Market Letters

Welcome to the Post Melt-Up MarketJul 29, 2016

Jul 29, 2016

Welcome to the Post Melt-Up Market

In our January 2016 market letter, we pointed out that once the back of a melt-up market is finally broken, there eventually follows a long period of outperformance by value stocks. However, when an extended melt-up ends, speculation and momentum do not suddenly stop. Instead, what happens is a period of extreme volatility and erratic stock market behavior, which usually takes the market to new highs.

Market Outlook: Everyone is Underweighted in ValueJan 30, 2016

Jan 30, 2016

Market Outlook: Everyone is Underweighted in Value

Market history shows that applying a low P/E value discipline to stock selection has rewarded investors with such powerful long-term results it seems inconceivable that they can be underweighted in the strategy. The reason is that in a melt-up market, like the one we just experienced, growth stocks and index funds increasingly get bid up over value stocks as the market becomes less and less concerned about risk and valuation. However, once a melt-up market ends, a period follows where value dramatically outperforms for a long time. Below you can see how year after year value outperformed the passive S&P 500 index following two other similar extreme melt-up periods.

Melt-up Market UpdateOct 26, 2015

Oct 26, 2015

Melt-up Market Update

The sell-off in the third quarter finally broke the back of the melt-up market. As we have pointed out in recent market letters, the longer a melt-up market lasts, the more speculative it becomes, and this was one of the most extended in the past 70 years.

Mid Year CommentsJun 30, 2015

Jun 30, 2015

Mid Year Comments

The melt-up market, now the third longest recovery without a 10% correction in the last 70 years, continues to roll along. Dangerously, we have now reached a point in the market where risk is being increasingly ignored by many investors. Evidence for what is going on can be seen in the P/E multiples of some popular stocks: Facebook at 80x earnings, Netflix at 170x, Twitter at 100x, and Amazon at 120x, to name a few. More evidence of an extended market lies in what happened in the first quarter of this year when the most speculative stocks with no dividends dramatically outperformed the more conservative dividend-paying stocks.

The Nature of the BeastJan 26, 2015

Jan 26, 2015

The Nature of the Beast

In the interview that summarized his 60 years in the investment business, Ben Graham was asked for his opinion of the professionals on Wall Street. His answer was that "Most of the stockbrokers, financial analysts, and investment advisors, etc. are above-average in intelligence, business honesty and sincerity. But they lack adequate experience with all types of security markets and an overall understanding of common stocks." He called this "the nature of the beast," which is the natural, emotionally-driven instinct to buy high and sell low.

The Five Year PlanSep 01, 2014

Sep 01, 2014

The Five Year Plan

In our last market letter, we pointed out that $1 million invested in the S&P 500 in 1968 would have become $75 million by 2013. Over the same period of time, investing that same $1 million using a P/E discipline would have grown to a staggering $573 million. This would seem to make a strong case for both long-term investing and the use of a price discipline in stock selection. But Wall Street has become increasingly consumed with short-term trading and long-term investing is generally ignored.

Melt-up Market UpdateMar 20, 2014

Mar 20, 2014

Melt-up Market Update

The current melt-up market is now 650 days old - i.e. 650 days without a 10% correction - making it one of the most powerful and long lasting equity run-ups in the last 70 years. Feeding the frenzy have been headlines reading "...Market at New Highs..." appearing an amazing 70 times in the last 12 months. In such an environment, investing with a price discipline is ignored if not completely forgotten. As a result, stocks like Facebook and Twitter have become market darlings, despite having meager or no earnings. What we have is reminiscent of the melt-up markets of the 1920s, the 1970s, and the late 1990s, in which it became ever more difficult for disciplined investors to outperform the market. Even the legendary Warren Buffet has failed to outperform the market over the last five years for the first time in his long career.

Melt-up MarketDec 09, 2013

Dec 09, 2013

Melt-up Market

As investment managers, we spend most of our careers coping with negatives such as recessions, inflation, wars, government shutdowns, etc. The opposite is much less common - a melt-up market - which is what we have now. A melt-up market is one that moves up for at least 500 days without a 10% correction. Such a market tends to develop in periods like we have been examining in recent market letters, where we noted that one of the most powerful long-term drivers of stock prices is a massive shift of money from bonds and cash into stocks after stocks reach record low levels of ownership.

Mid Year CommentsJul 15, 2013

Jul 15, 2013

Mid Year Comments

Recently market commentators have questioned whether the "dividend trade" is too crowded and overdone. We believe that the guessing and worry are misplaced because The High Dividend Strategy is a long term investment approach and not about trading. Granted, the chase for yield has driven up the price of many high dividend stocks. However, one of the main features of the strategy is applying a price/earnings (P/E) discipline, and not simply focusing on dividend yield and dividend growth. But because of the worry over the "dividend trade," we think this is a good time to review our investment approach.

2013 OutlookJan 31, 2013

Jan 31, 2013

2013 Outlook

In what might be called a relief rally, the stock market sailed through January showing strength not many expected. It's unclear whether the election results or the quick fix for the fiscal cliff will have any positive effect on the economy, but at least investors are relieved that both are behind us. One definite benefit to the market was holding the tax increase on dividends to 20%, up from 15%, which could have been much worse. Next, of course, is the battle over the debt ceiling limit.

Some ConcernsAug 01, 2012

Aug 01, 2012

Some Concerns

The one constant in my 45 years in the investment business is that there is always something to worry about. In this letter we want to speak to concerns that investors have raised during recent meetings. First, not a day goes by that we don't get the question, the high dividend strategy has become so popular maybe it is overdone? Maybe, but not for the long term investor.

Dividends RevisitedApr 01, 2012

Apr 01, 2012

Dividends Revisited

After being ignored for years, an investment strategy focused on high dividends was the market's best performer in 2011. This attracted a lot of attention, as many brokers and advisors scrambled to set up high dividend ETF's and mutual funds using the strategy. So many of them, that some began to say that the strategy had become "crowded."

Forget the EuroJan 01, 2012

Jan 01, 2012

Forget the Euro

Investors continue to agonize about the European debt crisis and its possible impact on the global economy. But stock market history shows that long-term investors would be better advised to think instead about earnings and dividends. To summarize Benjamin Graham's advice after 50 years in the investment business: "Forget everything else and just invest with two simple principles".

The Recovery Phase Update Aug 01, 2011

Aug 01, 2011

The Recovery Phase Update

Not only has the recent headline news been bad, but dire long-term consequences associated with the headlines seem to hang in the air indefinitely -- Greece, Italy and the endless Euro saga, runaway U.S. government debt, the declining dollar, and a sluggish economy facing the threat of a double-dip recession. In addition, the extreme volatility produced by the high frequency trading gang has left investors frozen on the sidelines. All the bad news and chaos is not unusual for a recovery period, something we'll talk about a bit later in this report.

The Recovery PhaseApr 01, 2011

Apr 01, 2011

The Recovery Phase

We believe the recent strength in the most conservative high dividend stocks may finally be signaling the end of the highly speculative REBOUND phase of the market and the beginning of a more rational RECOVERY phase.

The Wall Street Quilt SaysJan 01, 2011

Jan 01, 2011

The Wall Street Quilt Says

The best strategy last year was to buy the most speculative high beta stocks - those companies with no earnings or those with extreme high valuations. In the recent market rally from late August through December these high beta stocks outperformed the low beta stocks by an amazing 300%.

Outlook for 2011 ~ A Pre-Election YearNov 01, 2010

Nov 01, 2010

Outlook for 2011 ~ A Pre-Election Year

Despite the gradual economic recovery, investors have found it difficult to shake off the negative bias that has built up toward the stock market during these last ten difficult years. Is there anything out there that can reverse the market psychology? There is: 2011 is a pre-presidential election year.

High Dividend and Global High DividendJun 01, 2010

Jun 01, 2010

High Dividend and Global High Dividend

Why dividends are important for investors has little to do with the level of tax rates. The main driver behind the success of a high dividend strategy is its discipline - which is purely mathematical. History shows that when the market goes down, the highest dividend yielding stocks tend to go down half as much.

Time for Value?Mar 01, 2010

Mar 01, 2010

Time for Value?

In our last market letter, we showed that once a major rally breaks the back of a long bear market, a new up period begins, marked by an irrational speculative phase for stocks. History shows that panicky short covering and get-rich-quick trading become the main drivers of the market. In fact, early in the rally, we saw that speculation became so extreme that stocks selling for less than five dollars a share with no earnings and no dividends outperformed the average stock in the S&P by 400%.

After the TurnOct 01, 2009

Oct 01, 2009

After the Turn

What history shows investors is that once the stock market is up over 40% after a major bear market, the back of the bear has been broken and a new recovery phase has begun. The tricky part is that history also shows investors that the period just after the turn is usually quite irrational, as panicky short covering and trading related to it become the main drivers of the market. The result is that the stocks with the worst fundamentals outperform those with the best fundamentals.

Update and OutlookMar 01, 2009

Mar 01, 2009

Update and Outlook

Our August market letter looked at the relationship between recessions in the economy and bear markets on Wall Street over the last 40 years. The idea was to put into perspective the current downturn.

Recessions and Bear MarketsAug 01, 2008

Aug 01, 2008

Recessions and Bear Markets

The headlines are bad. Bank and financial stocks have collapsed from the credit crisis, real estate values are plunging, gas prices have gone through the roof, and consumer confidence lies near 40-year lows. Despite all the negative news, economists can't agree if we're in a recession. But we do know one thing for sure. When the stock market drops more than 20% from its high, its official, we have a BEAR MARKET.

Global Investing, More Potential -- More VolatilityNov 30, 2007

Nov 30, 2007

Global Investing, More Potential -- More Volatility

The global economy is booming. After years of being dependent on the United States, the developing countries are growing on their own. It started after the Cold War ended and despite 9-11 has been rapidly gathering momentum ever since. The Internet and speed of communications have dramatically accelerated the process. The chart below shows that the global GDP of developing economies has nearly doubled in the last 15 years and continues to pick up speed.

Value vs. GrowthJan 30, 2006

Jan 30, 2006

Value vs. Growth

The new year has produced a debate in the financial press and among market strategists over value versus growth investing. About the subject, Charlie Munger, Warren Buffet's partner, recently said, "The whole concept of dividing stocks into value and growth strikes me as twaddle. To me, all intelligent investing is value investing."

Forget Everything Else and Focus and Two Simple PrinciplesAug 30, 2005

Aug 30, 2005

Forget Everything Else and Focus and Two Simple Principles

Buy stocks for the long term (5-year periods) and avoid over paying by applying the disciplines Price/Earnings, Price/Book, and Dividend Yield. In our January 2005 Market Comments, we used the quote above from Benjamin Graham that summarized his 50 years in the investment business. Except that we chose to omit the first three words in bold face, thinking that they would distract the reader from Graham's advice. But after watching hours of CNBC in the months since, we have regretted the omission.

What If...Higher Interest RatesJul 15, 2004

Jul 15, 2004

What If...Higher Interest Rates

In the last few years, investors have had a lot of worries with which to grapple, not least among them a vicious three-year bear market and the 9/11 terrorist attacks. The new worry is a fear of rising interest rates and higher inflation. With inflation and interest rates near 50-year lows and with the economy turning up, these fears seem justified.

And Now...The Election YearFeb 15, 2004

Feb 15, 2004

And Now...The Election Year

As 2003 started, investors were worried about a lot of things-deflation, job losses, and terrorism among them. However, by the end of 2003, there was only one thing that mattered: It was a pre-election year. Stock market history shows that pre-election years have produced boom times for equities, by far the best in the four-year presidential cycle. The good news is that this year, the election year, is also a good year for stocks. So, why does the election cycle impact market performance?

The Post-Bubble Market RecoveryJul 24, 2003

Jul 24, 2003

The Post-Bubble Market Recovery

We believe that the bear market is over and the recovery is under way. The question is: what kind of recovery? In the aftermath of one of the worst speculative bubbles in market history, we think investors will be facing something more challenging and difficult than a classic "V-shaped" recovery. Instead, we expect a "post-bubble" recovery - one that is volatile and drawn out over many years because a lot of time is required to digest the excesses built up during the bubble itself.

Questioning Market Leaders for Long Term Investors Dec 31, 2002

Dec 31, 2002

Questioning Market Leaders for Long Term Investors

The Wall Street Transcript Interview with James P. Cullen Mr. Cullen: In 1975, my partner, David Schafer, started managing money for International Nickel and later managed pension assets of a few other large corporate accounts. In 1982, I joined him out of Donaldson, Lufkin & Jenrette and we formed Schafer Cullen Capital Management. Schafer Cullen was set up in order to expand the business to other institutional accounts, foundations, family offices and individuals. We have five analysts and are presently managing approximately $400 million in assets.

Now What? Oct 15, 2002

Oct 15, 2002

Now What?

The market has just finished one of the worst quarters in the last 25 years and the S&P 500 Index looks like it is headed for its third down year in a row -- something that has only happened two other times in the last 100 years. It is hard to believe that only three years ago at the peak of the tech bubble investors were stampeding into the market at one of its most expensive levels in history.

The Second AnniversaryMay 28, 2002

May 28, 2002

The Second Anniversary

A little more than two years ago, Wall Street witnessed the climax of one of the most intense periods of speculation in market history as frenzied investors bid up the prices of technology and new economy stocks to valuations never seen before. To buy them, investors dumped value stocks at one of their cheapest levels in the last 50 years.

The Post-Bubble EraJan 15, 2002

Jan 15, 2002

The Post-Bubble Era

The terrorist attacks on September 11th accelerated the late stages of the meltdown in technology stocks. The NASDAQ, already off approximately 70 percent from its bubble high, dropped more than 10 percent after the attacks. In our September 17th Market Letter, we pointed out that a major crisis in a collapsing market often produces the low of a market cycle and signals the beginning of a new post-bubble era for stocks.

The Tortoise Wins AgainMay 20, 2001

May 20, 2001

The Tortoise Wins Again

For the past 5 years, money from all over the world has been flowing into our stock market as investors frantically tried to get exposure to the US technology boom. The money flows into the high-priced technology stocks reached levels never seen before in history. In light of this stampede, it is almost inconceivable that the most conservative investing style we employ, the Schafer Cullen High Dividend Equity Strategy, outperformed the leading technology index, the NASDAQ Composite, not just over the last year, but over the last three and five-year time periods.

The TurnaroundJan 29, 2001

Jan 29, 2001

The Turnaround

The strength in the value stocks, whose turnaround began just as investors gave up on them in February and March of 2000, continued to build as the year closed out.

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News

Investment Advisor
TorchbearersJun 21, 2016

Jun 21, 2016

Investment Advisor
Torchbearers

The Cullen High Dividend Equity Fund (CHDEX) was selected by Envestnet and Investment Advisor as a 2015 SMA Manager of the Year in the U.S. Large Cap Value category. CHDEX was specifically recognized for strong performance in 2015, along with a consistent management process, and clarity and reliability in the firm's investment approach and philosophy. Co-portfolio manager of the strategy, Jennifer Chang, discusses the process the research team sticks to when selecting stocks and importance of dividends in the overall strategy.

Investment News
Best and Worst Performing Equity FundsMay 09, 2016

May 09, 2016

Investment News
Best and Worst Performing Equity Funds

The Cullen High Dividend Equity Fund (CHDEX) was ranked as the #3 top performer in the Large Cap Value category by Investment News. Rankings are based on one-year total returns.

Investment Advisor
2016 SMA Managers of the YearMay 01, 2016

May 01, 2016

Investment Advisor
2016 SMA Managers of the Year

The Cullen High Dividend Equity Fund (CHDEX) was selected by Envestnet and Investment Advisor as a 2015 SMA Manager of the Year in the U.S. Large Cap Value category. CHDEX was specifically recognized for strong performance in 2015, along with a consistent management process, and clarity and reliability in the firm's investment approach and philosophy. Awards were announced at 2016 Envestnet Advisor Summit in Chicago.

Barron's
The Best Value Mutual FundsMar 12, 2016

Mar 12, 2016

Barron's
The Best Value Mutual Funds

If an index fund is a home-workout DVD, strategic beta is a Fitbit—personalized technology, but without true personality. An actively managed mutual fund, however, is a personal trainer, each with his or her own style and area of expertise. The Schafer Cullen High Dividend Value fund, which owns just 36 stocks, was flat last year, and has returned 6% annually over 10 years.

Barron's
7 Dividend-Paying Stocks to Play a Value ComebackMar 08, 2016

Mar 08, 2016

Barron's
7 Dividend-Paying Stocks to Play a Value Comeback

Schafer Cullen founder and CEO, Jim Cullen, sat down with Barron's to discuss why value investing outweighs a strategy primarily focused on growth, and the types of stocks investors should consider.

Barron's
Q4 2015: Leaders and LaggardsJan 11, 2016

Jan 11, 2016

Barron's
Q4 2015: Leaders and Laggards

The Cullen High Dividend Equity Fund (CHDVX) was ranked by Barron's as the best-performing Large Cap Value fund in Q4 2015.

Barron's
Q3 2015: Leaders & LaggardsOct 05, 2015

Oct 05, 2015

Barron's
Q3 2015: Leaders & Laggards

The Cullen High Dividend Equity Fund (CHDVX) was ranked by Barron's as the best-performing Large Cap Value fund in Q3 2015.

The New York Times
A Chance for Market Wallflowers to BloomApr 11, 2014

Apr 11, 2014

The New York Times
A Chance for Market Wallflowers to Bloom

The New York Times interviewed Schafer Cullen founder and CEO, Jim Cullen, about how value stocks consistently outperform growth, especially when investors are focused on a long-term investment time horizon.

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