8 BARRON’S September 9, 2019
stretching back a decade.
“Itakecomfortinthedurationoftheun-
derperformanceandthatsofewpeopleare
true value investors anymore,” says Steve
Galbraith,aformerMorganStanleystrate-
gistandWiencolleaguewhonowheadsKin-
dred Capital Advisors in Norwalk, Conn.
“Thisremindsmeof2000,butthedifference
is there aren’t as many value advocates.”
Many value investors have left the busi-
ness, seen their asset bases wither, or
stretched the definition of value by buying
stockslike Netflix (NFLX)or Amazon.com
(AMZN).
Afterthe2000marketpeak,theS&P
tumbled more than 40% in the ensuing 2½
years. But some value managers showed
positivereturnsbecauseofthedeepunder-
valuation of value stocks.
“Our portfolio is littered with single-
digit P/E stocks and some have mid- to
high-singledigityields,”Galbraithsays.He
ticksoff LyondellBasellIndustries (LYB),
Goodyear Tire & Rubber (GT), CBS
(CBS), and Delta Air Lines (DAL). Both
GoodyearandLyondellyieldmorethan5%.
Investors can also play a revival in de-
pressedvaluestrategiesthrough Franklin
Resources (BEN).Itsshares,atabout$27,
tradefor11timesprojectedearningsinits
current fiscal year ending this month and
yieldnearly4%.Franklin’snetcashandin-
vestmentstotalmorethanhalfofitscurrent
marketvalueof$13.5billion—probablythe
highestpercentageforanycompanyinthe
S&P 500.
PzenaInvestmentManagement (PZN),
founded and headed by Rich Pzena, is a
small-cap play on a value-investing revival.
Its shares, at about $8, trade for about 12
timesannualizedearningsinthefirsthalfof
- (There are no published estimates for
thecompany.)Pzena’strailingdividendyield,
includinganannualspecialpayout,is7%.De-
spitevalueinvesting’swoes,Pzenahasexpe-
rienced net inflows in the past year.
Up & Down Wall Street continued
Hiswarninghasprovedprescient.Euro-
pean economies have stagnated, interest
rates have plunged to zero—or lower—and
stockmarketshavebadlylaggedbehindthe
S&P 500 in the past five and 10 years.
“What I meant was that Europe would
remain a great place to visit, eat, and ab-
sorbtheculture,butnotnecessarilyagreat
place to invest,” Wien said this past week.
The issue now is whether European
stocksareappealing.The VanguardFTSE
Europe ETF(VGK)hasreturnedjust1.7%
annually in the past five years, nine per-
centage points behind the S&P 500.
Europeanstockshavebeenhamperedby
the lack of a dynamic tech sector and a
largeweightinginbanks(whichhavebadly
trailedtheirU.S.peers),energy(oneofthe
globalmarkets’worstsectors),andeconomi-
cally sensitive stocks like autos.
PartofthebullcaseforEuropeanstocks
isthatyield-starvedEuropeaninvestorswill
gravitatetoequities,giventhatgovernment
bond yields are low or negative, with the
German 10-year Bund at -0.6%.
The stock-bond yield gap in Europe is
about four percentage points, against less
thanahalf-percentagepointintheU.S.Euro-
peanstockstradefor14timesprojected
earnings, a discount to the S&P 500 at 18
times.AndEuropeancompaniesgreatlyfavor
dividendsoverstockbuybacks.Theresultis
dividendyieldsaveragingcloseto4%.Forin-
come-seekingU.S.investors,Europebeckons.
Among European stocks, Royal Dutch
Shell (RDSB) and BP (BP) yield over 6%.
Top bank HSBC Holdings (HSBC) yields
5.4% and UBS (UBS), 6%; Daimler
(DDAIF)and BMW (BMW.Germany)yield
over5%.TheVanguardFTSEEuropeyields
3.4%.
Value stocks started to stir last week,
besting their growth counterparts and
cheering embattled value investors after a
long, brutal period of underperformance
Country 10-Year Govt. Bond Yield Stock-Market Dividend
U.S. 1.56% 1.92%
Germany -0.60 3.
U.K. 0.59 5.
Region ETF / Ticker 5-Yr Annualized Return
U.S. SPDR S&P 500 / SPY 10.3%
Europe Vanguard FTSE Europe / VGK 1.
European dividends exceed bond yields as stock markets lag.
Data as of 9/5 Source: Bloomberg
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