When Being Cheap Can Be Good
As a value manager, our portfolios will normally trade at a discount to the market. This can be comforting to discerning clients who understand that trees do not grow to the sky. Particularly at a time when many believe markets may be stretched. As of February 2017 the S&P 500® Index P/E ratio is currently trading at 17.3X forward 12-month earnings expectations. Time will tell if this multiple is too expensive, however, our ACM private composites are trading at a clear discount. And offer investors a cheaper alternative than locking into the market multiple for growth or income.
ACM Private Composite 12-Month Forward P/E vs. S&P 500® Index as of February 8, 2017
S&P 500® Index 17.3X
ACM Core Dividend (85% Stock, 15% Fixed) 13.0X
ACM Growth (100% Stock) 15.2X
ACM Income w/Growth (85% Stock, 15% Fixed) 14.7X
ACM Balanced (70% Stock, 30% Fixed) 14.2X
Our investment philosophy is value oriented. We are actively seeking companies that we believe are undervalued relative to the market and have good growth possibilities. Markets will react to good and bad news, resulting in price movements that many times do not correspond with a company’s long-term fundamentals. The result can be opportunities for our clients to profit by buying when the price is deflated. At each downturn, we are looking for opportunity. But this takes patience, since it may take the market some time to realize the value inherent in these companies.
ACM Private Composite 12 Month Forward P/E vs S&P 500 Index: P/E calculations as of February 8, 2017, provided by Bloomberg. Lower portfolio valuations do not eliminate volatility or guarantee positive returns. Value managers generally invest in stocks that have relatively low valuations (i.e., relatively “cheap”) and are overweight these stocks relative to a portfolio comprised of stocks that have relatively high valuations (i.e., relatively “rich”). Price-Earnings Ratio- P/E Ratio: A valuation ratio of a company’s current share price compared to its per-share earnings. Calculated as: Market Value per Share divided by Earnings per Share (EPS). Average S&P 500 P/E from 1990 through 2015. Individual ACM Private Composite factsheets available upon request.
Advisors Capital Management, LLC is an investment advisor registered with the United States Securities and Exchange Commission. Registration does not imply any degree of skill or training. All investing carries risk, including the potential for the loss of principal and past performance is no guarantee of future results. This content is for informational purposes only, can change at any time without notice, and is not investment advice or a recommendation to trade any security. Indices are not available for direct investment. We only provide services in jurisdictions where we are registered. Our disclosure brochure (ADV Part 2A) and customer relationship summary (ADV Part 3) are available at https://adviserinfo.sec.gov and upon request.
