Wednesday, December 30, 2020

Long-Term Industry Returns

Inspired by the recent Ash Park on Tobacco and Transformation whitepaper, which came to my attention via @JonFell73 on twitter, I decided to take their analysis that global staple stocks have never lost money in any rolling 5 year period (since 1977) and extend the analysis further back in time.

I downloaded the Ken French 12 Industry Portfolio data (monthly), and ran out the analysis since 1926 (first rolling 5y begins in 1931).  Since I was there, I decided to run out some additional industries as well, both on a market value basis and an equal weight basis.  Here are the charts.  Enjoy!


Consumer Nondurables (Staples)



Durable Consumer (Discretionary)



Manufacturing (Industrials)



Energy



Business Equipment (Technology)



Utilities



Healthcare



Finance




Harvest Investor © 2020. All rights reserved. The content and ideas contained in this blog represents only the opinions of the author. The content in no way constitutes investment advices, and should never be relied on in making an investment decision, ever. No content shall be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. The author may hold positions in the securities and companies mentioned on this site. Any position disclosed on this site may be modified or reversed without notice to you. The content herein is intended solely for the entertainment of the reader, and the author.

Thursday, June 25, 2020

Eastern Bankshares (EBC)

Eastern Bankshares filed an IPO registration on June 18. Here are a few of my notes from reading the S-1.

Eastern is a mutual holding company (never did a first step conversion) that is converting to a full stock form organization. They are targeting an issuance of 175 million shares at $10, for an IPO of $1.75B (can be up or downsized). Will list on the NASDAQ under ticker EBC. Upon completion of the offering, 4% of shares will be donated to the bank's charitable foundation. The plan is to use the IPO proceeds to expand the bank through both organic growth and bolt-on acquisition opportunities.

Eastern is a full service community bank headquartered in Boston. They have over 200 years of history since founding in 1818. They currently have 89 branches throughout eastern Massachusetts and southeast New Hampshire. They have 2.4% ($8.7B) deposit share in Boston, which they say is the greatest market share for any full service bank headquartered in the Boston area (which is a fancy way of saying they're actually #6 in Suffolk county).

Eastern Insurance is a subsidiary that is an independent agent in the Property & Casualty and Life & Health segments for both retail and commercial clients. There are 22 non-branch insurance offices built through a roll-up of 31 independent agencies over the last 16 years. The insurance business contributes 15-19% of total net income, and helps boost the bank's fee income ratio to near 30%.



Selected Financial Conditions
Eastern is a $12B (will be close to $14B after the IPO) community bank. They run a fairly traditional balance sheet with a diversified loan portfolio (see below) funded by core deposits. Loans/Deposits are 87%. Deposit costs (as of 3/31) were 0.23% vs. 0.84% for peers (peer group chosen by management).

Nonperforming assets to assets have come up slightly in recent quarters to 0.4%, but that's still a very healthy level. The jump in NPA from 2018 to 2019 was attributed to a "loan participation, through our ABL [asset backed lending] portfolio, in a SNC [shared national credit] program portfolio that had a balance of $16.3 million as of 3/31/20."

Expect credit ratios to continue jumping higher in coming quarters with COVID related delinquencies. Management used 1Q to boost ALLL to 1.20% of total loans. I would expect more provisions in coming quarters. 

CET1 has been running in the 12% range in recent years, and will be boosted to 26% with the IPO proceeds.





Loans
  • Commercial & Industrial make up 19% of the total portfolio. They focus on middle-market companies inside of geographic footprint. They do participate in syndications and Shared National Credit Program. SNC was 26% of C&I loans. Asset Based Lending Portfolio (ABL) was 10% of C&I. Portfolio appears diversified across sectors - see below for concentrations.
  • Commercial Real Estate is 39% of total. Diversified portfolio with 19% of CRE in multi-family. Poses a risk due to COVID rent negotiations?
  • Commercial Construction is 3% of total.
  • Business Banking, which focuses on small businesses (under $1 million) is 8.6% of total.
  • Residential real estate is 16%. They seem to be selling half or more of originations to secondary market, and don't retain servicing rights.
  • Home Equity is 10%.
  • Other Consumer is 4.5%. Of this, 60% are auto. They did discontinue an indirect auto loan program in 2018, so expects some of this portfolio to runoff. They did note they do "auto and AIRCRAFT" loans under "other" - curious why they specifically noted aircraft?





Deposits
Pleasantly surprised by the strength of the deposit portfolio. Focus on Demand and MMKT is what gives them the 0.23% average cost. CD's are a minor part, with $156 million of CDs are over $100k.





Rate Sensitivity
Eastern is asset sensitive, with a projected 5.7% increase in NII for a 200bps shock upward.






Income StatementCan see the drivers of the 30% fee income ratio. Insurance as well as a fairly healthy Trust/Investment department (AUM of $2.7B, implying a revenue rate of 0.73%). Salaries seem a little high to me (but that's often the case when I look at stocks). Bank rents all of its properties, so occupancy expense is higher than some peers. I think (but am a little unclear) that the charitable donations line item should go away after IPO due to donating 4% of stock to foundation (which, although is significant dilution, comes with a nice carryforward tax deduction).

Price to earnings ratio on 2019 numbers and issuing max number of shares at $10 would be: 14.5x.



Management
Management is as expected for a metropolitan community bank - lots of non-profit exposure on their lists. None seem to have big M&A backgrounds, but that's not expected for a community bank of this size. They have led Eastern through some bolt-on acquisitions over the past two decades.

Compensation seems high to me, but a lot will be tied to new stock offering going forward, so properly incentivized.

Board of Directors seems weighted toward health care / elder care. That didn't show up in their loan portfolio.

Officer and Director participation in the IPO: they max out at 200k shares. Glad to see a few maxing out their allocation (specifically CEO Rivers), but would have liked a little better uptake. Wish CFO Fitzgerald had maxed out allocation.



Valuation / Outlook
At a $10 price, EBC will IPO at a P/TBV of 0.65. This compares with its hand selected peer group average of 1.05.
However, EBC will be running a capital ratio 23% after IPO. I would love for them to turn around and immediately start buying back shares at 0.6x book, but I don't think that will happen.
I see EBC over time approaching peer group valuation, but the crux will be how well and how quickly they put excess capital to work. Acquisition target banks are cheap right now, so that's a tailwind. 

As of today, I really like EBC and their prospects. A high quality community bank converting at a good time. We will have to watch closely as the IPO approaches and see how the stock responds in early trading.
 



Harvest Investor © 2020. All rights reserved. The content and ideas contained in this blog represents only the opinions of the author. The content in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. No content shall be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. The author may hold positions in the securities and companies mentioned on this site. Any position disclosed on this site may be modified or reversed without notice to you. The content herein is intended solely for the entertainment of the reader, and the author.

Tuesday, June 16, 2020

Thrift Conversions

Thrift conversions are considered by some the ultimate value investment. A mutual bank, which is communally owned by the depositors, decides to convert to stock ownership. When you buy a share in the new institution, there is no selling shareholder and no shareholder dilution. Your capital is added to the existing capital base, all of which you (the new shareholder) now own. It's akin to buying a house, but when you walk into your new home, your purchase cash is lined up neatly on the kitchen counter, ready to be put to work on new home improvement projects.

Conversions have a long and storied history on Wall Street. Seth Klarman in his famous book, Margin of Safety, outlined their attractive economics ("as long as the preconversion thrift has a positive value"). Peter Lynch did likewise in Beating the Street. Yet since you're often dealing with small- and micro-cap names, they remain a cult investment.

I have historically dabbled in this market with some successes and a few not so successes. Finding a good, repeatable, strategy when it comes to Thrifts has, however, alluded me. Strategies that I have seen recommended by other investors include:
  • Buy the whole complex (i.e. buy every new Thrift IPO).
    • Lingering questions: how long do I hold these positions? What causes me to sell? How to I manage portfolio allocations? 
  • Focus on the takeover candidates. 
    • Lingering questions: Do I wait until the IPOs are seasoned for three years (regulatory rules usually prohibit acquisitions for 3 years)? How long do we wait for an acquisition? What key criteria are acquirers looking for? 
  • Follow the activists (Stilwell, Seidman, etc.). 
    • Lingering questions: What are their criteria for ownership? Is coat tailing sustainable, or will I panic at an inopportune time since it's not "my" idea? 
While the answers to most of the above lingering questions is old fashioned, in the trenches, due diligence, I still feel I need some quantitative backing to get my hands around a strategy that better fits my investing personality.

For that reason, I went back and looked at every single mutual bank IPO (as listed on bankinvestor.com) from 2005 to today. I then looked at those banks performance in the first three years after IPO, years 3-5, and an overall performance (IPO to 5yr). I also looked at how many were acquired, how long it took for them to be acquired, and their performance.

A few caveats: this is an "in bulk" analysis - glossing over the vast differences between all of these banks. It also ignores the differences between 1st step conversions (to a Mutual Holding Company structure) and 2nd step conversions (from MHC to stock company). Also, there is some survivorship bias. I wasn't able to get price data on every single bank (the farther bank you go, the worse my data capture became).

For ease of comparison, I grouped them by year - creating Thrift IPO vintages. See the following table.



A few takeaways:
  • From 2005 to the end of May 2020, the S&P 500 total return was 8.4% per year. Thrift IPOs (assuming you held for 5 years and kept rolling your portfolio into new names) returned 6.7% per year [in fairness, this is a price only return - dividends may have added to the performance]. Right off the bat, we're behind just buying an index fund.
  • Thrifts, like most all of the market, are subject to cycles. Buying vintages 2005-2009 (IPO'd into or during the Financial Crisis) did very poorly. Vintages 2010-2014 did very well. 
  • Whether by cause or effect, the 2010-2014 vintages had very high acquisition rates. In a strong economy acquirers were looking for solid deposit bases and growth opportunities. 
  • In recent years (vintages 2014-2016), you would have done better buying new IPOs and holding for three years. Historically, however, that trend reverses, and you would have done (marginally) better buying seasoned banks three years after IPO (opening the acquisition window). 
  • There is some (limited) evidence that buying seasoned banks after a drawdown may have merit. The 2007 & 2008 vintages recovered nicely from the Financial Crisis in years 3-5 of their lives. 
  • 37% of all thrift IPOs are eventually acquired, but the average time from IPO to acquisition was 6.9 years (or 3.9 years from when the acquisition window opened). 
  • If you can identify the acquisition targets (a very big IF), their average return from year 3 to acquisition was 17.5% annually for an average of 3.9 years. 
Bottom line:
  • Understand the banking cycle. There is a delay between when the banking cycle turns up, and outperformance in Thrift IPOs (due to them being acquisition targets). This is evidenced in the vintage 2010-2013 IPOs. They saw their best performance in the calendar years 2013-2016 as acquirers sought them out. Put another way, momentum for the whole community bank complex matters.
  • Valuation and fundamental analysis are important. Buying the whole complex may work in certain instances, but it needs to be paired with attractive valuations and strong fundamentals. You need to understand the bank, its geographic region, and management incentives. 
  • Perhaps the biggest takeaway is that each of the strategies listed above: buy them all, focus on takeover candidates, follow the activists, etc., may each work at different points in the cycle. Be adaptable and disciplined enough to adjust for economic circumstances. Be willing to walk away from the sector when the stars don't align (and conversely, be willing to build positions when they do). 
  • I think there is value in going back and studying each of the banks that have been bought out over the last 15 years - I will add that to my research list. 
If you have any other historical or quantitative evidence on thrift conversions and trading strategies, I would be happy to discuss. Thanks!



Harvest Investor © 2020. All rights reserved. The content and ideas contained in this blog represents only the opinions of the author. The content in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. No content shall be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. The author may hold positions in the securities and companies mentioned on this site. Any position disclosed on this site may be modified or reversed without notice to you. The content herein is intended solely for the entertainment of the reader, and the author.

Wednesday, June 3, 2020

Bayer: Forget about Monsanto

In 2012 (using the year ended 6/30/12 data), Microsoft was trading at 12.5x trailing earnings of $2.00. And this didn't account for the $7.16/share in net cash they had on the balance sheet. Net that out*, and shares were trading at 8.9x earnings.

The concern at that time had to do with the Windows segment. iPhones, Apple in general, and Androids were all chipping away at the once dominant Windows operating system. Would people even be using desktops in the future?

To account for this, I decided to net out the Windows segment from operating earnings - pretend it didn't exist. So I took full year operating income of $21.7B and subtracted off $11.9B to get $9.8B in ex-Windows income. Adjust income taxes (proportionally), and you're left with $7.9B in net income, and EPS of $0.93.

Without Windows, Microsoft was trading at 27x earnings. Adjusted for cash*, the company was trading at 19x earnings, which wasn't bad considering the growth potential of Servers / Cloud. I was very confident that Windows was worth more than $0 to the operating income line, so this analysis gave me the confidence to continue holding my MSFT shares (which I had bought in mid-2009 and was becoming disgusted with by 2012).

While this type of analysis - looking at a company's weak point and leaving it for dead - is just a form of semantics, it helps me get my hands around the fundamentals, and is also a way to make sure it really is an attractive valuation.

Today, I'm seeing a similar situation in Bayer (BAYN.DE, or the ADR in the US BAYRY). Bayer closed on the acquisition of Monsanto in the summer of 2018. Almost immediately, they walked into the glyphosate (Roundup) buzz saw when, in August 2018, a California jury awarded $289 million in a single cancer lawsuit.

To say this has weighed on Bayer's share price is an understatement. Since summer 2018, shares are down -40%. The market cap of the entire company is now 62B euros ($68B), which is roughly what they paid for Monsanto.

So here is my thesis on Bayer: remove the crop science unit (mostly Monsanto) - assume it goes to $0 EBITDA. 2019 EBITDA was 11.5B euros. Crop Science was 4.8B euros, so net (Pharma and Consumer health) EBITDA was 6.7B euros.

Enterprise value is 97.5B euros (61.6B market cap, debt of 39.1B, cash of 3.2B).

This is an EV/EBITDA (netting out the companies larges division - Crop Science) of 14.6x. Compare that to another health care company with three large divisions: Johnson & Johnson (Pharma, Consumer, Medical Devices), which is trading at an EV/EBITDA multiple of 14.0x today (Glaxosmithkline is at 11.6x, while Novartis is at 13x)

Today we can buy legacy Bayer for the same value as Johnson & Johnson, and get Monsanto for free.

While Bayer has been cheap for a while, what really got me interested was the announcement recently that they are in talks to settle 40-70% of the outstanding 125,000 glyphosate lawsuits. I think this is a major step forward for the company.

Also, anecdotally, none of the farmers I talk to are overly concerned about the cancer risk of glyphosate. Most view it as a chemical used to kill living organisms (plants), so of course you need to use precautions. But on the whole they continue to use it as a primary weed control device. Their biggest complaint isn't the cancer risk, but the fact that they've used so much glyphosate over the years that weeds have built up an immunity to it, and they're being forced to use other, more dangerous chemicals (like Paraquat).

Caveats:
  • I don't view Bayer as on par with JNJ. JNJ's Consumer division has better brands that Bayer does. It may not be the best comparable stock.
  • Bayer is a pharmaceutical stock. I've read up on their patents, pipeline, and portfolio. Most seem to think it has good potential, but let's be honest - I have no idea what I'm talking about on the pharma potential. 
  • The company will have major litigation expense going forward. Maybe Monsanto is worth less than $0? That's a risk I'm willing to take. 
Bottomline, I think Bayer is trading at too steep a discount for the quality of their underlying assets and earnings potential. Happy to hear feedback.



*I'm not a big fan of doing net of cash valuations as, in my experience, $1 cash is rarely worth $1 of share price, but I'll break my own rule in this example.



Harvest Investor © 2020. All rights reserved. The content and ideas contained in this blog represents only the opinions of the author. The content in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. No content shall be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. The author may hold positions in the securities and companies mentioned on this site. Any position disclosed on this site may be modified or reversed without notice to you. The content herein is intended solely for the entertainment of the reader, and the author.

Thursday, June 6, 2019

Searching for Bank Acquistion Targets

I was looking at an Idaho based bank the other day, and noticed that there were only 13 FDIC insured institutions in the state.  This led to me thinking about which states have the least number of banks, which led me to thinking about which states have the most banks relative to population, which led to me wondering about banking assets per state versus population. 

All this resulted in the following table.


This table was more informational - to satisfy my own curiosity - but a couple of takeaways when thinking about bank consolidation and investing opportunities:

  1. Areas with a low assets per bank seem poised for M&A.  This is the low hanging fruit of the industry - banks looking to consolidate to remain competitive, afford new technology, and lower overall expenses.  This is the light green area of the above table.
  2. Insides of these areas, the best states would be those with a high asset to population number (these are the slightly darker shade of green).  States with above average customer deposits (assuming that higher assets to population is funded by core deposits) may present a value play for cheap bank funding.
If my logic is correct (always a questionable assumption), then the Midwest is an area to look for more bank mergers.




Harvest Investor © 2019. All rights reserved. The content and ideas contained in this blog represents only the opinions of the author. The content in no way constitutes investment advices, and should never be relied on in making an investment decision, ever. No content shall be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. The author may hold positions in the securities and companies mentioned on this site. Any position disclosed on this site may be modified or reversed without notice to you. The content herein is intended solely for the entertainment of the reader, and the author.

Wednesday, June 29, 2016

Growing population - Growing Farmland Productivity

The idea that world population is steadily growing is often cited as a reason to be long (bullish) agriculture technology / farmland / anything food & protein related. While I may not necessarily disagree with this logic (although, as someone who's seen a number of farm cycles up close and personal, I think some skepticism is warranted), the idea of food scarcity is often treated as self evident - excusing the need to cite hard evidence and facts. This has created a lot of distortion around the issue.

One of the biggest misnomers I see is that farmland productivity is a new issue. As I'll show below, the number of farmable acres per person has been steadily declining since at least 1960 (as far back as worldbank.org data went back). And if you want to go back further, the Reverend Malthus did his writings in 1798 (218 years ago, but who's counting?).

So, here is a quick overview of the world's food/farming situation in 5 quick graphs. All data was sourced from worldbank.org.

1. World population is growing - as it has been for centuries. As of 2015, global population had broken above 7.3 billion. Many analysts estimate there will be 9.5 billion men, women, and children on the planet by 2050, and more than 10.3 billion by 2100. That is a lot of mouths to feed. So where will all that food come from?


2. Arable acres (i.e. land suitable for agricultural production) peaked in 1992, and despite a recent uptick from 2011-2013, has held fairly steady for the past 24 years. It hasn't been more acres farmed feeding all those people . . .


3. As a result of rising population and slow (1960-1992) to flat (1992-2014) growth in worldwide farmable acreage, arable acres per person has been declining. In 1961, there were 1.2 arable acres for each person on this plant. Today, there are just 0.6 arable acres per person.


4. However, yield per acre has been steadily rising. Now this isn't a direct proxy, but looking at yield per acre for cereal grains gives us a good indication in the improvement in farmland productivity. Since 1961, yield per acre has jumped 173%. Acreage has been flat, but rising productivity per acre has kept the masses fed.


5. This all leads to looking at productivity (yield * arable acres) per person. Again, I'm using cereal grain yields as a proxy for the improvements in all of agriculture. What we see is that productivity per person has been rangebound since the early 1980s. In other words, the amount of "product" that an acre of farmland produces per global population member hasn't been declining - it has been in a fairly steady range for 36 years. Not the ominous downtrend (population outpacing productivity) that many would have you believe.


I'm not arguing that all is well in agriculture and we can just sit back and relax. Nor am I addressing some of the uses of ag commodities (i.e. ethanol) that are large beneficiaries of farmland productivity.

What I am saying is that yes, yields will need to be improved, but unless your investment time frame is 30-40 years (many will say yes, few will follow through on that commitment), be prepared for a wild ride along the way as the ag boom/bust cycle can be particularity viscous.


Harvest Investor © 2016. All rights reserved. The content and ideas contained in this blog represents only the opinions of the author. The content in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. No content shall be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. The author may hold positions in the securities and companies mentioned on this site. Any position disclosed on this site may be modified or reversed without notice to you. The content herein is intended solely for the entertainment of the reader, and the author.

Thursday, May 19, 2016

Stocks with low earnings volatility per unit of growth

The following tweet from Eddy Elfenbein (www.crossingwallstreet.com) prompted me to run a quick analysis on all the stocks in the S&P 500:


The criteria:
  • Companies currently in the S&P 500
  • Positive earnings in every year for the past 21 years
  • Calculate (simple) average 20 year annual EPS growth rate
  • Calculate standard deviation of 20 years annual EPS growth rate
  • Coefficient of variation = Standard Deviation / Mean Return (the lower the better)

Here, ranked by coefficient of variation, are the S&P 500 stocks with the lowest risk (standard deviation) per unit of growth.  Enjoy!




Harvest Investor © 2016. All rights reserved. The content and ideas contained in this blog represents only the opinions of the author. The content in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. No content shall be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. The author may hold positions in the securities and companies mentioned on this site. Any position disclosed on this site may be modified or reversed without notice to you. The content herein is intended solely for the entertainment of the reader, and the author.

Friday, May 13, 2016

Historic Wheat Prices: Real vs. Nominal

I was playing around with some wheat price data from the USDA NASS (found here, hat tip to Political Calculations) and wanted to share a couple of quick graphs.

First, here is a graph of wheat prices going back to 1866.  Anytime you can show 150 years of data in a chart, it's pretty cool.


However, if we put wheat prices into "real" terms, the chart changes dramatically.  Rather than a run-up in prices since ~1950, we actually see the "real" inflation adjusted value of a bushel of wheat declining from 1950 to a bottom in 2000.


I don't show this data to argue that wheat is historically cheap.  You can't make a judgement call on cheap or expensive without analyzing the numerous other factors influencing price including substitute products, production costs, or yields.  Rather, I just find it a fascinating truly long-term series of data.

A couple of quick observations:

  • The World War I price spike stands out as the pinnacle of wheat prices, peaking at over $42/bu. (in 2015 dollars) in 1917.  Interestingly, for many farmers in the northern great plains, the fallout from this (along with poor weather patterns / yields) in the 1918-1928 time frame made the "roaring 20s" a worse economic period than the Great Depression.
  • While World War II drove a second major run-up in wheat prices, it was nowhere near the levels of WWI.
  • The Great Grain Robbery of 1972 (when the USSR bought a large quantity of U.S. wheat at subsidized prices) also stands out.  This and a good overall history of the largest grain merchants is well covered and worth reading about in the book Merchants of Grain.
Where do wheat prices go from here?  I can honestly say I have no idea.  One quote, however, has always stuck with me, and that is "wheat is a weed."  Many of the old farmers say this to indicate that wheat is easily grown anywhere (prompting the joke "I can grow in on my land, so it must be a weed") and if a substitute commodity can be grown, it probably will be.



Harvest Investor © 2016. All rights reserved. The content and ideas contained in this blog represents only the opinions of the author. The content in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. No content shall be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. The author may hold positions in the securities and companies mentioned on this site. Any position disclosed on this site may be modified or reversed without notice to you. The content herein is intended solely for the entertainment of the reader, and the author.

Friday, May 6, 2016

The Longest Dividend Streaks in the S&P 500

Out of curiosity, I recently spent 10 minutes seeing which stocks in the S&P 500 had the longest streak of consecutive dividend increases. I ran my list on the S&P 500 Dividend Aristocrats since that immediately culled my screen to those companies that have increased for at least 20 consecutive years.

I had no real reason beyond curiosity for running this analysis. Many of these companies have great “moats,” but only a handful will appeal to the “compounding aficionados” (or is it the “compounders mafia”) since the majority have limited reinvestment opportunities (hence the dividends). The opposite argument also crossed my mind - that the longer the dividend streak the greater the potential for a value-trap. You could argue it either way.

I present the following list without comment or judgement on valuation/attractiveness of any individual stock or the group as a whole. With that:


Note: All data taken from www.dividendinvestor.com and www.dividend.com. Unfortunately, even high-end data providers like Bloomberg only report individual stock data back 20 years, so, these online databases were key to compiling the data.


Harvest Investor © 2016. All rights reserved. The content and ideas contained in this blog represents only the opinions of the author. The content in no way constitutes investment advices, and should never be relied on in making an investment decision, ever. No content shall be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. The author may hold positions in the securities and companies mentioned on this site. Any position disclosed on this site may be modified or reversed without notice to you. The content herein is intended solely for the entertainment of the reader, and the author.

Wednesday, December 9, 2015

S&P 500 Sector Weightings: A Historical Perspective

There has been a fair amount of talk recently about Energy falling to a 6.5% weight in the S&P 500. While this is a big move from ~16% of the S&P 500 back in 2008, it is not outside of historic norms and only ~1 standard deviation from its long-term mean.

It hasn't had the attention of Energy, but Health Care earlier this year peaked at 15.5% of the S&P 500, nearly +2 standard deviations from its average. Is the recent pullback a warning of reversion to the mean for Health Care, or has the industry undergone a secular shift (aging population, longer life expediencies, Obamacare, etc.)?

Presented without further comment, here are the charts of all 10 S&P 500 sector weights vs. long-term averages and +/- standard deviation bands. Enjoy.










































Harvest Investor © 2015. All rights reserved. The content and ideas contained in this blog represents only the opinions of the author. The content in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. No content shall be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. The author may hold positions in the securities and companies mentioned on this site. Any position disclosed on this site may be modified or reversed without notice to you. The content herein is intended solely for the entertainment of the reader, and the author.