How does WCM help investor?

WCM‘s investment strategy is guided by Nobel Prize winning economic analysis.
WCM‘s research covers most of the world’s major global markets.
WCM invests in world market indexes where Shiller P/E ratios are historically oversold.
WCM uses ETFs to lower cost, diversify portfolios, and increase liquidity.

What’s behind WCM’s Nobel Prize winning research analysis?

In 2013, Robert Shiller, author of “irrational exuberance” and noted Yale economics professor, shared a Noble Prize for research on stock price valuations. Shiller showed that P/E prices could be used to forecast future market performance. The chart below is a summation of his research.

Figure 1: Price-earnings ratios as a predictor of twenty-year 
returns based on the plot by Prof. Robert Shiller.

The horizontal axis shows the real price-earnings ratio of the S&P Composite Stock Price Index as computed by Shiller in his book Irrational Exuberance. The Shiller P/E, also known as CAPE or P/E-10 uses current stock prices divided by the prior ten-year mean of inflation-adjusted earnings. The vertical axis shows the geometric average real annual return on investing in the S&P Composite Stock Price Index, with reinvesting dividends, and selling twenty years later. Data from different twenty-year periods is color-coded.

How does WCM forecast stock market valuations?

Figure 2: Schiller’s P/E ratio analysis of the S&P 500 
from 1871 to the present.

The cyclically adjusted price-to-earnings ratio, commonly known as Shiller P/E, CAPE, or P/E 10 ratio, is a valuation measure of the stock market. Figure 2 plots the Schiller’s P/E ratio for the S&P 500 from 1871 to the present. The results show a high correlation between the movement of Shiller’s adjusted P/E ratios and market price. Plotting the Shiller P/E’s standard deviation for the S&P 500 averages (the blue line on the lower graph), the current price levels indicate the degree to which the market is over or under valued. For example, at the market’s current price, going forward the probability of the market trading lower is 79%.

What exactly is the shiller P/E ratio?

 Figure 3: A standard distribution (SD) graph showing 
percentile distribution of the Shiller P/E ratio over a 140 year period.

In the example above, the Shiller P/E ratio is calculated for the S&P 500 equity market over a 140 year period. The Shiller P/E ratio is defined as price divided by the moving average of ten years of earnings, adjusted for inflation. The ratio can be used to assess likely future relative returns for equities over timescales of up to 20 years with higher than average Shiller P/E values implying lower than average long-term annual average returns.

In Figure 3, the Shiller P/E ratio is graphed as a standard deviation (SD) which is a measure that is used to quantify the amount of variation or dispersion of a set of data values. The SD is used to determine the market’s valuation based upon how much it varies from its historical Shiller P/E average.

How does estimate the world’s stock markets values?

Figure 4: How does WCM estimate the world’s stock markets values?

WCM uses Box Plot1 graphs to show the relative value of global markets. In Figure 4 we are comparing historic SD distributions for the major ETFs representing US, Spain, UK, Italy, Turkey and Brazil. With a Box Plot Shiller P/E ratio of 29, the current US market is significantly above its historical Shiller P/E median value of 16.8. All the countries shown to the right of the US are below their average historical Shiller P/E values and represent a better long-term investment return than the general US market.

Summarizing WCM’s investment strategy.

WCM’s methodology is to invest in several major global low Shiller P/E indexes. Portfolio holdings are sold when they appreciate to fair market value or better Shiller P/E ratios opportunities become available.

WCM uses periodic asset allocation to rebalance the portfolios so that each ETF position holds equal dollar amounts.

Research indicates that broad indexes outperform actively managed accounts 75% of the time. Consequently, WCM only uses broad based ETF market indexes.

What is a Box Plot?1

WCM uses Box and Whisker Plots (or Box Plots) as a convenient way to visualize standard distribution ranges when representing numerical data.  The scale below is from 0 to 100% percentile with the historical price data divided into quartiles.

Which global ETF’s does WCM actively track?

Economy GDP ETF Symbols
World URTH
World Ex US VEU
Emerging Growth VWO
United States 16,256.41 SPY
China 11,795.30 MCHI
Japan 4,841.22 EWJ
Germany 3,423.29 EWG
United Kingdom 2,496.76 EWU
India 2,454.46 INDI
France 2,420.44 EWQ
Brazil 2,140.94 EWZ
Italy 1,807.43 EWI
Canada 1,600.27 EWC
Russia 1,560.71 RSX
S. Korea 1,498.07 EWY
Australia 1,359.72 EWA
Spain 1,232.44 EWP
Indonesia 1,020.52 EIDO
Mexico 987.303 EWW
Turkey 793.698 TUR
Netherlands 762.694 EWN
Switzerland 659.368 EWL
Argentina 628.935 ARGT
Taiwan 566.757 EWT
Sweden 507.046 EWD
Poland 482.92 EPOL
Belgium 462.715 EWK
Thailand 432.898 THD
Nigeria 400.621 NGE
Norway 391.959 NORW
Austria 383.509 EWO
Israel 339.99 EIS
Hong Kong SAR 332.266 EWH
Philippines 329.716 EPHE
South Africa 317.568 EZA
Malaysia 309.86 EWM
Colombia 306.439 GXG
Denmark 304.216 EDEN
EIRL 294.193 EZA
Egypt 294.109 EGPT
Singapore 291.86 EWS
Pakistan 251.487 PAK
Chile 251.22 ECH
Finland 234.524 EFNL
Vietnam 215.829 VNM
Peru 207.072 EPU
Portugal 202.77 PGAL
New Zealand 198.043 ENZL
Czech Republic 196.068 None
Greece 193.1 GREK