Grail quests have never tended to end pretty. Chasing after the mythical biblical artefact with abandon brought the death of many a knight crusader and the history of markets is no different. The terrain is littered with the bodies of those who have dared to suggest they can consistently beat the market at a lower risk - from Long Term Capital Management to Bernie Madoff - but a research paper published this month from SocGen’s famed Global Equity team offers a more modest approach that may just have the answer for investor’s share portfolios.
While flash harry 20-something traders may get a lot of press the average stock market investor is aged 45 and over and grows increasingly concerned about income at the expense of capital growth. Almost all advisors will position the returns from capital growth and income as a trade-off, that you can’t have one unless you drop some return from the other. So if you were to tell these investors that they could indeed get both from the same investments, while lowering their risk and comfortably beating the market return they’d probably bite off your hand and sack a broker or two along the way. That appears to be what Soc Gen have done.
Meet Soc Gen Global Equity
Over the years the equity strategy team at Soc Gen, stewarded by the (generally) ultra-bearish Albert Edwards, have built up a formidable reputation in the City. While James Montier has now moved on to GMO his writing set a tone there that has been continued by those that succeeded him - most notably Dylan Gric and Andrew Lapthorne - who continue to publish challenging research notes that span our own key themes of behavioural finance and value investing.
Just this month the team introduced their so called ‘SG Quality Income Index’ - an index that aims to track stocks with strong fundamentals and good yields. Many in the market now appreciate that both higher ‘quality’ stocks and higher yielding stocks tend to outperform, but according to the research note, stocks that share both qualities put together standout total returns that have averaged 11.6% per year since 1990, more than doubling the return of the global equity markets at a significantly reduced volatility. But what is more striking is the return of the portfolio since the market topped in 2000 - a genuinely miserable time for all. While the total return of…