Equities in developed markets increasingly viewed as undervalued

Aug 14th, 2012 | By | Category: Equities

Equities in developed markets are increasingly viewed as undervalued by UK-based investment professionals, the CFA UK Valuation Index has revealed.

Equities in developed markets increasingly viewed as undervalued

Equities in developed markets are increasingly viewed as undervalued, the CFA UK Valuation Index has revealed.

The most recent publication of the CFA Society of the UK’s quarterly survey shows that 50% of respondents rated this asset class as either undervalued or very undervalued, relative to fair value over one year, compared to 39% in Q2.

Emerging market equities are also regarded as increasingly attractive with 48% of respondents now highlighting undervaluation compared to 43% in Q2.

Government and corporate bonds continue to be seen as overvalued. 46% of respondents stated that government bonds were now very overvalued relative to fair value compared to 38% who held that view six months ago, while 51% of respondents see corporate bonds as either somewhat overvalued or very overvalued, up from 34% six months ago.

FEATURED PRODUCT
PowerShares FTSE RAFI Developed 1000 ETF (PSRD)

– Tracks the FTSE RAFI Developed 1000 Index,
comprising approx 1000 developed market companies

– Constituents are weighted based on fundamental
valuation factors, rather than market cap. Factors
include book value, income, sales and dividends

– Offers elements of an active management
strategy with the benefits of passive management

– Avoids over-exposure to overvalued stocks,
while increasing exposure to undervalued stocks

– UCITS compliant, London-listed, UK Fund Reporting
Status, eligible for ISAs and SIPPS, TER 0.50%

The view that gold was also overvalued appears to be moderating, albeit slightly. 49% of respondents viewed the asset as overvalued but this was down from 61% in the previous index while 30% stated that it represented fair value.

Will Goodhart, chief executive of CFA UK, said: “Although equity indices are at slightly lower levels than the time of our April survey, they are still higher than those in January. Despite this, a greater proportion of our respondents now rate equities as undervalued over one year than they did in January.

“With no obvious improvement in the wider economic background, this shift is likely to reflect a re-pricing of fair value for equities, driven by the continued decline in bond yields. As prospective returns from fixed income continue to fall, the relative attractions of equities, regardless of market, appear to have increased.”

For investors looking to capitalise on this potential opportunity, the following London-listed ETFs provide an efficient way to gain broad market exposure to global developed markets:

PowerShares FTSE RAFI Developed 1000 ETF (PSRD) TER 0.50%

The PowerShares FTSE RAFI Developed 1000 ETF is based on the FTSE RAFI Developed 1000 Index. The index is designed to track the performance of the largest global developed market equities, selected based on the following four fundamental measures of firm size: book value, income, sales and dividends. The equities with the highest fundamental strength are weighted by their fundamental scores. The fund is rebalanced and reconstituted annually. The index includes constituents from Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Israel, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, United Kingdom, Hong Kong, Japan, South Korea, Singapore, Australia, New Zealand, Canada and USA.

The following seven funds track the MSCI World Index, the most-widely tracked global developed market equities benchmark. The index is market-capitalisation weighted and measures the performance of the largest companies in Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Israel, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, United Kingdom, Hong Kong, Japan, Singapore, Australia, New Zealand, Canada and USA.

HSBC MSCI World ETF (HMWD) TER 0.35%

Amundi ETF MSCI World (CW8U) TER 0.38%

CS ETF MSCI World (CWD1) TER 0.40%

UBS ETF MSCI World (UC10) TER 0.45%

Lyxor ETF MSCI World (LWOR) TER 0.45%

MSCI World Source ETF (MXWO) TER 0.45%

iShares MSCI World ETF (IWRD) TER 0.50%

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