Cross-Asset Strategist & Quantitative Analyst, Pennock Idea Hub

Cam Hui

Cam Hui has been professionally involved in the financial markets since 1985 in a variety of roles, both as a quantitative equity portfolio manager and as a sell-side analyst. He graduated with a degree in Computer Science from the University of British Columbia in 1980 and obtained his CFA Charter in 1989.

Cross-Asset Strategist & Quantitative Analyst

Pennock Idea Hub

We are creators of independent equity research. The Pennock Idea Hub team are veterans of the investment industry. Much of our team has spent their careers at Merrill Lynch, Deutsche Bank, RBC Capital Markets and Wood Gundy. We have taken every aspect of research back to the studs and returned to first principles. The Pennock Idea Hub marries the interests of the sell and buy side. 

We offer the best research for institutional investors by:

-Only publishing research from veteran analysts
-Eliminate the inherent conflicts of the traditional sell and buy side relationship
-Ensure our team is always accessible; collaboration with clients nurtures our collective success

Cross-Asset & Quantitative Research

Thematic (Sector/Industry)

United states / Thematic (Sector/Industry)

In light of our recent cautious views, we have had a number of intense discussions with readers about the equity outlook for the next 3–6 months. We would like to explain our reasoning by analyzing the bull and bear cases.Here is the big picture. Investors had herded into a crowded short and overly defensive position, and that trade reversed itself. The reversal was evidenced by the dramatic cliff dive exhibited by the price momentum factor. A lot of the fast hedge fund money was forced to buy equity beta by its risk managers.The big question is: Will the slow but glacial institutional money follow and pile into the beta trade? Our judgment is “no”. Institutional funds have longer time horizons than individuals or hedge funds, and they have longer time horizons where valuation plays a much bigger role in the decision process. Valuations are too high at an S&amp;P 500 forward P/E of 17, and the risk/reward is unfavourable.This does not mean, however, that investors should totally abandon equities. While U.S. equity valuation is stretched, equity valuation outside U.S. borders are far more reasonable. However, each region does come with its own sets of risks. Emerging markets depend on the USD, which has been strengthening, and resolution in the Sino-American trade war. The eurozone economy is weak, and it is dependent on exports to China, and therefore it has a high beta to Chinese growth, which is slowing. The U.K.is facing a strong binary risk of a no-deal Brexit, which would also sideswipe Europe if it left the EU in a disorderly fashion.

In light of our recent cautious views, we have had a number of intense discussions with readers about the equity outlook for the next 3–6 months. We would like to explain our reasoning by analyzing the bull and bear cases.Here is the big picture. Investors had herded into a crowded short and overly defensive position, and that trade reversed itself. The reversal was evidenced by the dramatic cliff dive exhibited by the price momentum factor. A lot of the fast hedge fund money was forced to buy equity beta by its risk managers.The big question is: Will the slow but glacial institutional money follow and pile into the beta trade? Our judgment is “no”. Institutional funds have longer time horizons than individuals or hedge funds, and they have longer time horizons where valuation plays a much bigger role in the decision process. Valuations are too high at an S&amp;P 500 forward P/E of 17, and the risk/reward is unfavourable.This does not mean, however, that investors should totally abandon equities. While U.S. equity valuation is stretched, equity valuation outside U.S. borders are far more reasonable. However, each region does come with its own sets of risks. Emerging markets depend on the USD, which has been strengthening, and resolution in the Sino-American trade war. The eurozone economy is weak, and it is dependent on exports to China, and therefore it has a high beta to Chinese growth, which is slowing. The U.K.is facing a strong binary risk of a no-deal Brexit, which would also sideswipe Europe if it left the EU in a disorderly fashion.

Why We Are Cautious On U.S. Equities