Many markets are expensive – but there is still value to be had
The wild optimism surrounding US tech stocks may be looking suspiciously bubble-like, but you can still find long-term value.
If you had put $100 into big US growth stocks on 31 December, 2019, you would now have $111. Shares in these companies are currently trading not so much as though Covid-19 doesn’t exist, but as though its existence has been a positive for their businesses (which you can argue – they’re mostly tech stocks) and as though they were not already overpriced in December (harder to argue). Look at the speed and scale of the recovery of many of these stocks since March – and they are the ones most discussed in the media – and you will have only one thought: “There’s a bubble out there.”
There is still value to be had
But do not for a second think that just because US tech stocks are suffering from a gloriously exuberant bout of optimism bias, there is no long-term value in markets as a whole. There is. In both Europe and the US, says Verdad’s Brian Chingono, cheap stocks are genuinely cheap. Take the cheapest 20% in the market (the “deep value” stocks) and you will see they trade at significant discounts to their long-term averages – in Europe the discount to the 20-year average is 13%, in the US, it is 17% (although European stocks are cheaper in absolute terms).
Look to the UK (now moving out of lockdown fast) as well. Here, even with the many Covid cancellations taken into account, dividend yields are high and valuations perfectly reasonable.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Two cheap investment trusts
If you like the idea of cheap (trust me, you do), and you want to find a way to hold some of the market’s most interesting assets at a discount to their net asset value (NAV) you should also listen to our latest podcast with Nick Greenwood of Premier Miton. Greenwood runs a fund of investment trusts, chosen in large part for their price (he looks to buy at a “significant discount to their intrinsic value”). We talk about many of the ones he is interested in at the moment on the podcast but one of particular interest might be Artemis Alpha (LSE: ATS), a trust with a history of making unsuccessful private investments and underperforming as a result. Two years ago it relaunched with new managers. The unlisted holdings have been significantly cut (to below 10%) and matters are much improved. However you can still buy the revamped portfolio at a 19% discount.
I’m also interested in Henderson Opportunities (LSE: HOT) – run by James Henderson and Laura Foll who also run Law Debenture (one of the trusts in the MoneyWeek model portfolio). This trust is more focused on small caps than the latter and if you have any faith in the stock picking abilities and value bias of the fund managers (which we do) the shares should be pretty interesting on a discount of 20% to their NAV. If investment trusts on discounts are your thing (they probably should be) Max King looks at the private equity sector in this week's magazine.
Finally a reminder that where and whenever you invest you should do so with at least some thought (see John’s Money Morning newsletter from 24 June) – we look this week at the shocking story of what can happen when you don’t. I really hope none of you went into last week holding Wirecard.
Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).
After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times
Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast - but still writes for Moneyweek monthly.
Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.
-
Hargreaves Lansdown bumps up cash ISA with £25 cashback - does it beat the wider ISA market?
Just days before the end of the tax year, Hargreaves Lansdown has launched a £25 bonus for those who open a cash ISA on its savings platform. Does the bonus make it a competitive rate, and are you eligible for the cashback?
By Vaishali Varu Published
-
FCA targets finfluencers with new social media guidance
So-called finfluencers have been warned by the UK financial watchdog that they could face prosecution if they fail to follow new rules.
By Henry Sandercock Published
-
What to consider before investing in small-cap indexes
Small-cap index trackers show why your choice of benchmark can make a large difference to long-term returns
By Cris Sholto Heaton Published
-
Why space investments are the way to go for investors
Space investments will change our world beyond recognition, UK investors should take note
By Merryn Somerset Webb Published
-
Time to tap into Africa’s mobile money boom
Favourable demographics have put Africa on the path to growth when it comes to mobile money and digital banking
By Rupert Hargreaves Published
-
M&S is back in fashion: but how long can this success last?
M&S has exceeded expectations in the past few years, but can it keep up the momentum?
By Rupert Hargreaves Published
-
The end of China’s boom
Like the US, China too got fat on fake money. Now, China's doom is not far away.
By Bill Bonner Published
-
Magic mushrooms — an investment boom or doom?
Investing in these promising medical developments might see you embark on the trip of a lifetime.
By Bruce Packard Published
-
What pension providers don't tell you about your retirement money
Check the small print from your pension provider or risk losing thousands.
By Merryn Somerset Webb Published
-
Should you invest in sector funds?
Sector funds can be a useful way to fine-tune a portfolio or track a theme, but check what the index holds.
By Cris Sholto Heaton Published