What Goes Up: Rising Equity Valuations and their Implications | Mackenzie Investments

What Goes Up: Rising Equity Valuations and their Implications

What Goes Up: Rising Equity Valuations and their Implications

Global equity valuations are above their 20-year averages. Daniel Arsenault, Investment Director with the Mackenzie Ivy Team discusses these valuations and what they means for investors.

Show transcript

DANIEL ARSENAULT: Since the end of the global financial crisis, equity markets have been on a pretty consistent upwards trajectory. They’ve gone so high in fact that they’ve caused some to wonder whether they’ve gone too far and where they might go from here. As an example over the last five years they’ve returned 13.1 percent on an annualized basis in local dollars terms. In Canadian dollars terms that looks like 16.9 percent. Now those numbers are well above historical averages. What we did was we analyzed current equity market valuations in the global equity context to see what the implications are for an investor that wants to invest in global equity today. The analysis we ran was on four common pricing metrics. Now these metrics essentially take the current prices that companies are trading at and compares them to the earnings being generated in those companies. We compared those valuations to their historical averages and to where they were at the peak of the global financial crisis, to determine how much risk there was in markets. Our findings are really two fold; First, that simply equity markets are trading at valuations which are higher than they were at the peak of the global financial crisis and higher than their 20 year averages. Second, that equity markets when they reach these levels historically they have generated forward returns which are negative on 3 and 5 year basis. There are important implications for investors; one recommendation we would have would be staying invested. Our research shows that the best investment outcomes happen when investors stay in markets through all the peaks and valleys but they do so smartly. That is to say that they invest in a diversity of managers and strategies, some of whom have a history of protecting the downside and investing in high quality companies. On the Mackenzie Ivy Team we have a history of carefully growing client capital over time. We invest in high quality companies, we invest in them for the long term and we’ve managed to outperform in all market down cycles since our inception in 1992. 

Global Equity Valuations are the highest they have been in 20 years. Read about an analysis of four key valuation metrics, and what they mean for both investors and equity markets as a whole.

  • Global Equity Valuations offer Investors Food for Thought

    A Mackenzie Ivy Team analysis shows that global equity valuations are higher than their 20-year averages while returns generated have been lower than historical averages. With valuations so high, investors can position their portfolios for potential market movements.

    September 8, 2017