On Mondays, for paid subscribers, I sum up the changes in analyst forecasts on our holdings during the prior week. Maybe I should stop bothering. Today’s Financial Times reports on an academic study showing that invstorspay no attention to analyst “buy” and “sell” advice.
After looking at over 44,000 changes in recommendation in the 1997-2003 period, the researchers found that the effect of a forecast change was minimal, about 0.03% either way. Authors were Pya Altinkillic of the University of Pittsburgh and Robern Hansen of Tulane. Their study showed that 80% of analyst changes in recommendations came after corporate events (earnings releases for example) which had already triggered investors to buy or sell their shares.
So maybe we can stop paying directly or indirectly for research on shorter term stock trading. It does not add much value. That does not mean we do not want to continue to see in-depth research on companies. I mention some problems with smaller companies not well covered by analysts below.
The small cap world, in my view, is the meat and potatoes of global investing for individual retail investors. Like us.
After I posted my comments last week about why I do not like some small-cap oriented fund managers specializing in China, I decided to explain a more general prejudice against world-wide small cap funds, especially exchange-traded rather than closed-end ones. My prejudice continues even when there is no hint of conflict of interest as there is with thea China investment advisory and fund group.
Halter launches ipo’s for the China firms as advisor; creates an index in which they are included; and then creates a fund based on that index as a simple one-step way to buy small-cap China. There are no Great Chinese Walls in this investment structure.
But even without overlap between underwriting, indexing, and fund managing, small cap is hard to do. In many instances, there is no small cap index in foreign countries, so the fund managers have to improvise one. Often only American Depositary Receipts make the cut, because they are the easiest to track and there is less regulatory concern if they are part of an ETF.
Often only the largest small cap ADRs get into the portfolio. That is because ETFs have to keep down costs while creating ever more finickity ways to track ever-smaller bits of the overseas investment world, sector by sector, country by country. Too many fund groups means every ETF manager needs to offer a variant on whatever the others have already created, despite lack of demand.
To keep down costs, the universe of ADR small caps in a given category is restricted. You may not find Halter ipo’d ADRs in a rival firm’s China basket. The funds will go in for proxies: one firm to represent, for example, Indian or Chinese IT or drug research or hotels. Too many fund positions having to be tracked and traded eats profitability for an ETF.
A closed-end fund manager can take a view, be quirky, avoid balance; an ETF manager is not allowed to do this. Even in the U.S. research on small caps is hard to come by, except via niche research boutiques like Peter Sidoti’s. It’s worse abroad. But if you find a good idea in the world of Indian real estate or Chinese babymilk powder or Brazilian gas stations or German generics, why look for an index? Just buy the stock.
The largest democracy has spoken, and spoken wisely. The Indian election victory of the Congress party puts P.M. Manmohan Singh, an academic economist, in the catbird’s seat to introduce reforms the country desperately needs. Appeals to Hindutva (Hindusiam) squelched the BJP; and anti-liberalism clobbered the left-wing parties. Both lost vutes as the Indian population decided they were not the wave of the future.So Congress and centrist groups can now form a govt without lefties or caste-based parties.
Trading on the Bombay Stock Exchange was suspended because shares rose too fast. The Sensex index rose 17%.
*ICICI gained from the election and also for cutting deposit rates 1/2% last week. IBN rivals cut more sharply. Higher deposit rates cut a bank’s margins so private sector banks are slow to cut them. IBN rose 24% before trading was halted.
*In Singapore, post-India Election, Ascendas India Trust (ACNDF) rose 16%. It is a fund not an ETF, my choice after examining the world of India options.
announcing a waiver agreedment with HSH Norbank for $654 mn of its debt. The facility covers 23 of DRYS vessels. Refinancing may reduce the need to issue more shares watering our holding in the high-risk Greek shipping company, but this is being inferred by the market, and not announced. Using a shelf registration means DRYS can stop issuing new shares if it has anough money to do so.
Here are the analyst changes of the past week. Do you want to get them still? Let me know.
*The Thomson consensus for Makita, MKTAY.PK. the Japanese maker of electric handtools recently added to the Model Portfolio by Chris Loew saysfor the Fiscal Year ended Mar. 31, actual EPS was Y 236.88; the current FY high ESPs estimate was 145.20; the low 50.81; and the average 102.01 (the average is not the different between the two extremes but that between all the estiamtes. This average is 11% higher than the previous survey result and yields a p/e ratio of 19.68.
*The Thomson consensus on Coca Cola Hellenic Bottling has shifted to “buy”. It is expected to earn $1.51/sh this year and $1.65 next year. Here are the EPS figures: actual EPS for 2008: $0.91; current year high estimate: $1.55; current year low estimate $1.46. Current year CCH consensus is now $1.51 up 7% from the last survey.
*Fox-Pitt Kelton downgraded Santander (STD) to in-line from outperform.
*
Here is the Thomson consensus for Suntech: Strong Buy: 3, Buy: 3, Hold: 10, Underperform: 8, Sell: 5. Not much of a consensus. Here are the forecasts of earnings to match: actual EPS for 2008: $0.66; high EPS estimate for current year: $1.01; low EPS estimate for current year (-.10). STP will report Thursday, and give us a better idea of how things are going.
