Our Insights

About personal finance, investments and markets.
July 4, 2014

Where can we find buying opportunities today?

A reader of our market comments has remarked that our most recent articles have highlighted all the asset classes that are expensive now. However, he was more interested to know if there are any attractive buying opportunities left.

We can still find systematic mispricings in this market and we are going to provide one example here. If you would like to know how to structure an entire portfolio that matches your long-term financial goals, please do not hesitate to contact us.

The hunt for yield has made high-dividend paying stocks in developed markets outperform strongly in the last few years. Today, high-dividend paying stocks in the US and in Europe look pretty expensive to us. However, the developed world’s yield chase has passed the emerging world by. High-dividend paying stocks in emerging markets look attractive to us. Both on an absolute and a relative basis. In addition, dividend income might just provide investors with the much needed insurance that is associated with volatile emerging markets

MSCI EM High Div Index EXCEL Tabelle - May

The above table shows that the MSCI Emerging Markets High Dividend Yield Index has many attractive attributes:

  • Best valuation today on different metrics (1y fwd PE and trailing PB)
  • Highest dividend yield
  • Best 10y annualised performance

MSCI EM High Div Index - Mai

Cautious investors will be happy to learn that the MSCI Emerging Markets High Dividend Yield Index has shown a much smaller draw-down during the last financial crisis. In 2008, the MSCI Emerging Markets High Dividend Yield Index dropped 11% points less than the MSCI Emerging Markets Index. What is most surprising to us is that there seems to be a systematic mispricing that holds up over time. Normally investors need to accept higher volatility if they target higher returns. However, over the last 10 years, the MSCI Emerging Markets High Dividend Yield Index has shown a lower volatility (measured as standard deviation) and a higher return than the MSCI Emerging Markets Index!

This suggests that buying dividend yieldig stocks in EM could be a good way to search for value opporunities today.

We hope that this example gives you a good insight into our investment process. If you would like to know how we can help you to translate your financial goals into a coherent investment strategy, please contact us at info@ipanema-capital.com

Please read our Terms of Use.