If you don't read the articles you won't know what I'm talking about when I go on a rant.
More importantly you won't know why the head of the Norwegian Pension Fund's strategy council (pictured below, right) recommended the fund not divest of hydrocarbon equities.
Before I forget, here's the link to the Credit Suisse Global Investment Returns Yearbook 2015
ContentsFirst up, the London Business School press release, complete with pics of what I used to call the "Hot New Boy Band: Staunton, Marsh and Dimson":
Introduction
Industries: Their rise and fall
Responsible investing: Does it pay to be bad?
Do equity discount rates mean revert?
...(68 page PDF)
New research on long term industry returns shows established industries often beat new technology
10 Feb 2015Credit Suisse Global Investment Returns Yearbook 2015
Responsible investing research shows “sin” stocks have outperformed over the long-run, so principles have a price
The Credit Suisse Global Investment Returns Yearbook and Credit Suisse Global Investment Returns Sourcebook are published today.From CFI.co:
In the 2015 Yearbook, the authors, Elroy Dimson, Paul Marsh, and Mike Staunton of London Business School, examine two issues: first, the long-run rise and fall of industries and the implications for investors; second, the rationale, costs and benefits of responsible investing.
Published by the Credit Suisse Research Institute, in collaboration with London Business School, the 2015 Sourcebook reports the latest long-run return data and risk premium estimates for international stock and bond markets, and the performance to the start of 2015 from style factors such as size, value and growth, income, and momentum.
Giles Keating, Head of Research and Deputy Global CIO for Private Banking and Wealth Management at Credit Suisse, said: “The rise of new industries and the importance of responsible investing are two issues that have assumed a lot of importance in recent times. Within that context, it is timely that the 2015 Credit Suisse Global Investment Returns Yearbook examines both the implication and benefits of long term responsible investing.”
Stefano Natella, Head of Global Securities Research for Investment Banking at Credit Suisse, said: “The Yearbook has a strong track record of identifying important issues for investment strategy across asset classes. It provides valuable guidance for investors by leveraging a proprietary set of long historical data. At a time when investors are confronted by the prevailing volatility in capital markets, the Yearbook provides investors with a unique source with which to make investment decisions.”
2015 Yearbook
The Yearbook comprises three articles, together with profiles of 23 national and three regional markets. For each of these countries and regions, it shows the inflation-adjusted returns since 1900 on stocks, bonds, cash and currencies, as well as equity and bond risk premia.
Industries: their rise and fall
In this article, Elroy Dimson, Paul Marsh and Mike Staunton show that although successive waves of new technology have transformed the world, investors have not always been the main beneficiaries. Stock markets in 1900 were dominated by industries such as railroads which today have small weightings or are extinct. Meanwhile, today’s markets have high weightings in industries that were small or non-existent in 1900, such as information technology, telecommunications, aerospace, oil and gas, pharmaceuticals and biotechnology. Yet the authors show that US railroad shares outperformed the market over the last 115 years, while investment in new technologies has sometimes frustrated investors....MORE
Another Inconvenient Truth: Vice Pays
The politically correct and socially sustainable is, though certainly laudable, not particularly profitable. Investors shunning sin stocks manage portfolios that are, on average, significantly less profitable than those possessed by shareholders without similar scruples.
A study released earlier this week by the London Business School (LBS) concludes that the historically already higher-than-average returns offered by industries preying on human frailties have received an additional boost from recent efforts by institutional investors to clean up their portfolios.According to LBS Professor Emeritus Paul Marsh, one of the study’s authors, the glut of stocks sold for reasons other than those related to corporate performance represent a boon to investors less bothered by ethical considerations: “Shares in well-run companies may now be acquired at a considerable discount.” Some investment funds have tapped this segment and offer a mix of vice stocks as vicious as profitable.Prof Marsh and fellow researchers Elroy Dimson and Mike Staunton calculated that a single dollar invested in a US tobacco company in 1900 would have turned into well over $243,000 today. In case reinvested dividends are taken into account, that original dollar would now be worth close to $6.3 million. Conversely, had that dollar been used to buy stock in an engineering company, it would have grown to just $2,280.“Bizarrely, this would be evidence that the faith-based investors of the first half of the 20th century, and all sorts of ethical investors in the second half, had an effect,” says Prof Dimson. However, it may not quite have been the effect anticipated. The LBS study, commissioned by Credit Suisse for its Global Investment Returns Yearbook, shows that tobacco has been the most profitable US business segment since 1900. In the UK, the market was led by the alcohol industry with big tobacco trailing closely.Dividend yields of vice shares are also generally superior. The S&P 500 Tobacco sub-index boasts an average dividend yield of 4.23% as compared a market average of just 1.97%. The gaming industry also offers a dividend yield about twice as high as the overall market....MORE
Way back in April 2007 we had a post, "Moral Judgment On 'Sin Stocks' Means Higher Returns For Vice-Friendly Investors" where we explained:
...Prof. Hong lists his research interests as: "Asset pricing with less-than-fully-rational investors; differences of opinion, short-sales constraints and asset prices; social interaction and financial markets; career concerns, biased forecasts and security analysts; organization, performance and mutual funds; asset pricing with asymmetric information and other market imperfections."This apparently tickled the fancy of Mark Gongloff who at the time was both Markets Editor of the online Wall Street Journal and proprietor of the Journal's Energy Roundup blog. He titled his post "Blog Roll: The Wages of Sin" and although he was very verde, agreed with the thesis.
Hey! Mine too!...
...The fact that an individual investor (or hedgie) won't be elbowed away from the trough by CALPERS means your entry price into a name won't carry a societal approval premium. On the other hand your exit price will be lower to the extent your universe of buyers is limited to vice-savvy investors (hedgies).
And what does this have to do with global warming investments?
One-as social pressure builds to be perceived as green, see Yahoo yesterday ("Our numbers suck but we're carbon neutral!) we should see an expanding green premium.
Two-as the dirtiest, filthiest, vilest, Hitlerian energy sources are shunned (at least in polite company) their risk premia will shrink. At least until I join my brother Greenshirts in a Night of the Longknives at BTU headquarters, 701 Market St., St. Louis, MO 63101.
Ahem. Excuse me. Got carried away.
See you at the face-painting booth Sunday, Earth Day.
Since then we revisit the VICE Fund (since renamed the Barrier Fund) a couple times per year. The S&P 500 is ahead for the last 12 months but VICE wins over most longer periods. Here's the 5-year:
See also the Financial Times video: "Time to consider corruption?"
Previously:
The Enigma Inside The Credit Suisse Global Investment Returns Yearbook 2014
Credit Suisse Investment Returns Yearbook 2013
We also have quite a few posts on Professor Dimson's other work.
