February 13, 2013
Third Quarter 2012 Investment Perspective: Chart of the Quarter
This chart highlight’s the current “exuberant valuation.” In Fixed Income the orange line traces the price/earnings evolution of the Japan stock market from 1983 to 1988. The green line shows the price/earnings ratio of the Russell 1000 Technology sector from 1998-2002 — with the time scale shifted backwards to align the peak valuation of U.S. technology stocks (May 2000) with that of Japan. The blue line shows the recent valuation trend of the Barclays Capital Aggregate as measured by the inverse of the nominal yield. This ‘price to interest’ metric re-frames Fixed Income as if it were a stock. The U.S. investment grade bond market is priced to yield $1 in interest for a $60 investment. In our view, this trade-off is unjustified in view of both historical returns and the current increasing duration risk of bonds.
On a quarterly basis, Hirtle Callaghan publishes our perspective on the current market. We have included the first page of that piece here. If you would like to receive the full perspective, please contact us.