Gavekal Capital: Valuations Mattered Last Week In North America

Monday, May 12, 2014

Valuations Mattered Last Week In North America

Everyday we decompose the performance of all stocks, sectors and regions within the MSCI World index to understand what fundamental forces are driving price changes. We divided every aggregate into deciles to rank order and calculate the relationship with each fundamental variable. We then calculate the coefficient of determination (R^2) to understand how much each, single variable explained changes in equity prices.

Last week, in North America, the strongest relationship was with price-to-book value. About 87% of the performance last week of the MSCI North America index can be explained by price-to-book value. The lowest P/BV decile was up .1% on average, while the heighest P?BV decile was down 1.9% on average.

Below are the biggest losers from last week in North America, led by Whole Foods.

Below are the stocks in the MSCI North America index with highest book value. Should last week's factor performance trend continue into this week, these companies would be at the most risk.

About Gavekal Capital

Gavekal Capital is a US registered investment advisory firm that manages the Gavekal Knowledge Leaders Strategy. Knowledge Leaders are a group of the world’s leading innovators with deep reservoirs of intangible capital. These companies often possess competitive advantages such as strong brand, proprietary knowledge or a unique distribution mechanism. Knowledge Leaders are largely service-based and advanced manufacturing businesses, often operating globally. Gavekal Capital seeks to identify the world’s leading knowledge companies through a proprietary process that analyzes corporate knowledge investments.
We offer the Gavekal Knowledge Leaders Strategy in multiple products for global investors. For more information about our product offerings please visit http://www.gavekalcapital.com.
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Disclosure

The information presented here is for informational purposes only, and this document is not to be construed as an offer to sell, or the solicitation of an offer to buy, securities. Some investments are not suitable for all investors, and there can be no assurance that any investment strategy will be successful. An investor cannot invest directly in an index. Hyperlinks may be included in this message that provide direct access to other internet resources, including web sites. While we believe these links are to reliable sources, Gavekal has no control over the accuracy or content of information contained on these sites. Although we make every effort to ensure such links are accurate, up to date and relevant, we have no control over pages maintained by external providers. The views expressed by these external providers on their own web pages or on external sites they link to are not necessarily those of Gavekal.
The information listed on this blog is for example purposes only and should not be construed as the investment Advisor's opinion or investment outlook. As of the most recent quarter end, the named companies may have been held by the investment Advisor. Please review the most recent disclosures. For full information including additional policies and full disclosures on the Advisor, please visit our website gavekalcapital.com.