Sigma Insights

Sigma Insights.

Buyer Beware – August 2016

Key points:
  • The Australian market,ex-BHP & Rio Tinto and Major Banks, is trading at 21x forward earnings
  • Forward earnings of 20 or greater suggest a period of low index returns
  • The defensive-quality-yield thematic has driven investors to overpay for near-term certainty
  • The best defence to protect your capital is to not overpay
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Alpha & Active Risk – August 2015

Key points:
  • Active strategies add greater value as benchmarks become dominated by overvaluation
  • Expect a higher skilled manager alpha contribution to total AEQ returns
  • Investors should raise active risk taken against the benchmark to reduce beta risk and outperform
  • Many active "index hugging" strategies over rely on relative to benchmark portfolio construction
  • Skilled, high conviction strategies are attractive in efficiently capturing higher available alpha
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Index Risk....is this the portfolio you really want? – August 2015

Key points:
  • Passive strategies risk locking in a portfolio of past ‘winners’
  • We analyse index trends since 1980 to highlight the risks entailed in passive strategies
  • We ask “are you comfortable with 29% of your portfolio in the Big 4 banks when capital demands are rising?”
  • We contend that skilled active management can exploit these anomalies to generate alpha
  • As prospective returns decline NOW is the time to pursue a high active share strategy  
  • Sigma Select’s current high active share strategy provides a cost-effective offset to the biases of passive portfolios.
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Capital Hungry Banks – June 2015

Key points:
  • Major Bank capital builds of approx. $40-$60bn to see EPS and DPS track sideways
  • Rising capital intensity to place downward pressure on ROE’s
  • Payout ratios likely to drift lower to more sustainable levels
  • Major Banks to be safer however shareholders unlikely to be compensated
  • Regional Banks to prosper as Major Banks reprice to offset declining profitability
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Harvesting the Rewards from Resource Investment – December 2013

Key points:
  • BHP and RIO’s renewed Return on Capital focus is a major positive change for shareholders
  • Net cash flows to substantially improve from a production uplift and productivity gains as investment declines
  • Cash returns increasing through improving dividend profiles and the prospect of share buybacks
  • Sigma Select moving underweight Major Banks and overweight Diversified Miners for the first time in 5 years
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