Founder Evidente. Top rated quantitative analyst, Evidente

Sam Ferraro

Founder Evidente. Top rated quantitative analyst

Evidente

Evidente is an independent financial education firm that delivers innovative financial advice to wholesale investors, including active long only funds, hedge funds, pension funds, and sovereign wealth funds, in Australia and globally.  Drawing on academic research in asset pricing, behavioural finance and portfolio construction, Evidente provides wholesale investors with commercial solutions to stock selection and asset allocation decisions across equities and other asset classes.

Thematic (Sector/Industry)

<p>The resilience of Australia's corporate sector over the past five years has confounded many global investors. Aggregate profitability has not declined despite the significant macro headwinds that have curtailed top-line growth. Let's not gloss over just how severe the terms of trade shock has been; not only is the RBA's Commodity Price Index one third lower than five years ago, but the A$/US$ has declined by only 10% over this time. Corporate Australia has responded admirably by trimming costs aggressively, restructuring, divesting under-performing assets that have been peripheral to their core focus, and deferring capital spending where feasible. Of course, the macroeconomic consequences of this belt tightening has led to a shortfall in aggregate demand, but that's been a problem for the RBA to address, not corporate Australia.&nbsp; Although an earnings discount model shows that multiple expansion has driven the market higher in the past five years, a dividend discount model shows that dividend expansion has been the key driver. I also suggest that there might be some good news for value stocks. Following the bounce of Pacific Brands and Kathmandu this week, investors might start to re-assess the risk reward trade-off for other stocks long considered to be value traps, including Myer.</p>

The resilience of Australia's corporate sector over the past five years has confounded many global investors. Aggregate profitability has not declined despite the significant macro headwinds that have curtailed top-line growth. Let's not gloss over just how severe the terms of trade shock has been; not only is the RBA's Commodity Price Index one third lower than five years ago, but the A$/US$ has declined by only 10% over this time. Corporate Australia has responded admirably by trimming costs aggressively, restructuring, divesting under-performing assets that have been peripheral to their core focus, and deferring capital spending where feasible. Of course, the macroeconomic consequences of this belt tightening has led to a shortfall in aggregate demand, but that's been a problem for the RBA to address, not corporate Australia.&nbsp; Although an earnings discount model shows that multiple expansion has driven the market higher in the past five years, a dividend discount model shows that dividend expansion has been the key driver. I also suggest that there might be some good news for value stocks. Following the bounce of Pacific Brands and Kathmandu this week, investors might start to re-assess the risk reward trade-off for other stocks long considered to be value traps, including Myer.

A Salute to Corporate Australia