal data. For information on how Schroders might process your personal data, please view our Privacy Policy available at www.schroders.com/en/privacy-policy or on request should you not have access to this webpage. Issued by Schroder Investment Management (Europe) S.A., 5, rue Höhenhof, L-1736 Senningerberg, Luxembourg. Registered No. B 37.799
Note to readers/viewers in Hong Kong S.A.R.: Issued by Schroder Investment Management (Hong Kong) Limited. Level 33, Two Pacific Place, 88 Queensway, Hong Kong. This material has not been reviewed by the Securities and Futures Commission.
Note to readers/viewers in Indonesia: Issued by PT Schroder Investment Management Indonesia Indonesia Stock Exchange Building Tower 1, 30th Floor, Jalan Jend. Sudirman Kav 52-53 Jakarta 12190 Indonesia PT Schroder Investment Management Indonesia is licensed as an Investment Manager and regulated by the Indonesian Financial Services Authority (OJK).This material has not been reviewed by the OJK.
For readers/viewers in Israel: Note regarding the Marketing material for Qualified Clients or Sophisticated Investors only. This communication has been prepared by certain personnel of Schroder Investment Management (Europe) S.A (Registered No. B 37.799) or its subsidiaries or affiliates (collectively, “SIM”). Such personnel are not licensed by the Israeli Securities Authority. Such personnel may provide investment marketing, to the extent permitted and in accordance with the Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Law, 1995 (the “Investment Advice Law”). This communication is directed at persons (i) who are Sophisticated Investors (ii) Qualified Clients (“Lakoach Kashir”) as such term is defined in the Investment Advice Law; and (iii) other persons to whom it may otherwise lawfully be communicated. No other person should act on the contents or access the products or transactions discussed in this communication. In particular, this communication is not intended for retail clients and SIM will not make such products or transactions available to retail clients.
Note to readers/viewers in Japan: Issued by Schroder Investment Management (Japan) Limited 21st Floor, Marunouchi Trust Tower Main, 1-8-3 Marunouchi, Chiyoda-Ku, Tokyo 100-0005, Japan Registered as a Financial Instruments Business Operator regulated by the Financial Services Agency of Japan (“FSA”). Kanto Local Finance Bureau (FIBO) No. 90 This material has not been reviewed by the FSA.
Note to readers/viewers in Singapore: For Accredited and or Institutional Clients only, where appropriate Issued by Schroder Investment Management (Singapore) Ltd (Co. Reg. No. 199201080H) 138 Market Street #23-01 CapitaGreen, Singapore 048946 This advertisement or publication has not been reviewed by the Monetary Authority of Singapore
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Important information (3 of 3)
Note to readers/viewers in South Korea: Issued by Schroders Korea Limitedn26th Floor, 136, Sejong-daero, (Taepyeongno 1-ga, Seoul Finance Center), Jung-gu, Seoul 100-768, South Korea. Registered and regulated by Financial Supervisory Service of Korea (“FSS”)This material has not been reviewed by the FSS.
For readers/viewers in Switzerland: Issued by Schroder Investment Management (Switzerland) AG, Central 2, CH-8001 Zürich, Postfach 1820, CH-8021 Zürich, Switzerland. Enterprise identification number (UID) CHE101.447.114. Authorised and regulated by the Swiss Financial Market Supervisory Authority (FINMA)
Note to readers/viewers in Taiwan: Issued by Schroder Investment Management (Taiwan) Limited 9F., No. 108, Sec. 5, Xinyi Road, Xinyi District, Taipei 11047, Taiwan. Tel +886 2 2722-1868 Schroder Investment Management (Taiwan) Limited is independently operated. This material has not been reviewed by the regulators.
Note to readers/viewers in Thailand: This presentation has not been approved by the Securities and Exchange Commission which takes no responsibility for its contents. No offer to the public to purchase any fund will be made in Thailand and this presentation is intended to be read for information only and must not be passed to, issued to, or shown to the public generally. Schroder Investment Management (Singapore) Ltd does not have any intention to solicit you for any investment or subscription in any fund and any such solicitation or marketing will be made by an entity permitted by applicable laws and regulations.
Note to readers/viewers in Malaysia: This presentation has not been approved by the Securities Commission Malaysia which takes no responsibility for its contents. No offer to the public to purchase any fund will be made in Malaysia and this presentation is intended to be read for information only and must not be passed to, issued to, or shown to the public generally. Schroder Investment Management (Singapore) Ltd does not have any intention to solicit you for any investment or subscription in any fund and any such solicitation or marketing will be made by an entity permitted by applicable laws and regulations.
For readers/viewers in the People’s Republic of China: Issued by Schroder Investment Management (Shanghai) Co., Ltd. Unit 33T52A, 33F Shanghai World Financial Center, 100 Century Avenue, Pudong New Area, Shanghai, China, AMAC registration NO. P1066560. Regulated by Asset Management Association of China (“AMAC”) This material has not been reviewed by the AMAC
For readers/viewers in the United Arab Emirates: Schroder Investment Management Limited, located on 1st Floor, Gate Village Six, Dubai International Financial Centre, PO Box 506612 Dubai, United Arab Emirates. Regulated by the Dubai Financial Services Authority.This document is not subject to any form of regulation or approval by the DFSA. The DFSA has no responsibility for reviewing or verifying any Prospectus or other documents in connection with this Fund. Accordingly, the DFSA has not approved any associated documents nor taken any steps to verify the information set out in the Prospectus for the fund, and has no responsibility for it. This document is intended to be for information purposes only and it is not intended as promotional material in any respect. This document is intended for professional investors only as defined by the DFSA rules which can be accessed from their website www.dfsa.ae
For readers/viewers in the United Kingdom: Schroders will be a data controller in respect of your personal data. For information on how Schroders might process your personal data, please view our Privacy Policy available at www.schroders.com/en/privacy-policy or on request should you not have access to this webpage. Issued by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU. Registered Number 1893220 England. Authorised and regulated by the Financial Conduct Authority.
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