Developed Markets Equity Positioning
We believe the higher level of growth and profitability increases the amount of resources available to invest in the future, thus enhancing the economic outlook.
Our final P is the overall PROFITABILITY of companies in a country. We believe the higher level of growth and profitability increases the amount of resources available to invest in the future, thus enhancing the economic outlook.
We use the DuPont model, which evaluates the financial performance of companies on measures such as Asset Turnover, Pretax Margins, Debt Levels and, ultimately, Return on Equity. For ROE, we use recent returns as well as long-term averages. Asset Turnover is a ratio of a company’s sales to assets. The U.S., using the S&P 500 benchmark as the proxy, is ahead of the MSCI Europe ex UK and Japan Indices. Pretax margins indicate how much money a company makes per dollar of sales, before taxes. U.S. companies are higher, at 12% recently, and 10% on average since 2001, than their counterparts in Germany and Japan (in the 7-8% range recently and 5-6% longer term). U.S. corporations have modestly higher debt levels than Japanese firms but rank lower than German companies. U.S. ROE, at 16% recently and 15.6% on a median basis, is meaningfully higher than 11% for Germany and 9% for Japan.
Our combined rankings once again place the U.S. as the clear leader as shown below.See sources at the bottom of the webpage.