SQM Research Ratings Update
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SQM Research Ratings Update - Tuesday June 7, 2016

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  SQM Ratings Update 

SQM Research has released its 2016 Equities Sector Review
Today, SQM Research released the 2016 Equities Sector Review. Twelve Equity funds participated in the sector review and the ratings awarded ranged from 3¾-star to 4½-star ratings.

The Funds covered a diverse range of segments including Global Equities (seven funds), Global Small-Cap Equities (one fund), Australian Equities (one fund), and Emerging Market Equities (two funds).

Equity market returns, both domestically and globally, have been driven by some common factors over recent years:-
  • expanding valuations (PE ratios) rather than strong EPS growth (although Japan and the USA have seen some EPS growth) to levels that are toward the expensive end of the range
  • lower central bank policy rates, in some cases falling through what was traditionally thought of as an unbreakable zero-boundary. Negative nominal yields are now an unremarkable phenomenon and have provided valuation support in a low-growth world
  • unconventional easing techniques, particularly QE, which introduced central banks as large, price-insensitive buyers of bonds and supportive to risk assets in general
  • weak, or at best modest global growth that is not responding robustly to the record-breaking amount of monetary stimulus being applied
  • a heightened risk sensitivity and volatility of markets to economic and policy-related news
  • very low inflation, in some cases bordering on deflation

Equity market returns have been healthy over three and five years, beating both cash and inflation. Over the one year to April, returns have been universally poor, with only global small caps posting a barely positive return and the remainder significantly negative.

Returns - periods ending April 2016

The nature of risk/return over the last ten years, and what the next five years might look like.

Rob da Silva, SQM Head of Research comments:
“Now that markets have evolved from post-GFC “bargain of a lifetime” levels to being arguably fully-priced (equities) to very expensive (bonds), the price action is now more in tune with underlying economic developments i.e. unpredictable, erratic, volatile and lacking in strong forward momentum.

There is a laundry list of imbalances, issues, events and concerns that in the past have not dissuaded markets from their inevitable march upwards. Now that the low-hanging fruit has been picked, markets actually react sharply (both up and down) to the swings and roundabouts of these risks as they develop through time.”

The SQM Equities Sector Review also explores:
  • Differences in returns across styles/sectors, specifically:
    • Large Cap vs. Small Cap
    • Value vs. Growth
    • Emerging Markets vs. Developed Markets
Head of Research at SQM Research, Rob da Silva said, “The rated group of funds represents a diverse set of styles (value vs. growth), sectors (EM vs. DM), research approach (fundamental vs. quantitative), volatility and concentration. These genuine differences allow for distinct and complementary choices when blending portfolios or matching a client’s risk/return profile. They all have the common thread of being active managers seeking to deliver attractive alpha over the medium to long-term.”

Returns - periods ending April 2016

SQM Research Ratings

To access our 2016 Equities Sector Report and other SQM ratings reports, CLICK HERE

For further information:
Robert da Silva
Head of Research
SQM Research
Tel:       (02) 9220 4606
Louis Christopher
Managing Director
SQM Research
Tel:       (02) 9220 4666

About SQM Research
SQM Research Pty Ltd is a respected Australian investment research house, specialising in providing ratings and data across all major asset classes.
For more information, please visit

Research Methodology

In general, the assessment approach adopted by SQM Research incorporates a combination of qualitative and quantitative research techniques to assess property investment products,
Information generated is passed through the SQM Research assessment model at the completion of the assessment process. The assessment model generates a product score, which correlates to a specific star rating (out of a maximum of five stars). Each star rating covers a scoring range, allowing products to be ranked within quarter star increments.
Following are descriptions for each of the star ratings, which have been developed as a guide for dealer group research teams and investment committees:
Following are descriptions for each of the star ratings, which have been developed as a guide for dealer group research teams and investment committees:
4.5 stars and above – Outstanding. Highly suitable for inclusion on APLs.
4 stars to 4.25 stars – Superior. Suitable for inclusion on most APLs.
3.75 stars – Favourable. Consider for APL inclusion.
3.5 stars – Acceptable. Consider for APL inclusion, subject to advice restrictions.
3.25 stars – Caution required. Not suitable for most APLs.
3 stars – Strong caution required. Not suitable for most APLs.
Below 3 stars – Avoid or redeem. Unapproved.
Hold – The rating is currently suspended until SQM Research receives further information. A rating is typically put on hold for a period of 2 days to 4 weeks.
Withdrawn – The rating is no longer applicable. Significant issues have arisen, and investors should avoid or redeem units in the fund.
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