market mapping - e.l. & c. baillieu limited...market mapping equity quant strategy big things...
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BAILLIEU HOLST QUANT RESEARCH
16 May 2016 INTERNAL ONLY
Baillieu Holst Ltd ABN 74 006 519 393 www.baillieuholst.com.au Please read the disclaimer at the end of this report. Page 1
RESEARCH ANALYST Mathan Somasundaram
+612 9250 8947 [email protected]
Market Mapping EQUITY QUANT STRATEGY
Big things comes in small packages
Market outlook: Currency wars, deflation worries, political election cycles and a corporate survival mode will continue to put downward pressure on growth rates and interest rates. The RBA has been pushed into an interest rate easing cycle as deflation worries starts to bite. As the monetary policy effectiveness began to fade, the fiscal policy update showed that there are no credible plans to drive structural change in the next few years. The global and local growth slowdown continues to support lower interest rates for longer than expected. The Australian equity market’s sustainable dividend yield will attract investors in an environment of low rates and low growth. We continue to favour an investment strategy with a dominant sustainable yield aspect due to the weak growth outlook. Financials offer the best yield aspect while Industrials offer the best mix of growth and yield. The long term series analysis using equal weighted indices and forward multiples helps to sieve the best size, style and sector mix in the Australian market.
Preferred Size, Style and Sector mix: Small Cap MITCH (i.e. Media, Information, Telco, Consumer and Health) stocks that deliver exposure to the new economy are the preferred Small Cap Industrials.
Best size to sector mix: Small Cap Industrials.
Size category in order of preference: Small, Mid and Large.
Sector category in order of preference: Industrials, Financials and Resources.
FIG.1: SMALL CAPS TO PLAY CATCH-UP IN LOW GROWTH MARKET
500
700
900
1100
1300
1500
1700
1900
2100
2300
2500
Large Cap Equal Weighted Index Mid Cap Equal Weighted Index Small Cap Equal Weighted Index
Source: ASX, Baillieu Holst, Bloomberg, IRESS, Thomson
BAILLIEU HOLST QUANT RESEARCH
16 May 2016
Baillieu Holst Ltd ABN 74 006 519 393 www.baillieuholst.com.au Please read the disclaimer at the end of this report. Page 2
Contents Mapping Size, Style and Sectors 3 Large Cap 5 Mid Cap 9 Small Cap 13 Analytical Process 17
BAILLIEU HOLST QUANT RESEARCH
16 May 2016
Baillieu Holst Ltd ABN 74 006 519 393 www.baillieuholst.com.au Please read the disclaimer at the end of this report. Page 3
Mapping
Summary: The best size to sector mix is the Small Cap Industrials.
Size category in order of preference: Small, Mid and Large.
Sector category in order of preference: Industrials, Financials and Resources.
FIG.2-1: SUMMARY OF SIZE, STYLE AND SECTOR MAPPING
Size Style Resources Financials Industrials
Value Negative Negative Negative
Growth Negative Neutral Positive
Yield Negative Positive Positive
Momentum Negative Neutral Neutral
Value Negative Negative Negative
Growth Neutral Neutral Positive
Yield Neutral Positive Positive
Momentum Positive Positive Positive
Value Negative Neutral Positive
Growth Positive Neutral Positive
Yield Negative Positive Positive
Momentum Negative Positive Positive
Large Cap
Mid Cap
Small Cap
Source: ASX, Baillieu, Bloomberg, IRESS, Thomson
FIG.2-2: RESOURCES EQUAL WEIGHTED INDICES
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
Large Cap Equal Weighted Index Mid Cap Equal Weighted Index Small Cap Equal Weighted Index
Source: ASX, Baillieu, Bloomberg, IRESS, Thomson
BAILLIEU HOLST QUANT RESEARCH
16 May 2016
Baillieu Holst Ltd ABN 74 006 519 393 www.baillieuholst.com.au Please read the disclaimer at the end of this report. Page 4
FIG.2-3: FINANCIALS EQUAL WEIGHTED INDICES
0
500
1000
1500
2000
2500
Large Cap Equal Weighted Index Mid Cap Equal Weighted Index Small Cap Equal Weighted Index
Source: ASX, Baillieu, Bloomberg, IRESS, Thomson
FIG.2-4: INDUSTRIALS (EX FINANCE) EQUAL WEIGHTED INDICES
500
700
900
1100
1300
1500
1700
1900
2100
2300
Large Cap Industrial Index Mid Cap Industrial Index Small Cap Industrial Index
Source: ASX, Baillieu, Bloomberg, IRESS, Thomson
BAILLIEU HOLST QUANT RESEARCH
16 May 2016
Baillieu Holst Ltd ABN 74 006 519 393 www.baillieuholst.com.au Please read the disclaimer at the end of this report. Page 5
Large Caps
Summary: Large cap universe will continue to get interest on yield while the slowing local and global economy will keep growth outlook at low levels. Financials and Industrials with global business models and sustainable yield will see interest but will continue to struggle with growth.
12 year value, growth, yield and momentum charts in equal weighted basis: FIG.2-2 to FIG.2-26.
FIG.2-1: LARGE CAP OUTLOOK SUMMARY
Style Large Cap Resources Financials Industrials
Value Negative Negative Negative Negative
Growth Negative Negative Neutral Positive
Yield Positive Negative Positive Positive
Momentum Negative Negative Neutral Neutral
Source: ASX, Baillieu, Bloomberg, IRESS, Thomson
FIG.2-2: LARGE CAP EQUAL WEIGHTED PRICE INDICES
500
1000
1500
2000
2500
3000
Large Cap Index Large Cap Resources Index Large Cap Financials Index Large Cap Industrials (Ex Fin) Index
Source: ASX, Baillieu, Bloomberg, IRESS, Thomson
BAILLIEU HOLST QUANT RESEARCH
16 May 2016
Baillieu Holst Ltd ABN 74 006 519 393 www.baillieuholst.com.au Please read the disclaimer at the end of this report. Page 6
Large Cap Equal Weighted Time Series Analysis – Value FIG.2-3: LARGE CAP INDEX WITH PE BANDS FIG.2-4: LARGE CAP RESOURCES INDEX WITH PE BANDS
500
750
1000
1250
1500
1750
2000
2250
2500
De
c-0
3
Jun
-04
De
c-0
4
Jun
-05
De
c-0
5
Jun
-06
De
c-0
6
Jun
-07
De
c-0
7
Jun
-08
De
c-0
8
Jun
-09
De
c-0
9
Jun
-10
De
c-1
0
Jun
-11
De
c-1
1
Jun
-12
De
c-1
2
Jun
-13
De
c-1
3
Jun
-14
De
c-1
4
Jun
-15
De
c-1
5
0
500
1000
1500
2000
2500
3000
3500
4000
4500
De
c-0
3
Jun
-04
De
c-0
4
Jun
-05
De
c-0
5
Jun
-06
De
c-0
6
Jun
-07
De
c-0
7
Jun
-08
De
c-0
8
Jun
-09
De
c-0
9
Jun
-10
De
c-1
0
Jun
-11
De
c-1
1
Jun
-12
De
c-1
2
Jun
-13
De
c-1
3
Jun
-14
De
c-1
4
Jun
-15
De
c-1
5
FIG.2-5: LARGE CAP FINANCIALS INDEX WITH PE BANDS FIG.2-6: LARGE CAP INDUSTRIALS INDEX WITH PE BANDS
500
750
1000
1250
1500
1750
2000
2250
De
c-0
3
Jun
-04
De
c-0
4
Jun
-05
De
c-0
5
Jun
-06
De
c-0
6
Jun
-07
De
c-0
7
Jun
-08
De
c-0
8
Jun
-09
De
c-0
9
Jun
-10
De
c-1
0
Jun
-11
De
c-1
1
Jun
-12
De
c-1
2
Jun
-13
De
c-1
3
Jun
-14
De
c-1
4
Jun
-15
De
c-1
5
500
750
1000
1250
1500
1750
2000
2250
De
c-0
3
Jun
-04
De
c-0
4
Jun
-05
De
c-0
5
Jun
-06
De
c-0
6
Jun
-07
De
c-0
7
Jun
-08
De
c-0
8
Jun
-09
De
c-0
9
Jun
-10
De
c-1
0
Jun
-11
De
c-1
1
Jun
-12
De
c-1
2
Jun
-13
De
c-1
3
Jun
-14
De
c-1
4
Jun
-15
De
c-1
5
FIG.2-7: LARGE CAP INDEX WITH PB BANDS FIG.2-8: LARGE CAP RESOURCES INDEX WITH PB BANDS
500
700
900
1100
1300
1500
1700
1900
2100
2300
2500
0
500
1000
1500
2000
2500
3000
3500
4000
4500
FIG.2-9: LARGE CAP FINANCIALS INDEX WITH PB BANDS FIG.2-10: LARGE CAP INDUSTRIALS INDEX WITH PB BANDS
0
500
1000
1500
2000
2500
500
700
900
1100
1300
1500
1700
1900
2100
2300
2500
Source: ASX, Baillieu Holst, Bloomberg, IRESS, Thomson Source: ASX, Baillieu Holst, Bloomberg, IRESS, Thomson
BAILLIEU HOLST QUANT RESEARCH
16 May 2016
Baillieu Holst Ltd ABN 74 006 519 393 www.baillieuholst.com.au Please read the disclaimer at the end of this report. Page 7
Large Cap Equal Weighted Time Series Analysis – Growth FIG.2-11: LARGE CAP EPS GROWTH FIG.2-12: LARGE CAP RESOURCES EPS GROWTH
5.00
7.00
9.00
11.00
13.00
15.00
17.00
19.00
21.00
23.00
25.00
-10.00
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
FIG.2-13: LARGE CAP FINANCIALS EPS GROWTH FIG.2-14: LARGE CAP INDUSTRIALS EPS GROWTH
0.00
5.00
10.00
15.00
20.00
25.00
5.00
7.00
9.00
11.00
13.00
15.00
17.00
19.00
21.00
23.00
25.00
FIG.2-15: LARGE CAP ROE FIG.2-16: LARGE CAP RESOURCES ROE
12.00
14.00
16.00
18.00
20.00
22.00
24.00
Dec
-03
Jun-
04
Dec
-04
Jun-
05
Dec
-05
Jun-
06
Dec
-06
Jun-
07
Dec
-07
Jun-
08
Dec
-08
Jun-
09
Dec
-09
Jun-
10
Dec
-10
Jun-
11
Dec
-11
Jun-
12
Dec
-12
Jun-
13
Dec
-13
Jun-
14
Dec
-14
Jun-
15
Dec
-15
4.00
8.00
12.00
16.00
20.00
24.00
28.00
32.00
36.00
Dec
-03
Jun-
04
Dec
-04
Jun-
05
Dec
-05
Jun-
06
Dec
-06
Jun-
07
Dec
-07
Jun-
08
Dec
-08
Jun-
09
Dec
-09
Jun-
10
Dec
-10
Jun-
11
Dec
-11
Jun-
12
Dec
-12
Jun-
13
Dec
-13
Jun-
14
Dec
-14
Jun-
15
Dec
-15
FIG.2-17: LARGE CAP FINANCIALS ROE FIG.2-18: LARGE CAP INDUSTRIALS ROE
10.00
11.00
12.00
13.00
14.00
15.00
16.00
17.00
18.00
Dec
-03
Jun-
04
Dec
-04
Jun-
05
Dec
-05
Jun-
06
Dec
-06
Jun-
07
Dec
-07
Jun-
08
Dec
-08
Jun-
09
Dec
-09
Jun-
10
Dec
-10
Jun-
11
Dec
-11
Jun-
12
Dec
-12
Jun-
13
Dec
-13
Jun-
14
Dec
-14
Jun-
15
Dec
-15
14.00
15.00
16.00
17.00
18.00
19.00
20.00
21.00
22.00
23.00
24.00
Dec
-03
Jun-
04
Dec
-04
Jun-
05
Dec
-05
Jun-
06
Dec
-06
Jun-
07
Dec
-07
Jun-
08
Dec
-08
Jun-
09
Dec
-09
Jun-
10
Dec
-10
Jun-
11
Dec
-11
Jun-
12
Dec
-12
Jun-
13
Dec
-13
Jun-
14
Dec
-14
Jun-
15
Dec
-15
Source: ASX, Baillieu Holst, Bloomberg, IRESS, Thomson Source: ASX, Baillieu Holst, Bloomberg, IRESS, Thomson
BAILLIEU HOLST QUANT RESEARCH
16 May 2016
Baillieu Holst Ltd ABN 74 006 519 393 www.baillieuholst.com.au Please read the disclaimer at the end of this report. Page 8
Large Cap Equal Weighted Time Series Analysis – Yield and Momentum FIG.2-19: LARGE CAP DIVIDEND YIELD FIG.2-20: LARGE CAP RESOURCES DIVIDEND YIELD
2.00
3.00
4.00
5.00
6.00
7.00
8.00
Forward Dividend Yield 10Year Bond Yield Average DY Average BY
1.50
2.50
3.50
4.50
5.50
6.50
7.50
Forward Dividend Yield 10Year Bond Yield Average DY Average BY
FIG.2-21: LARGE CAP FINANCIALS DIVIDEND YIELD FIG.2-22: LARGE CAP INDUSTRIALS DIVIDEND YIELD
0.00
2.00
4.00
6.00
8.00
10.00
12.00
Forward Dividend Yield 10Year Bond Yield Average DY Average BY
2.00
3.00
4.00
5.00
6.00
7.00
8.00
Forward Dividend Yield 10Year Bond Yield Average DY Average BY
FIG.2-23: LARGE CAP MOMENTUM FIG.2-24: LARGE CAP RESOURCES MOMENTUM
-20.00
-15.00
-10.00
-5.00
0.00
5.00
10.00
15.00
20.00
De
c-0
3
Jun
-04
De
c-0
4
Jun
-05
De
c-0
5
Jun
-06
De
c-0
6
Jun
-07
De
c-0
7
Jun
-08
De
c-0
8
Jun
-09
De
c-0
9
Jun
-10
De
c-1
0
Jun
-11
De
c-1
1
Jun
-12
De
c-1
2
Jun
-13
De
c-1
3
Jun
-14
De
c-1
4
Jun
-15
De
c-1
5
3mth Avg Earnings Revision 3mth Price Momentum
-40.00
-30.00
-20.00
-10.00
0.00
10.00
20.00
30.00
40.00
Dec
-03
Jun-
04
Dec
-04
Jun-
05
Dec
-05
Jun-
06
Dec
-06
Jun-
07
Dec
-07
Jun-
08
Dec
-08
Jun-
09
Dec
-09
Jun-
10
Dec
-10
Jun-
11
Dec
-11
Jun-
12
Dec
-12
Jun-
13
Dec
-13
Jun-
14
Dec
-14
Jun-
15
Dec
-15
3mth Avg Earnings Revision 3mth Price Momentum
FIG.2-25: LARGE CAP FINANCIALS MOMENTUM FIG.2-26: LARGE CAP INDUSTRIALS MOMENTUM
-20.00
-15.00
-10.00
-5.00
0.00
5.00
10.00
15.00
20.00
De
c-0
3
Jun
-04
De
c-0
4
Jun
-05
De
c-0
5
Jun
-06
De
c-0
6
Jun
-07
De
c-0
7
Jun
-08
De
c-0
8
Jun
-09
De
c-0
9
Jun
-10
De
c-1
0
Jun
-11
De
c-1
1
Jun
-12
De
c-1
2
Jun
-13
De
c-1
3
Jun
-14
De
c-1
4
Jun
-15
De
c-1
5
3mth Avg Earnings Revision 3mth Price Momentum
-20.00
-15.00
-10.00
-5.00
0.00
5.00
10.00
15.00
20.00
De
c-03
Jun
-04
De
c-04
Jun
-05
De
c-05
Jun
-06
De
c-06
Jun
-07
De
c-07
Jun
-08
De
c-08
Jun
-09
De
c-09
Jun
-10
De
c-10
Jun
-11
De
c-11
Jun
-12
De
c-12
Jun
-13
De
c-13
Jun
-14
De
c-14
Jun
-15
De
c-15
3mth Avg Earnings Revision 3mth Price Momentum
Source: ASX, Baillieu Holst, Bloomberg, IRESS, Thomson Source: ASX, Baillieu Holst, Bloomberg, IRESS, Thomson
BAILLIEU HOLST QUANT RESEARCH
16 May 2016
Baillieu Holst Ltd ABN 74 006 519 393 www.baillieuholst.com.au Please read the disclaimer at the end of this report. Page 9
Mid Caps
Summary: Similar to large caps, the mid cap universe will also continue to get interest on yield while the slowing economy will keep growth outlook at low levels. Financials and Industrials with global business models, sustainable yield and exposure to new economy (i.e. MITCH universe) will see interest despite struggling with low growth. The mid caps are able to better evolve with changing low growth markets than the large caps.
12 year value, growth, yield and momentum charts in equal weighted basis: FIG.3-2 to FIG.3-26.
FIG.3-1: MID CAP OUTLOOK SUMMARY
Style Mid Cap Resources Financials Industrials
Value Negative Negative Negative Negative
Growth Neutral Neutral Neutral Positive
Yield Positive Neutral Positive Positive
Momentum Positive Positive Positive Positive
Source: ASX, Baillieu, Bloomberg, IRESS, Thomson
FIG.3-2: MID CAP EQUAL WEIGHTED PRICE INDICES
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
Mid Cap Index Mid Cap Resources Index Mid Cap Financials Index Mid Cap Industrials Index
Source: ASX, Baillieu, Bloomberg, IRESS, Thomson
BAILLIEU HOLST QUANT RESEARCH
16 May 2016
Baillieu Holst Ltd ABN 74 006 519 393 www.baillieuholst.com.au Please read the disclaimer at the end of this report. Page 10
Mid Cap Equal Weighted Time Series Analysis – Value FIG.3-3: MID CAP INDEX WITH PE BANDS FIG.3-4: MID CAP RESOURCES INDEX WITH PE BANDS
500
750
1000
1250
1500
1750
2000
2250
2500
2750
3000
De
c-0
3
Jun
-04
De
c-0
4
Jun
-05
De
c-0
5
Jun
-06
De
c-0
6
Jun
-07
De
c-0
7
Jun
-08
De
c-0
8
Jun
-09
De
c-0
9
Jun
-10
De
c-1
0
Jun
-11
De
c-1
1
Jun
-12
De
c-1
2
Jun
-13
De
c-1
3
Jun
-14
De
c-1
4
Jun
-15
De
c-1
5
500
1500
2500
3500
4500
5500
6500
7500
8500
9500
De
c-0
3
Jun
-04
De
c-0
4
Jun
-05
De
c-0
5
Jun
-06
De
c-0
6
Jun
-07
De
c-0
7
Jun
-08
De
c-0
8
Jun
-09
De
c-0
9
Jun
-10
De
c-1
0
Jun
-11
De
c-1
1
Jun
-12
De
c-1
2
Jun
-13
De
c-1
3
Jun
-14
De
c-1
4
Jun
-15
De
c-1
5
FIG.3-5: MID CAP FINANCIALS INDEX WITH PE BANDS FIG.3-6: MID CAP INDUSTRIALS INDEX WITH PE BANDS
250
500
750
1000
1250
1500
1750
2000
2250
De
c-0
3
Jun
-04
De
c-0
4
Jun
-05
De
c-0
5
Jun
-06
De
c-0
6
Jun
-07
De
c-0
7
Jun
-08
De
c-0
8
Jun
-09
De
c-0
9
Jun
-10
De
c-1
0
Jun
-11
De
c-1
1
Jun
-12
De
c-1
2
Jun
-13
De
c-1
3
Jun
-14
De
c-1
4
Jun
-15
De
c-1
5
500
700
900
1100
1300
1500
1700
1900
2100
2300
2500
De
c-0
3
Jun
-04
De
c-0
4
Jun
-05
De
c-0
5
Jun
-06
De
c-0
6
Jun
-07
De
c-0
7
Jun
-08
De
c-0
8
Jun
-09
De
c-0
9
Jun
-10
De
c-1
0
Jun
-11
De
c-1
1
Jun
-12
De
c-1
2
Jun
-13
De
c-1
3
Jun
-14
De
c-1
4
Jun
-15
De
c-1
5
FIG.3-7: MID CAP INDEX WITH PB BANDS FIG.3-8: MID CAP RESOURCES INDEX WITH PB BANDS
500
1000
1500
2000
2500
3000
3500
4000
0
2000
4000
6000
8000
10000
12000
FIG.3-9: MID CAP FINANCIALS INDEX WITH PB BANDS FIG.3-10: MID CAP INDUSTRIALS INDEX WITH PB BANDS
0
500
1000
1500
2000
2500
3000
3500
0
500
1000
1500
2000
2500
3000
3500
Source: ASX, Baillieu Holst, Bloomberg, IRESS, Thomson Source: ASX, Baillieu Holst, Bloomberg, IRESS, Thomson
BAILLIEU HOLST QUANT RESEARCH
16 May 2016
Baillieu Holst Ltd ABN 74 006 519 393 www.baillieuholst.com.au Please read the disclaimer at the end of this report. Page 11
Mid Cap Equal Weighted Time Series Analysis – Growth FIG.3-11: MID CAP EPS GROWTH FIG.3-12: MID CAP RESOURCES EPS GROWTH
5.00
10.00
15.00
20.00
25.00
30.00
35.00
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00
FIG.3-13: MID CAP FINANCIALS EPS GROWTH FIG.3-14: MID CAP INDUSTRIALS EPS GROWTH
-10.00
-5.00
0.00
5.00
10.00
15.00
20.00
5.00
7.00
9.00
11.00
13.00
15.00
17.00
19.00
21.00
23.00
25.00
FIG.3-15: MID CAP ROE FIG.3-16: MID CAP RESOURCES ROE
12.00
14.00
16.00
18.00
20.00
22.00
24.00
26.00
Dec
-03
Jun-
04
Dec
-04
Jun-
05
Dec
-05
Jun-
06
Dec
-06
Jun-
07
Dec
-07
Jun-
08
Dec
-08
Jun-
09
Dec
-09
Jun-
10
Dec
-10
Jun-
11
Dec
-11
Jun-
12
Dec
-12
Jun-
13
Dec
-13
Jun-
14
Dec
-14
Jun-
15
Dec
-15
5.00
10.00
15.00
20.00
25.00
30.00
Dec
-03
Jun-
04
Dec
-04
Jun-
05
Dec
-05
Jun-
06
Dec
-06
Jun-
07
Dec
-07
Jun-
08
Dec
-08
Jun-
09
Dec
-09
Jun-
10
Dec
-10
Jun-
11
Dec
-11
Jun-
12
Dec
-12
Jun-
13
Dec
-13
Jun-
14
Dec
-14
Jun-
15
Dec
-15
FIG.3-17: MID CAP FINANCIALS ROE FIG.3-18: MID CAP INDUSTRIALS ROE
5.00
7.00
9.00
11.00
13.00
15.00
17.00
19.00
21.00
23.00
25.00
Dec
-03
Jun-
04
Dec
-04
Jun-
05
Dec
-05
Jun-
06
Dec
-06
Jun-
07
Dec
-07
Jun-
08
Dec
-08
Jun-
09
Dec
-09
Jun-
10
Dec
-10
Jun-
11
Dec
-11
Jun-
12
Dec
-12
Jun-
13
Dec
-13
Jun-
14
Dec
-14
Jun-
15
Dec
-15
12.00
14.00
16.00
18.00
20.00
22.00
24.00
26.00
28.00
30.00
Dec
-03
Jun-
04
Dec
-04
Jun-
05
Dec
-05
Jun-
06
Dec
-06
Jun-
07
Dec
-07
Jun-
08
Dec
-08
Jun-
09
Dec
-09
Jun-
10
Dec
-10
Jun-
11
Dec
-11
Jun-
12
Dec
-12
Jun-
13
Dec
-13
Jun-
14
Dec
-14
Jun-
15
Dec
-15
Source: ASX, Baillieu Holst, Bloomberg, IRESS, Thomson Source: ASX, Baillieu Holst, Bloomberg, IRESS, Thomson
BAILLIEU HOLST QUANT RESEARCH
16 May 2016
Baillieu Holst Ltd ABN 74 006 519 393 www.baillieuholst.com.au Please read the disclaimer at the end of this report. Page 12
Mid Cap Equal Weighted Time Series Analysis – Yield and Momentum FIG.3-19: MID CAP DIVIDEND YIELD FIG.3-20: MID CAP RESOURCES DIVIDEND YIELD
2.00
3.00
4.00
5.00
6.00
7.00
8.00
Forward Dividend Yield 10Year Bond Yield Average DY Average BY
1.00
2.00
3.00
4.00
5.00
6.00
7.00
Forward Dividend Yield 10Year Bond Yield Average DY Average BY
FIG.3-21: MID CAP FINANCIALS DIVIDEND YIELD FIG.3-22: MID CAP INDUSTRIALS DIVIDEND YIELD
0.00
2.00
4.00
6.00
8.00
10.00
12.00
Forward Dividend Yield 10Year Bond Yield Average DY Average BY
2.00
3.00
4.00
5.00
6.00
7.00
8.00
Forward Dividend Yield 10Year Bond Yield Average DY Average BY
FIG.3-23: MID CAP MOMENTUM FIG.3-24: MID CAP RESOURCES MOMENTUM
-20.00
-15.00
-10.00
-5.00
0.00
5.00
10.00
15.00
20.00
De
c-0
3
Jun
-04
De
c-0
4
Jun
-05
De
c-0
5
Jun
-06
De
c-0
6
Jun
-07
De
c-0
7
Jun
-08
De
c-0
8
Jun
-09
De
c-0
9
Jun
-10
De
c-1
0
Jun
-11
De
c-1
1
Jun
-12
De
c-1
2
Jun
-13
De
c-1
3
Jun
-14
De
c-1
4
Jun
-15
De
c-1
5
3mth Avg Earnings Revision 3mth Price Momentum
-30.00
-20.00
-10.00
0.00
10.00
20.00
30.00
Dec
-03
Jun-
04
Dec
-04
Jun-
05
Dec
-05
Jun-
06
Dec
-06
Jun-
07
Dec
-07
Jun-
08
Dec
-08
Jun-
09
Dec
-09
Jun-
10
Dec
-10
Jun-
11
Dec
-11
Jun-
12
Dec
-12
Jun-
13
Dec
-13
Jun-
14
Dec
-14
Jun-
15
Dec
-15
3mth Avg Earnings Revision 3mth Price Momentum
FIG.3-25: MID CAP FINANCIALS MOMENTUM FIG.3-26: MID CAP INDUSTRIALS MOMENTUM
-20.00
-15.00
-10.00
-5.00
0.00
5.00
10.00
15.00
20.00
De
c-0
3
Jun
-04
De
c-0
4
Jun
-05
De
c-0
5
Jun
-06
De
c-0
6
Jun
-07
De
c-0
7
Jun
-08
De
c-0
8
Jun
-09
De
c-0
9
Jun
-10
De
c-1
0
Jun
-11
De
c-1
1
Jun
-12
De
c-1
2
Jun
-13
De
c-1
3
Jun
-14
De
c-1
4
Jun
-15
De
c-1
5
3mth Avg Earnings Revision 3mth Price Momentum
-20.00
-15.00
-10.00
-5.00
0.00
5.00
10.00
15.00
20.00
De
c-03
Jun
-04
De
c-04
Jun
-05
De
c-05
Jun
-06
De
c-06
Jun
-07
De
c-07
Jun
-08
De
c-08
Jun
-09
De
c-09
Jun
-10
De
c-10
Jun
-11
De
c-11
Jun
-12
De
c-12
Jun
-13
De
c-13
Jun
-14
De
c-14
Jun
-15
De
c-15
3mth Avg Earnings Revision 3mth Price Momentum
Source: ASX, Baillieu Holst, Bloomberg, IRESS, Thomson Source: ASX, Baillieu Holst, Bloomberg, IRESS, Thomson
BAILLIEU HOLST QUANT RESEARCH
16 May 2016
Baillieu Holst Ltd ABN 74 006 519 393 www.baillieuholst.com.au Please read the disclaimer at the end of this report. Page 13
Small Caps
Summary: The small cap universe offers the best growth and yield to value outlook in a low growth environment. Financials and Industrials with global business models, sustainable yield and exposure to new economy (i.e. MITCH universe) will see interest despite struggling with low growth. The small caps offer better growth outlook than the large and mid cap stocks in a declining global and local growth outlook.
12 year value, growth, yield and momentum charts in equal weighted basis: FIG.4-2 to FIG.4-26.
FIG.4-1: SMALL CAP OUTLOOK SUMMARY
Style Small Cap Resources Financials Industrials
Value Neutral Negative Neutral Positive
Growth Positive Positive Neutral Positive
Yield Positive Negative Positive Positive
Momentum Positive Negative Positive Positive
Source: ASX, Baillieu, Bloomberg, IRESS, Thomson
FIG.4-2: SMALL CAP EQUAL WEIGHTED PRICE INDICES
0
500
1000
1500
2000
2500
3000
3500
4000
Small Cap Index Small Cap Resources Index Small Cap Financials Index Small Cap Industrials Index
Source: ASX, Baillieu, Bloomberg, IRESS, Thomson
BAILLIEU HOLST QUANT RESEARCH
16 May 2016
Baillieu Holst Ltd ABN 74 006 519 393 www.baillieuholst.com.au Please read the disclaimer at the end of this report. Page 14
Small Cap Equal Weighted Time Series Analysis – Value FIG.4-3: SMALL CAP INDEX WITH PE BANDS FIG.4-4: SMALL CAP RESOURCES INDEX WITH PE BANDS
500
750
1000
1250
1500
1750
2000
2250
De
c-0
3
Jun
-04
De
c-0
4
Jun
-05
De
c-0
5
Jun
-06
De
c-0
6
Jun
-07
De
c-0
7
Jun
-08
De
c-0
8
Jun
-09
De
c-0
9
Jun
-10
De
c-1
0
Jun
-11
De
c-1
1
Jun
-12
De
c-1
2
Jun
-13
De
c-1
3
Jun
-14
De
c-1
4
Jun
-15
De
c-1
5
0
1000
2000
3000
4000
5000
6000
De
c-0
3
Jun
-04
De
c-0
4
Jun
-05
De
c-0
5
Jun
-06
De
c-0
6
Jun
-07
De
c-0
7
Jun
-08
De
c-0
8
Jun
-09
De
c-0
9
Jun
-10
De
c-1
0
Jun
-11
De
c-1
1
Jun
-12
De
c-1
2
Jun
-13
De
c-1
3
Jun
-14
De
c-1
4
Jun
-15
De
c-1
5
FIG.4-5: SMALL CAP FINANCIALS INDEX WITH PE BANDS FIG.4-6: SMALL CAP INDUSTRIALS INDEX WITH PE BANDS
0
250
500
750
1000
1250
1500
1750
2000
2250
2500
2750
De
c-0
3
Jun
-04
De
c-0
4
Jun
-05
De
c-0
5
Jun
-06
De
c-0
6
Jun
-07
De
c-0
7
Jun
-08
De
c-0
8
Jun
-09
De
c-0
9
Jun
-10
De
c-1
0
Jun
-11
De
c-1
1
Jun
-12
De
c-1
2
Jun
-13
De
c-1
3
Jun
-14
De
c-1
4
Jun
-15
De
c-1
5
500
750
1000
1250
1500
1750
De
c-0
3
Jun
-04
De
c-0
4
Jun
-05
De
c-0
5
Jun
-06
De
c-0
6
Jun
-07
De
c-0
7
Jun
-08
De
c-0
8
Jun
-09
De
c-0
9
Jun
-10
De
c-1
0
Jun
-11
De
c-1
1
Jun
-12
De
c-1
2
Jun
-13
De
c-1
3
Jun
-14
De
c-1
4
Jun
-15
De
c-1
5
FIG.4-7: SMALL CAP INDEX WITH PB BANDS FIG.4-8: SMALL CAP RESOURCES INDEX WITH PB BANDS
500
700
900
1100
1300
1500
1700
1900
2100
2300
0
1000
2000
3000
4000
5000
6000
FIG.4-9: SMALL CAP FINANCIALS INDEX WITH PB BANDS FIG.4-10: SMALL CAP INDUSTRIALS INDEX WITH PB BANDS
0
500
1000
1500
2000
2500
3000
3500
4000
4500
250
450
650
850
1050
1250
1450
1650
1850
2050
2250
Source: ASX, Baillieu Holst, Bloomberg, IRESS, Thomson Source: ASX, Baillieu Holst, Bloomberg, IRESS, Thomson
BAILLIEU HOLST QUANT RESEARCH
16 May 2016
Baillieu Holst Ltd ABN 74 006 519 393 www.baillieuholst.com.au Please read the disclaimer at the end of this report. Page 15
Small Cap Equal Weighted Time Series Analysis – Growth FIG.4-11: SMALL CAP EPS GROWTH FIG.4-12: SMALL CAP RESOURCES EPS GROWTH
15.00
20.00
25.00
30.00
35.00
40.00
15.00
25.00
35.00
45.00
55.00
65.00
75.00
FIG.4-13: SMALL CAP FINANCIALS EPS GROWTH FIG.4-14: SMALL CAP INDUSTRIALS EPS GROWTH
-10.00
-5.00
0.00
5.00
10.00
15.00
20.00
25.00
30.00
12.00
14.00
16.00
18.00
20.00
22.00
24.00
26.00
28.00
30.00
FIG.4-15: SMALL CAP ROE FIG.4-16: SMALL CAP RESOURCES ROE
14.00
15.00
16.00
17.00
18.00
19.00
20.00
21.00
22.00
Dec
-03
Jun-
04
Dec
-04
Jun-
05
Dec
-05
Jun-
06
Dec
-06
Jun-
07
Dec
-07
Jun-
08
Dec
-08
Jun-
09
Dec
-09
Jun-
10
Dec
-10
Jun-
11
Dec
-11
Jun-
12
Dec
-12
Jun-
13
Dec
-13
Jun-
14
Dec
-14
Jun-
15
Dec
-15
10.00
12.00
14.00
16.00
18.00
20.00
22.00
24.00
26.00
28.00
Dec
-03
Jun-
04
Dec
-04
Jun-
05
Dec
-05
Jun-
06
Dec
-06
Jun-
07
Dec
-07
Jun-
08
Dec
-08
Jun-
09
Dec
-09
Jun-
10
Dec
-10
Jun-
11
Dec
-11
Jun-
12
Dec
-12
Jun-
13
Dec
-13
Jun-
14
Dec
-14
Jun-
15
Dec
-15
FIG.4-17: SMALL CAP FINANCIALS ROE FIG.4-18: SMALL CAP INDUSTRIALS ROE
12.00
14.00
16.00
18.00
20.00
22.00
24.00
Dec
-03
Jun-
04
Dec
-04
Jun-
05
Dec
-05
Jun-
06
Dec
-06
Jun-
07
Dec
-07
Jun-
08
Dec
-08
Jun-
09
Dec
-09
Jun-
10
Dec
-10
Jun-
11
Dec
-11
Jun-
12
Dec
-12
Jun-
13
Dec
-13
Jun-
14
Dec
-14
Jun-
15
Dec
-15
14.00
15.00
16.00
17.00
18.00
19.00
20.00
21.00
Dec
-03
Jun-
04
Dec
-04
Jun-
05
Dec
-05
Jun-
06
Dec
-06
Jun-
07
Dec
-07
Jun-
08
Dec
-08
Jun-
09
Dec
-09
Jun-
10
Dec
-10
Jun-
11
Dec
-11
Jun-
12
Dec
-12
Jun-
13
Dec
-13
Jun-
14
Dec
-14
Jun-
15
Dec
-15
Source: ASX, Baillieu Holst, Bloomberg, IRESS, Thomson Source: ASX, Baillieu Holst, Bloomberg, IRESS, Thomson
BAILLIEU HOLST QUANT RESEARCH
16 May 2016
Baillieu Holst Ltd ABN 74 006 519 393 www.baillieuholst.com.au Please read the disclaimer at the end of this report. Page 16
Small Cap Equal Weighted Time Series Analysis – Yield and Momentum FIG.4-19: SMALL CAP DIVIDEND YIELD FIG.4-20: SMALL CAP RESOURCES DIVIDEND YIELD
2.00
3.00
4.00
5.00
6.00
7.00
8.00
Forward Dividend Yield 10Year Bond Yield Average DY Average BY
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
Forward Dividend Yield 10Year Bond Yield Average DY Average BY
FIG.4-21: SMALL CAP FINANCIALS DIVIDEND YIELD FIG.4-22: SMALL CAP INDUSTRIALS DIVIDEND YIELD
0.00
2.00
4.00
6.00
8.00
10.00
12.00
Forward Dividend Yield 10Year Bond Yield Average DY Average BY
2.00
3.00
4.00
5.00
6.00
7.00
8.00
Forward Dividend Yield 10Year Bond Yield Average DY Average BY
FIG.4-23: SMALL CAP MOMENTUM FIG.4-24: SMALL CAP RESOURCES MOMENTUM
-20.00
-15.00
-10.00
-5.00
0.00
5.00
10.00
15.00
20.00
De
c-0
3
Jun
-04
De
c-0
4
Jun
-05
De
c-0
5
Jun
-06
De
c-0
6
Jun
-07
De
c-0
7
Jun
-08
De
c-0
8
Jun
-09
De
c-0
9
Jun
-10
De
c-1
0
Jun
-11
De
c-1
1
Jun
-12
De
c-1
2
Jun
-13
De
c-1
3
Jun
-14
De
c-1
4
Jun
-15
De
c-1
5
3mth Avg Earnings Revision 3mth Price Momentum
-40.00
-30.00
-20.00
-10.00
0.00
10.00
20.00
30.00
40.00
Dec
-03
Jun-
04
Dec
-04
Jun-
05
Dec
-05
Jun-
06
Dec
-06
Jun-
07
Dec
-07
Jun-
08
Dec
-08
Jun-
09
Dec
-09
Jun-
10
Dec
-10
Jun-
11
Dec
-11
Jun-
12
Dec
-12
Jun-
13
Dec
-13
Jun-
14
Dec
-14
Jun-
15
Dec
-15
3mth Avg Earnings Revision 3mth Price Momentum
FIG.4-25: SMALL CAP FINANCIALS MOMENTUM FIG.4-26: SMALL CAP INDUSTRIALS MOMENTUM
-20.00
-15.00
-10.00
-5.00
0.00
5.00
10.00
15.00
20.00
De
c-0
3
Jun
-04
De
c-0
4
Jun
-05
De
c-0
5
Jun
-06
De
c-0
6
Jun
-07
De
c-0
7
Jun
-08
De
c-0
8
Jun
-09
De
c-0
9
Jun
-10
De
c-1
0
Jun
-11
De
c-1
1
Jun
-12
De
c-1
2
Jun
-13
De
c-1
3
Jun
-14
De
c-1
4
Jun
-15
De
c-1
5
3mth Avg Earnings Revision 3mth Price Momentum
-20.00
-15.00
-10.00
-5.00
0.00
5.00
10.00
15.00
20.00
De
c-03
Jun
-04
De
c-04
Jun
-05
De
c-05
Jun
-06
De
c-06
Jun
-07
De
c-07
Jun
-08
De
c-08
Jun
-09
De
c-09
Jun
-10
De
c-10
Jun
-11
De
c-11
Jun
-12
De
c-12
Jun
-13
De
c-13
Jun
-14
De
c-14
Jun
-15
De
c-15
3mth Avg Earnings Revision 3mth Price Momentum
Source: ASX, Baillieu Holst, Bloomberg, IRESS, Thomson Source: ASX, Baillieu Holst, Bloomberg, IRESS, Thomson
BAILLIEU HOLST QUANT RESEARCH
16 May 2016
Baillieu Holst Ltd ABN 74 006 519 393 www.baillieuholst.com.au Please read the disclaimer at the end of this report. Page 17
Analytical Process
Size Categories: The analysis breaks the market (i.e. S&P 300) into Large Caps (i.e. S&P 50), Mid Caps (i.e. S&P 50 - 100) and Small Caps (i.e. S&P 100 - 300). Analysing equal weighted basis allows better understanding of where the best risk/return sits in terms of size category while the traditional market cap weighted basis ignores the bottom half of each size category.
Sector Categories: The analysis breaks the market (i.e. S&P 300) into major sector categories (i.e. Resources, Industrials and Financials).
Index Calculation – Indices were calculated using equal weighted basis to look at relative performance of all ends of the market cap spectrum.
Financial Data Calculation: Data series were calculated using equal weighted methodology with quality limits to remove outliers. Outliers with substantially high/low multiples could skew the quality of the analysis.
Time period: The analysis was carried out over the past 12 years to cover substantial period before and after the GFC.
Factors used are: PE (Price to Earnings), PB (Price to Book Value), Earnings Growth (Earnings per share growth), ROE (Return on Equity), Earnings Revision (3mth change in forecast earnings), Price Momentum (3mth change in price), Dividend Yield (Dividend per share on Price, Bond Yield (10 year bond yield)
BAILLIEU HOLST RESEARCH
Baillieu Holst Ltd ABN 74 006 519 393 www.baillieuholst.com.au Page 18
This document has been prepared and issued by:
Baillieu Holst Ltd ABN 74 006 519 393
Australian Financial Service Licence No. 245421 Participant of ASX Group Participant of NSX Ltd
Analysts’ stock ratings are defined as follows:
Buy: The stock’s total return is expected to increase by at least 10-15 percent from the current share price over the next 12 months.
Hold: The stock’s total return is expected to trade within a range of ±10-15 percent from the current share price over the next 12 months.
Sell: The stock’s total return is expected to decrease by at least 10-15 percent from the current share price over the next 12 months.
Disclosure of potential interest and disclaimer:
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Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgment at its original date of publication and are subject to change without notice. The price, value of and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. The value of securities and financial instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities or financial instruments.
Baillieu Holst Ltd assumes no obligation to update this advice or correct any inaccuracy which may become apparent after it is given.
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ABN 74 006 519 393
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