Any under/fairly valued asset classes out there ?

[Delawaredave]

I'm reducing by 5% my stock percentage - part of it rebalancing, part of it nervous market is overvalued, particularly US.

Problem is: what asset class is not overvalued ?

Commodities and REITs seem "frothy". International stocks, same. Don't want to get into any rental properties.

Global bond funds ?

I don't want to be too conservative, and I don't want to over-react, just seems like "everything's at its peak".

Usually there's some "out of favor" asset class that's sufficiently defensive and worth adding to.

Appreciate any thoughts !

[Nords]

Quote:

Originally Posted by Delawaredave Problem is: what asset class is not overvalued ? Commodities and REITs seem "frothy". International stocks, same. Don't want to get into any rental properties. Usually there's some "out of favor" asset class that's sufficiently defensive and worth adding to.

No kidding. This is supposed to be where we pile on and short all the overvalued stocks, but it's just too scary to buck the trend. And where are all the deep-value gold bugs & commodities fans?

You could try PowerShares' International Dividends ETF (PID). Its stocks are drawn from Mergent's International Dividend Achievers, which are not necessarily undervalued but which can trade at lower P/E values than the S&P500. Dividends may be a better way to invest in international stocks that have less disclosure than Sarbanes/Oxley. We're "only" up about 5% on this one since May (plus another 1-2% for the dividends).

I've been watching Wisdomtree's International Small-cap Dividend fund (DLS) with the same disclosure logic. I haven't decided what to do about it yet but it's at the top of the watch list.

Berkshire Hathaway "A" shares broke $100K this week but the company is still considered to be trading to a discount from intrinsic value. Consensus seems to be another 20-30% higher. They're going to knock the stuffing off their quarterly report next Friday night with record insurance premiums, so don't wait too long.

Finally, the Dogs of the DOW are getting hammered again. This sector goes in & out of style so if you buy them at an annual low you may be able to hold on a year or two for some cap gains with plenty of dividends.

I haven't bothered with commodities, REITs, or bonds. But we're watching our local real estate market and waiting for the bottom.

Contrarian individual stocks? Telcom & tech-- Nortel and Sun Microsystems. Prepare to have your heart broken...

[Patrick]

Saw Ben Stein this morning recommending Delphi.

[lazyday]

I've read the opinion that this is a strange time, in that no major asset classes are undervalued.

Perhaps this is in reaction to the excesses of the late 1990's.

Some people think that the compression of P/E's across the U.S. market have led to some high quality large companies being relatively cheap.
You could pick stocks from GMO's quality fund, or buy megacap BRLIX.

Or find something that is difficult to buy into, such as a very small business that you would be involved in, where you have some advantage in finding or creating value most others couldn't.

Or, slightly increase cash until something becomes cheap.

Sometimes I try to think of seemingly terrible places to invest, to find something cheap. Like countries with corruption and questionable shareholder rights (Russia), or a failing industry (Ford, GM stock). Thought I might buy Ford if stock fell under $5 a share, but now it's over 8.

[dmpi]

Even though we had a good run up for large cap US stocks, I think they are still under valued. We are in the middle of a very impressive earnings season. That's going to keep the lid on P/E. Look at it this way, if profits can go up 14%, why can't stock price do the same? US companies are flush with cash and many of them have stock bayback plans in progress. Also the fed has given us stable US rates (5.25%) and oil prices have dropped.

I think the coming election is nothing more than a distraction. Stocks will rally after it's done no matter who wins.

[d]

Quote:

what asset class is not overvalued ?

this sounds alot like "dirty market timing"! that said, cash and near-cash ... almost always undervalued.

[magellan_nh]

Based on recent 3yr and 5yr returns, large cap growth stocks are the biggest performance laggards lately. Of course, that doesn't speak directly to whether they're under or over valued right now.

Also, pacific rim stocks have enjoyed some recent gains, but their 3 yr and 5 yr returns are a bit on the low side compared to other asset classes.

[Delawaredave]

Found this index comparator on Vanguard (link below). Over last 10 years, gains in US have outpaced substantially versus EAFE, Japan, Europe.

Wonder if US is overvalued versus rest of world or greater returns of US will continue.

http://tinyurl.com/vqatw

[dmpi]

Quote:

Originally Posted by Delawaredave Found this index comparator on Vanguard (link below). Over last 10 years, gains in US have outpaced substantially versus EAFE, Japan, Europe. Wonder if US is overvalued versus rest of world or greater returns of US will continue. http://tinyurl.com/vqatw

You got to consider what Hong Kong has been thru since 1996. In 1997 the 99 year lease has expired and they got restored to being ruled by China. During that period a lot of money flow out of Hong Kong because nobody knew what the Chinese would do. It's no supprise US assests has out performend HK.

Overall... I don't think you can tell if an assets is "overvalued" by looking at a chart.
Look at MSFT stock. It had a run up for 10 straight years. Compare that to any stock during those years & it'll seem overpriced.
When I'm looking for stuff to buy, I consider things like P/E, Fed rates, exchange rates, & overall trends when trying to select equities.

[Surfdaddy]

Well, since the markets are efficient, by definition nothing is under or over valued

Of course, that doesn't mean that next month or next year the *proper* valuations won't change!

As an earlier poster indicated, this sounds like market timing. If you read Bernstein's book, you'd see that the ability to predict valuations (and thereby market time) is exceptionally difficult. Few people can do it reliably for any length of time. The transaction costs and capital gains costs eat against your long term returns.

I'd suggest you determine the right asset allocation for your situation and stick to it. The only market timing I do is rebalancing . That's a systematic approach that has been shown to be the most reliable way.

If you're really worried about stocks being overvalued then perhaps your allocation is too high...

[Delawaredave]

Quote:

Originally Posted by Surfdaddy As an earlier poster indicated, this sounds like market timing.

I don't believe that market timing works. And I do also believe in that "efficient market" mumbo jumbo.

But I do believe markets occasionally get an optimism that a conservative, defensive, value investor like me cannot stomach. I believe we're in one of those "optimisms" now.

So I'll justify my change as "rebalancing to a revised target" (as opposed to "market timing").

If I did the "tiny URL" stuff right -below is a link to S&P world valuations.

http://tinyurl.com/uaece

US with PE of 19 is "frothy" - especially as earnings are peaking. World PE's are 15, ex US - that's a 20+% delta. Maybe that's historically typical.

[wabmester]

Quote:

Originally Posted by Delawaredave US with PE of 19 is "frothy"

Hasn't the P/E been in that range (or higher) for about 12 years now?

[heyyou]

Nords- Thanks for the investing tip of the dividends as a screen for international stocks with unknown accounting standards.

[bosco]

Quote:

Originally Posted by Delawaredave I'm reducing by 5% my stock percentage - part of it rebalancing, part of it nervous market is overvalued, particularly US.

like the "official" dogma of this board, I NEVER practice dirty market timing....I just rebalance

[greg]

Delawaredave:

Heck, I like gold . I still think 5%-10% is a good insurance policy for the rest of your portfolio. To my mind it protects you from the extremes of depression or inflation. Of course, one hopes neither occurs, but . . . .

I agree with Nords except for a small matter of degree and choices. How about creating a new asset class (if it doesn't conflict with your current methodology): infrastructure stocks that pay decent dividends. I especially like the foreign ones, and there are a decent number of them. I currently own APF-UN.TO, an alternative energy trust that owns dams, windmills, water utilities, co-generation facilities, etc. If energy goes up, they get to charge more, sort of covering at least a portion of oil and gas inflation, one hopes. They pay a decent dividend. I like the foreign infra-structure stocks because they have a tendency to pay bigger dividends then say US electric utility stocks.

Another US example, gas and oil pipeline stocks such as EEP or EEQ (if you don't like taxes). ?

[MooreBonds]

Quote:

Originally Posted by disEntropy Greg I agree with Nords except for a small matter of degree and choices. How about creating a new asset class (if it doesn't conflict with your current methodology): infrastructure stocks that pay decent dividends. I especially like the foreign ones, and there are a decent number of them. I currently own APF-UN.TO, an alternative energy trust that owns dams, windmills, water utilities, co-generation facilities, etc. If energy goes up, they get to charge more, sort of covering at least a portion of oil and gas inflation, one hopes. They pay a decent dividend. I like the foreign infra-structure stocks because they have a tendency to pay bigger dividends then say US electric utility stocks. Another US example, gas and oil pipeline stocks such as EEP or EEQ (if you don't like taxes). ?

_________________________________________________

Hey Greg - I like your thought process on the infrastructure stocks. Have any names for foreign ones (other than APF)?

[brewer12345]

Quote:

Originally Posted by MooreBonds _________________________________________________ Hey Greg - I like your thought process on the infrastructure stocks. Have any names for foreign ones (other than APF)?

Macquarie - MIC, although it has plenty of US infrastructure, too.

[greg]

MooreBonds: I just started examining these. I like a couple of those Macquarie funds:

MFD MacQuarie, a CEF

Canadian stuff:

Northland Power Income Fund
UE Waterheater Income Fund (UWH-UN.TO)
The Consumer's Waterheater Income Fund (CWI-UN.TO)

Australia:

Hastings Diversified Utilities Fund
Babock & Brown Infrastructure Group
Envestra

UK:

AWG plc
United Utilities
Severn Trent plc

Be careful! (my cover my a** statement)

[brewer12345]

Quote:

Originally Posted by disEntropy Greg MooreBonds: I just started examining these. I like a couple of those Macquarie funds: MFD MacQuarie, a CEF Canadian stuff: Northland Power Income Fund UE Waterheater Income Fund (UWH-UN.TO) The Consumer's Waterheater Income Fund (CWI-UN.TO) Australia: Hastings Diversified Utilities Fund Babock & Brown Infrastructure Group Envestra UK: AWG plc United Utilities Severn Trent plc Be careful! (my cover my a** statement)

How hard is it to trade these things? Can your average internet broker do it without skinning you alive?

[MooreBonds]

Quote:

Originally Posted by disEntropy Greg MooreBonds: I just started examining these. I like a couple of those Macquarie funds: MFD MacQuarie, a CEF Canadian stuff: Northland Power Income Fund UE Waterheater Income Fund (UWH-UN.TO) The Consumer's Waterheater Income Fund (CWI-UN.TO) Australia: Hastings Diversified Utilities Fund Babock & Brown Infrastructure Group Envestra UK: AWG plc United Utilities Severn Trent plc Be careful! (my cover my a** statement)

Thanks Greg, Brewer, et. al. for the recommendations (and feel free to keep any others, be it value, yield, etc., coming ).

One comment on MFD..I went to etfconnect.com, and here's what they show for the fund's expenses:

MFD Common Shares
Management Fees 1.79%
Other Expenses 1.80%
Total 3.59%

Yikes! Since they are an unleveraged fund, and taking into accoun the fund's NAV, the average position would have to return a whopping 8.39% for them to maintain a .33/share quarterly dividend! Are you worried about them being able to continue their income stream? Or is the 1.80% "other" somewhat misleading?