GMO: The Value Versus Growth Dilemma

2017 ◽  
pp. 1-16
Author(s):  
George (Yiorgos) Allayannis ◽  
William Burton
Keyword(s):  
New Economy ◽  
Expected Returns ◽  
Investment Strategies ◽  
Growth Orientation ◽  
Value Investing ◽  
Growth Stocks ◽  
Interesting Story ◽  
Old Economy ◽  
Valuation Ratios

Dick Mayo, one of the most celebrated value investors in America was puzzled by the New Economy's continuous bias toward growth investment strategies. He examines the basics of his philosophy versus that of a growth orientation by evaluating the long-term expected returns of several value and growth stocks. This case can be used to pursue several objectives: (1) to define value and growth investing-where the differences lie and whether one approach is superior to the other or whether both have merit; and (2) to discuss issues related to consistency of one's investment philosophy. Should one stay true to one's philosophy even when the market seems to run counter to it for a prolonged period of time? Can value investing deliver value in this New Economy or is it only an Old Economy concept? The students are instructed to perform basic valuations of Cisco Systems (a growth company), CVS, R.R. Donnelley, and Manor Care (value companies) and compute their long-term expected returns. The case comes with an Excel spreadsheet containing the data and relevant valuation ratios for the above firms. The valuations are straightforward, but they tell an interesting story: the expected returns of glamorous stocks in reality may not be so glamorous.

U.K. Executive Compensation Practices: New Economy versus Old Economy

2004 ◽  
Vol 16 (1) ◽  
pp. 57-92 ◽  
Author(s):  
Konstantinos Stathopoulos ◽  
Susanne Espenlaub ◽  
Martin Walker
Keyword(s):  
Executive Compensation ◽  
Stock Options ◽  
New Economy ◽  
Financial Policy ◽  
Executive Stock Options ◽  
Compensation Package ◽  
Size Growth ◽  
Old Economy ◽  
Almost All

This paper examines the executive compensation practices of listed U.K. retailing companies. We compare “New Economy” retailers (e-commerce/dot-coms) to more traditional retailers operating in the “Old Economy.” We also discriminate between recently floated retailers and their more seasoned counterparts. Using a sample of remuneration contracts for 549 directors in 72 listed U.K. companies in the New and Old Economies, we investigate the structure and level of executive (and nonexecutive) compensation defined as the sum of salary, annual bonus, and the values of executive stock options and long-term incentive plans (LTIPs). We investigate the extent to which the contract features are determined by firm characteristics, economic sector, and governance/ownership factors. In contrast to the U.S., where almost all executive stock options are issued at the money, there is a greater variety of practice in the U.K. with some options being granted substantially in the money. We therefore pay special attention to this U.K. institutional feature by producing a model designed to explain the crosssectional variation in the moneyness of stock options at the date of issue. We also examine the determinants of a number of other contract features. These are: the time to maturity of the executive stock options, the leverage of the compensation package, the ratio of long-term pay relative to short-term pay, and pay performance sensitivity. We find that differences in compensation arrangements can be explained to a significant extent by differences in firm size, growth/growth opportunities, firm financial policy, ownership characteristics, and governance arrangements. We also find some systematic differences between the compensation arrangements of CEOs and other executives.

scholarly journals A Modified Price-Sales Ratio: A Useful Tool For Investors?

2011 ◽  
Vol 5 (12) ◽  
Author(s):  
David R. Vruwink ◽  
Jeffrey J. Quirin ◽  
David O'Bryan
Keyword(s):  
No Value ◽  
Expected Returns ◽  
Book Price ◽  
Market Capitalization ◽  
For Profit ◽  
Stock Portfolios ◽  
Stock Portfolio ◽  
Valuation Ratios ◽  
Better Than

This study compares returns for stock portfolios using low price-to-earnings, price-to-book, price-to-sales, and price-to-sales ratios modified for profitability of sales and long-term debt. Non-financial companies with fiscal years ending on December 31 were included in a sample covering a 17-year period (1988-2004). The resulting sample was sub-divided into six groups by level of market capitalization.  A 25 stock portfolio was then compiled for each of six valuation ratios at each level of market capitalization. An index portfolio was also computed for each level of market capitalization.  First, the results of this study showed that additional expected returns based on firm size, measured by the market value of equity, is found only at the micro-cap level (less than $25 million market capitalization). The index portfolios of mini-caps ($25-100 mill.), small caps ($100-500 mill.), and mid-caps ($500-$1 bill.) did not show any additional returns in comparison to the large-cap index portfolio. Second, no "value" portfolio for mid-caps provided significant returns above the index portfolio, suggesting a much greater level of market efficiency at this level of market capitalization.  Finally, the most significant findings of our study were that the portfolios constructed from low price-to-sales and modified price-to sales ratios performed as well or better than the more traditional price-to-earnings and price-to-book ratios. The price-to-sales ratio adjusted for profit margin (based on the prior three years) was statistically significant in three of six portfolios in comparison to the more traditional valuation ratios.

Commodity Exchange-Traded Funds

2018 ◽  
Author(s):  
Christopher Milliken
Keyword(s):  
Portfolio Diversification ◽  
Futures Contracts ◽  
Spot Price ◽  
Exchange Traded Funds ◽  
Investment Strategies ◽  
Regulatory Structure ◽  
Commodity Exchange ◽  
Asset Class ◽  
Exchange Traded Fund

Commodity exchange-traded funds (ETCs), which debuted in 2004, enable investors to access an asset class previously difficult or expensive to access. Although a small segment of the overall exchange-traded fund (ETF) universe, ETCs have grown in popularity with both speculators and investors looking for long-term portfolio diversification. Examples of the types of commodities that are now accessible through ETCs include gold, oil, and agricultural. The literature on ETCs is limited, but academic and industry work has centered on using futures contracts to replicate the performance of the underlying commodities spot price as well as the effect additional capital has had on the integrity of the futures market. This chapter covers this topic by reviewing the growth, investment strategies, and regulatory structure of ETCs as well as the underlying effects these funds have had on the underlying markets with which they engage.

scholarly journals Digitalization impacts on corporate governance

2018 ◽  
Vol 7 (4) ◽  
pp. 51-63 ◽  
Author(s):  
Hugh Grove ◽  
Mac Clouse ◽  
Laura Georg Schaffner
Keyword(s):  
Corporate Governance ◽  
New Economy ◽  
Disruptive Innovation ◽  
Digital Learning ◽  
Competitive Advantages ◽  
Non Profit ◽  
Starting Point ◽  
The Board Of Directors ◽  
Old Economy ◽  
Privacy Risks

For improved corporate governance in this age of digitalization, the Board of Directors could investigate key operating performance indicators or KPIs for competitive advantages with Digitalization Dashboards. There are over 30 such digital metrics in the Digitalization Dashboard example in this paper. A starting point for developing such key metrics could be the digital values indicated by the “efficient stock market” with the market to book ratio calculation. The ten “new economy” companies had an average market to book ratio of 10.85 while the ten “old economy” companies had an average market to book ratio of 2.64. Why are sophisticated investors indicating that the equity market value or market capitalization of “new economy” companies is almost eleven times larger on average than their equity book value? Why is the average market to book ratio of “new economy” companies over four times larger than for “old economy” companies? What key digitalization metrics and competitive advantages are in play here? Digital dashboards are recommended here to answer such questions. While the awareness on boards regarding risks originating from disruptive innovation, cyber threats and privacy risks has been increasing, board members must equally be able to challenge executives and identify opportunities and threats for their companies. This shift for companies is not only about digital technology but also cultural. How can people be managed when digital, virtual ways of working are increasing? What do robotics and “big data” analysis mean for managing people? One way to accelerate the digital learning process has been advocated: the use of digital apprentices for boards. For example, Board Apprentice, a non-profit organization, has already placed digital apprentices on boards for a year-long period (which helps to educate both apprentices and boards) in five different countries.

Boom and Bust Driven by Value-at-Risk

2019 ◽  
pp. 28-55
Author(s):  
Hyun Song Shin
Keyword(s):  
At Risk ◽  
Value At Risk ◽  
Hedge Fund ◽  
Balance Sheet ◽  
Asset Returns ◽  
Expected Returns ◽  
Capital Management ◽  
A Value ◽  
Boom And Bust

An example of a hedge fund illustrates a long-short strategy that maximises expected returns subject to a Value-at-Risk strategy. Balance sheet capacity depends on the measured volatility of asset returns and the book equity of the long-short hedge fund. The principles are illustrated by the case of Long Term Capital Management (LTCM).

Sovereign Development Funds

2017 ◽  
Author(s):  
Peter Bruce-Clark ◽  
Ashby H.B Monk
Keyword(s):  
Financial Markets ◽  
Global Economy ◽  
Private Investment ◽  
Dual Function ◽  
Investment Strategies ◽  
Objective Functions ◽  
Expected Return ◽  
Investment Returns ◽  
High Investment

In a slowing global economy with diminished confidence in the long-term prospects of public financial markets, many institutional investors are looking for innovative, and often private, investment strategies to meet expected return targets. One source of potential inspiration has, perhaps surprisingly, come from the community of sovereign development funds. SDFs are strategic, government-sponsored investment organizations with dual objective functions: to deliver high financial performance, while fostering development. Despite expectations that this dual function inevitably leads to financial underperformance, certain SDFs have actually delivered consistently high investment returns, especially in private markets. As such, SDF strategies are increasingly being used as models for investment strategies among non-developmental investment organizations. This chapter explores the rise of SDFs, explains the differences between SDFs and SWFs, and substantiates variations in their models of governance and management. In doing so, its goal is to situate SDFs in the changing world of global financial markets and public policy.

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