1

The Dynamics of Stock Market Returns:

Inflation and Interest Rates as Key Variables

By Daniel R Wessels

December 2006

1. Investors’ Perception of Stock Market Returns

Stock markets will perform in line with economic growth prospects; i.e. as long

the economy is growing in real terms, the return from the stock market will

follow.

While it is generally true that stock market performance in the long run is more

or less aligned with economic growth, stock market performance in the short

term will not necessarily confirm this notion.

The following historical facts are presented in chart 1:

DRW

INVESTMENT RESEARCH

2

ALSI Returns and GDP Growth

1960-2005

-6.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

Ma

r-6

1

Ma

r-6

3

Ma

r-6

5

Ma

r-6

7

Ma

r-6

9

Ma

r-7

1

Ma

r-7

3

Ma

r-7

5

Ma

r-7

7

Ma

r-7

9

Ma

r-8

1

Ma

r-8

3

Ma

r-8

5

Ma

r-8

7

Ma

r-8

9

Ma

r-9

1

Ma

r-9

3

Ma

r-9

5

Ma

r-9

7

Ma

r-9

9

Ma

r-0

1

Ma

r-0

3

Ma

r-0

5

% A

nn

ua

l C

ha

ng

e in

GD

P,

qu

art

erl

y

-60.00%

-40.00%

-20.00%

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

AL

SI A

nn

ua

l R

etu

rn

GDP Growth ALSI

r = -0.02

Chart 1

1) Virtually no direct correlation exists between stock market returns

and the actual year-on-year GDP growth!

2) Most of the positive or negative returns over time happened well

before the economic data reflected a likewise trend; i.e. the stock

market is anticipating companies’ future earnings and is doing that

quite effectively over time.

For example, if we roll the GDP growth data forward, say by 12 months, we

find a much better fit between the two data sets…

3

ALSI Returns and GDP Growth 12mths fwd

1960-2005

-6.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

Ma

r-6

1

Ma

r-6

3

Ma

r-6

5

Ma

r-6

7

Ma

r-6

9

Ma

r-7

1

Ma

r-7

3

Ma

r-7

5

Ma

r-7

7

Ma

r-7

9

Ma

r-8

1

Ma

r-8

3

Ma

r-8

5

Ma

r-8

7

Ma

r-8

9

Ma

r-9

1

Ma

r-9

3

Ma

r-9

5

Ma

r-9

7

Ma

r-9

9

Ma

r-0

1

Ma

r-0

3

% A

nn

ua

l C

ha

ng

e in

GD

P,

qu

art

erl

y

-60.00%

-40.00%

-20.00%

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

AL

SI A

nn

ua

l R

etu

rn

GDP Growth ALSI

r = 0.28

Chart 2

…but still not very much so!

Thus, economic growth data on their own are perhaps not good enough

predictors of future stock market returns, especially since the economic data

are normally available only after the fact!

4

2. Back to Basics: What drives stock market returns?

The three components of stock market returns are: 1) dividend yields, 2)

earnings growth and 3) P/E rating change.

Decomposition of Equity Returns

1960-2005

4.6% 4.4% 3.1% 2.7%

2.9% 2.0%

-1.8%

13.4%12.0%12.8%11.6%

0.6%

14%17%20%17%

-20%

0%

20%

40%

60%

80%

100%

1960-2005 1976-2005 1986-2005 1996-2005

Periods

Perc

en

tag

e C

on

trib

uti

on

0%

5%

10%

15%

20%

25%

To

tal

AL

SI

Retu

rn

Div Yield Earnings Growth PE Rating Change Total Return

Chart 3

When measured in the long term (static period) earnings growth on a nominal

basis has been by far the most important contributor to equity returns,

followed by dividends (chart 3). The P/E rating change is the factor

contributing the least, yet it may have an adverse effect on long-term equity

returns, albeit relatively small as seen over the past decade, an effect the

other two components will not have.

Thus, when investing for the long term the relative expensiveness of the stock

market is not all that important since the performance of the stock market

portfolio will be more or less aligned with the overall economic growth – hence

the popular notion: it is not about market timing, but time in the market!

However, when stock market returns are considered in the short term or over

continuous (rolling) periods it is quite a different story. P/E rating change is the

5

leading actor in this tri-party alliance which will determine whether investors

will experience spectacular, subdued or miserable returns.

For example, note how closely the rolling stock market returns in the graph

below (chart 4) are related to the general direction of the P/E rating of the

stock market.

Decomposition of Equity Returns over rolling 10-year periods

1960-2005

-20.00%

-10.00%

0.00%

10.00%

20.00%

30.00%

40.00%

Jan-7

0

Jan-7

2

Jan-7

4

Jan-7

6

Jan-7

8

Jan-8

0

Jan-8

2

Jan-8

4

Jan-8

6

Jan-8

8

Jan-9

0

Jan-9

2

Jan-9

4

Jan-9

6

Jan-9

8

Jan-0

0

Jan-0

2

Jan-0

4Period

Equity Return Dividend Yield Earnings Growth PE Rating Change

Chart 4

From a practical viewpoint, although we advocate a long-term approach to

equity investing the majority of investors are quite concerned about what is

going to happen to stock markets in the short to medium term. Thus, for many

investors the P/E rating change will be an important determinant of stock

market return expectations.

6

3. The Key Determinants of Stock Market Returns

3.1 Dividend Yield

The level of dividend payments is basically decided by the dividend policy of

companies and the general expectations of what a decent payout ratio should

entail. The graph below shows that historically the payout ratio has been

reduced as companies probably had to brace themselves against the adverse

effects of high inflation in the business environment. Lately (since the

beginning of the new millennium) there has been a surge once again in the

payout ratio as shareholders in general demanded better use of capital, or

that it be distributed to them.

DIVIDEND PAYOUT RATIO

1960-2005

-

0.10

0.20

0.30

0.40

0.50

0.60

0.70

Jan-6

0

Jan-6

3

Jan-6

6

Jan-6

9

Jan-7

2

Jan-7

5

Jan-7

8

Jan-8

1

Jan-8

4

Jan-8

7

Jan-9

0

Jan-9

3

Jan-9

6

Jan-9

9

Jan-0

2

Jan-0

5

Rati

o

Chart 5

All in all, the dividend payout ratio could be considered to be a constant,

varying around 40% to 50% of total earnings.

3.2 Earnings Growth

Earnings growth (the growth in company profits) is relatively closely linked to

the underlying economic growth and business cycle, of which consumer

spending on its own is responsible for 60% to 65% of GDP growth – the most

7

widely used measure of economic growth. An environment conducive to

consumer spending – low interest rates and the wealth effect created by asset

price appreciation (for example, the rapid increase in value of residential

properties) – will present opportunities for businesses to rapidly increase their

sales volumes and/or profit margins.

Real Earnings and GDP Growth

1960-2005

-30.00%

-20.00%

-10.00%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

Mar-

61

Mar-

64

Mar-

67

Mar-

70

Mar-

73

Mar-

76

Mar-

79

Mar-

82

Mar-

85

Mar-

88

Mar-

91

Mar-

94

Mar-

97

Mar-

00

Mar-

03

Real E

arn

ing

s G

row

th

-6.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

GD

P G

row

thGDP Growth Real Earnings Growth

r = 0.45

Chart 6

3.3 P/E Rating Change

A change in the P/E rating of the stock market on the other hand depends on

the outlook for price stability (inflation). In periods of price stability (low

inflation and thus low interest rates) one can expect the price level of the

stock market to be assessed at a higher rating than in periods of high inflation.

In the latter period investors would require a higher risk premium for holding

stocks in general and one would expect the reciprocal of the P/E ratio, the

8

earnings yield, to increase to such levels where it would attract investors to

the stock market; i.e. when earnings yield increases the P/E ratio drops.

This theory is confirmed when studying the historical inverse relationship

between P/E ratios of the stock market and inflation trends (see charts 7 and

8 below).

The Inverse Relationship between P/E Ratios and Inflation

JSE ALSI 1960-2005

0%

5%

10%

15%

20%

25%

19

61

/01/0

1

19

63

/01/0

1

19

65

/01/0

1

19

67

/01/0

1

19

69

/01/0

1

19

71

/01/0

1

19

73

/01/0

1

19

75

/01/0

1

19

77

/01/0

1

19

79

/01/0

1

19

81

/01/0

1

19

83

/01/0

1

19

85

/01/0

1

19

87

/01/0

1

19

89

/01/0

1

19

91

/01/0

1

19

93

/01/0

1

19

95

/01/0

1

19

97

/01/0

1

19

99

/01/0

1

20

01

/01/0

1

20

03

/01/0

1

20

05

/01/0

1

CP

I

-

5.00

10.00

15.00

20.00

25.00

30.00

P/E

Mu

ltip

le

CPI P/E Ratio

r = -0.40

Chart 7

The Inverse Relationship between P/E Ratios and Inflation (CPI)

0%

5%

10%

15%

20%

25%

0 5 10 15 20 25 30

P/E Ratio (ALSI)

CP

I

r = -0.4

Chart 8

9

4. The Inflation Outlook as a Key Economic Variable

The key objective of Central Banks worldwide is to maintain price stability for

sustainable economic growth in the long run. The most common tool they use

to either stimulate or slow down economic growth is to control the cost of

money – the interest rate policy. Thus, interest rates should be directly

correlated with inflation movements, but it has not always been like that…

Inflation and Prime Lending Rates

0

5

10

15

20

25

30

Dec-6

0

Dec-6

2

Dec-6

4

Dec-6

6

Dec-6

8

Dec-7

0

Dec-7

2

Dec-7

4

Dec-7

6

Dec-7

8

Dec-8

0

Dec-8

2

Dec-8

4

Dec-8

6

Dec-8

8

Dec-9

0

Dec-9

2

Dec-9

4

Dec-9

6

Dec-9

8

Dec-0

0

Dec-0

2

Dec-0

4

Perc

en

tag

e

PRIME Overdraft RATE CPI

Chart 9

10

In the 1970s and 1980s loose monetary policies often led to periods when it

actually paid consumers to accumulate debt which led to further spikes in

inflation.

Real Prime Overdraft Rate

-10.00

-5.00

-

5.00

10.00

15.00

20.00

Jan-6

1

Jan-6

3

Jan-6

5

Jan-6

7

Jan-6

9

Jan-7

1

Jan-7

3

Jan-7

5

Jan-7

7

Jan-7

9

Jan-8

1

Jan-8

3

Jan-8

5

Jan-8

7

Jan-8

9

Jan-9

1

Jan-9

3

Jan-9

5

Jan-9

7

Jan-9

9

Jan-0

1

Jan-0

3

Jan-0

5

Real Rate

Chart 10

11

However, since the 1990s the South African Reserve Bank has followed a

monetary policy of real interest rates….

Inflation and Prime Lending Rates

0

5

10

15

20

25

30

Jan-9

0

Jan-9

1

Jan-9

2

Jan-9

3

Jan-9

4

Jan-9

5

Jan-9

6

Jan-9

7

Jan-9

8

Jan-9

9

Jan-0

0

Jan-0

1

Jan-0

2

Jan-0

3

Jan-0

4

Jan-0

5

Jan-0

6

Perc

en

tag

e

PRIME Overdraft RATE CPI

Chart 11

12

Interest rates affect companies’ profit margins and growth potential…

Nominal Earnings Growth and Prime Lending Rates

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

Fe

b-9

0

Fe

b-9

1

Fe

b-9

2

Fe

b-9

3

Fe

b-9

4

Fe

b-9

5

Fe

b-9

6

Fe

b-9

7

Fe

b-9

8

Fe

b-9

9

Fe

b-0

0

Fe

b-0

1

Fe

b-0

2

Fe

b-0

3

Fe

b-0

4

Fe

b-0

5

No

min

al

Ea

rnin

gs

Gro

wth

0

5

10

15

20

25

30

Pri

me

Ov

erd

raft

Ra

te

Nominal Earnings Growth Prime Overdraft Rate

Chart 12

13

And whether real earnings growth (above inflation) will be achieved…

Real Earnings Growth

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

Ja

n-9

0

Ja

n-9

1

Ja

n-9

2

Ja

n-9

3

Ja

n-9

4

Ja

n-9

5

Ja

n-9

6

Ja

n-9

7

Ja

n-9

8

Ja

n-9

9

Ja

n-0

0

Ja

n-0

1

Ja

n-0

2

Ja

n-0

3

Ja

n-0

4

Ja

n-0

5

Real

Earn

ing

s G

row

th

-

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

20.00

Re

al

Pri

me

Ov

erd

raft

Ra

te

Real Earnings Growth Real Prime Overdraft Rate

Chart 13

14

And the business cycle in general…

GDP Growth and Interest Rates

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

Mar-

86

Mar-

87

Mar-

88

Mar-

89

Mar-

90

Mar-

91

Mar-

92

Mar-

93

Mar-

94

Mar-

95

Mar-

96

Mar-

97

Mar-

98

Mar-

99

Mar-

00

Mar-

01

Mar-

02

Mar-

03

Mar-

04

Mar-

05

An

nu

ali

sed

GD

P G

row

th

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

Perc

en

tag

e

GDP Growth Prime Overdraft Rate

Chart 14

Inflation and the resulting interest rate environment directly influence

companies’ abilities to grow profits; i.e. a higher inflation environment typically

means shrinking profit growth opportunities and vice versa. Hence, in a high

inflation environment investors will become less bullish about the future

earnings prospects of businesses and attach a lower P/E multiple to stocks in

general.

15

5. The Equity Risk Premium

The bond market typically discounts an expected higher inflation rate

environment with rising yields. Since bonds and equities are competing asset

classes, the yield from equities (typically defined as the earnings yield) must

compensate for higher bond yields. Since the earnings yield is the reciprocal

of the P/E ratio, a higher earnings yield implies a de-rating of the P/E ratio of

equities.

When the earnings yield of equities is compared with the yield of long-term

bonds (10-year duration) a useful comparison of the relative expensiveness of

the different asset classes can be made (chart 15).

Yield Spread Equities vs Bonds

Since 1990

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

31/0

1/9

0

31/1

0/9

0

31/0

7/9

1

30/0

4/9

2

31/0

1/9

3

31/1

0/9

3

31/0

7/9

4

30/0

4/9

5

31/0

1/9

6

31/1

0/9

6

31/0

7/9

7

30/0

4/9

8

31/0

1/9

9

31/1

0/9

9

31/0

7/0

0

30/0

4/0

1

31/0

1/0

2

31/1

0/0

2

31/0

7/0

3

30/0

4/0

4

31/0

1/0

5

31/1

0/0

5

31/7

/2006

Date

Yie

ld S

pre

ad

(B

on

ds -

Earn

ing

s Y

ield

)

Equities over-valued

Equities under-valued

Chart 15

16

For the greater part of the 1990s equities were assessed at a considerable

premium to bonds with the yield difference (bond yield less earnings yield)

above 6% during those years. Since the beginning of the new millennium the

market sentiment towards bond investments and equities changed

considerably; not only were equities caught up initially in a prolonged bear

market, but the bond market also became more favourable as investors

realised that the economy was moving towards a structurally lower inflation

environment.

Despite the strong performances of the equity market over the past three

years it seems that as an asset class equities are not yet priced excessively

relative to long-term bond yields; in fact, on a historical basis it is still in an

under-valued territory relative to bonds.

17

6. Risk Premium and Relative Returns

What are the implications of such an equity and bond yield comparison for

relative return expectations; i.e. say equities are cheaply priced relative to

bonds what does the historical evidence suggest for such relationships?

Historically, we find a strong inverse relationship between the yield spread

(bond yield less earnings yield) and the relative performance of equities

versus bonds over different investment holding periods1…

Yield Spread and Subsquent Returns

One-year holding period

R2 = 0.2213

-80.0%

-60.0%

-40.0%

-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

-4.00% -2.00% 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00%

Yield Spread (Bond Yield - Earnings Yield)

Retu

rn D

iffe

rential (E

quity -B

onds)

Chart 16

1 The analysis covers the period January 1990 to October 2006 and measures the

subsequent returns achieved over a one-year, three-year and five-year period.

18

Yield Spread and Subsquent Returns

Three-year holding period

R2 = 0.4407

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

-4.00% -2.00% 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00%

Yield Spread (Bond Yield - Earnings Yield)

Retu

rn D

iffe

ren

tial

(Eq

uit

y -

Bo

nd

s)

Chart 17

Yield Spread and Subsequent Returns

Five-year holding period

R2 = 0.6809

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00%

Yield Spread (Bond Yield - Earnings Yield)

Retu

rn D

iffe

ren

tial

(Eq

uit

y -

Bo

nd

s)

Chart 18

19

For example, if an investor invested in the equity market at a specific time

when the yield spread (bond yield less earnings yield) was more than 7%, it is

very likely that the investment would subsequently have underperformed

relative to a bond portfolio over a three-or five-year holding period.

Simply, it means that when investing in the equity market when it is

expensively priced against bonds, the subsequent returns from that equity

investment are most likely to disappoint relative to bond returns a few years

later. Therefore, this yield spread relationship can act as an important

indicator of future return expectations on a relative basis.

7. Return Expectations

While the equity market seems to be fairly to cheaply priced relative to bonds

(chart 15), can one thus expect the equity market to outperform bonds and in

general do well in the medium term (say five years)?

First, if one considers bond yields there is always an outside chance that the

bond market could underestimate future inflation trends. Therefore, the

current long-term bond yields may be too low in a scenario of structurally

higher inflation than we currently have and therefore will rise, and importantly,

will also imply that the relative valuation of equities at current levels might not

be that cheap any more if no re-assessment of P/E ratings takes place.

Historically, we find that long-term bond yields are fairly correlated with the

inflation rate, but that short-term interest rates have a better relationship with

inflation trends (charts 19 and 20).

2

0

Bo

nd

Yie

lds

an

d In

flatio

n

-

5.0

0

10.0

0

15.0

0

20.0

0

25.0

0

Jan-90

Jan-91

Jan-92

Jan-93

Jan-94

Jan-95

Jan-96

Jan-97

Jan-98

Jan-99

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Percentage

CP

I10year S

A B

ond

r = 0

.64

Ch

art 1

9

Sh

ort-te

rm In

tere

st R

ate

s a

nd

Infla

tion

-

5.0

0

10.0

0

15.0

0

20.0

0

25.0

0

Jan-90

Jan-91

Jan-92

Jan-93

Jan-94

Jan-95

Jan-96

Jan-97

Jan-98

Jan-99

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Percentage

CP

I3m

NC

D R

ate

s

r = 0

.71

Ch

art 2

0

21

The current inverted yield curve depicts in effect a scenario of rising inflation

(and interest rates) over the short term, while it is expected that inflation will

revert to benign levels in the medium to long term (chart 21). At the same time

such a yield curve normally predicts a slowdown (or even a recession) in

economic activity with the impact of higher interest rates filtering through the

economy. Such a slowdown is normal as part of the business cycle, but as a

basic scenario no economic recession is foreseen.

Yield Curve (BEASSA)

6.00

6.20

6.40

6.60

6.80

7.00

7.20

7.40

7.60

7.80

8.00

8.20

8.40

8.60

8.80

9.00

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Term Structure (years to duration)

Yie

ld

17-Nov-06 3 mnths ago 6 mnths ago One year ago

Chart 21

If the yield curve correctly predicts future inflation one can safely assume that

equities will comprehensively outperform bonds (with a maturity yield of

around 8%) in the next five years. This assessment is supported by the equity

return matrix in table 1 (page 22). Assuming the P/E ratio remains at a

multiple of 15 to 16, the only real question is what to expect from earnings

growth. While the stock market’s earnings growth is currently in the high

thirties one can expect some reversion as the effect of rising interest rates

22

adversely affect earnings growth in the short term. On average over the next

five years, say 15% earnings growth. Following the matrix in table 1, returns

of anything between 18% and 25% per annum are possible.

While the capital market (bond market) can generally be considered as an

intelligent market and an effective predictor of future trends one should bear in

mind that pricing errors are possible as the economic landscape which

governs investors’ outlook can dramatically change from time to time.

For example, a tighter global economic environment with much less liquidity

than we currently have may significantly increase the cost of capital in

emerging markets. Furthermore, a significant and prolonged slump in

commodity prices (not expected at this stage) might turn market sentiment on

our local bourse. In such scenarios P/E ratings might drop down to say 14

with earnings growth averaging at say 10%. Table 1 is then forecasting a

mere return of around 5% per annum only, hardly a real return, but on the

other hand longer-term bonds might do even worse. If bond yields have to

rise by 1% to 2% from its current levels a drop of 10% in the capital value of

long-term bonds may materialise with a net result of basically no return from

bond investments in the medium term.

Obviously, numerous scenarios are possible – even where the P/E rating of

the stock market drops to 10 to 12 multiples with significant negative returns,

but nonetheless it seems the risks are to the upside that equities will

outperform bonds over the next five years.

In any event, recent history has shown that whenever equities were fairly

priced (earnings yield) against bond yields, the subsequent returns from

equities have outperformed bonds. It seems to me history may repeat itself –

I have no reason to believe otherwise, hence I will prefer equities to bond

investments.

23

Table 1: The Equity Return Matrix

Price/Earnings Multiple

Earnings Growth 8 9 10 11 12 13 14 15 16 17 18 19 20

-10% -49.6% -43.6% -37.6% -31.6% -25.6% -19.6% -13.6% -7.6% -1.6% 4.4% 10.4% 16.4% 22.4%

-5% -46.8% -40.5% -34.1% -27.8% -21.5% -15.1% -8.8% -2.5% 3.9% 10.2% 16.5% 22.9% 29.2%

0% -44.0% -37.3% -30.7% -24.0% -17.3% -10.7% -4.0% 2.7% 9.3% 16.0% 22.7% 29.3% 36.0%

5% -41.2% -34.2% -27.2% -20.2% -13.2% -6.2% 0.8% 7.8% 14.8% 21.8% 28.8% 35.8% 42.8%

10% -38.4% -31.1% -23.7% -16.4% -9.1% -1.7% 5.6% 12.9% 20.3% 27.6% 34.9% 42.3% 49.6%

15% -35.6% -27.9% -20.3% -12.6% -4.9% 2.7% 10.4% 18.1% 25.7% 33.4% 41.1% 48.7% 56.4%

20% -32.8% -24.8% -16.8% -8.8% -0.8% 7.2% 15.2% 23.2% 31.2% 39.2% 47.2% 55.2% 63.2%

25% -30.0% -21.7% -13.3% -5.0% 3.3% 11.7% 20.0% 28.3% 36.7% 45.0% 53.3% 61.7% 70.0%

30% -27.2% -18.5% -9.9% -1.2% 7.5% 16.1% 24.8% 33.5% 42.1% 50.8% 59.5% 68.1% 76.8%

Assumption: Dividend cover = 2.5

Disclaimer:

Please note that all the material, opinions and views herein do not constitute

investment advice, but are published primarily for information purposes. The

author accepts no responsibility for investors using the information as

investment advice. Please consult an authorised investment advisor.

Unless otherwise stated, the author is the sole proprietor of this publication

and its content. No quotations or references thereto are allowed without prior

approval.

DRW

INVESTMENT RESEARCH