The FTSE 100 Cyclically Adjusted PE Ratio (FTSE 100 CAPE or PE10) – January 2013 Update

This is the Retirement Investing Today monthly update for the FTSE 100 Cyclically Adjusted PE (FTSE 100 CAPE).  Last month’s update can be found here.

As always before we look at the CAPE let us first look at other key FTSE 100 metrics:

• The FTSE 100 Price is currently 6,104 which is a gain of 4.0% on the 03 December 2012 Price of 5,871 and 7.1% above the 02 January 2012 Price of 5,700.
• The FTSE 100 Dividend Yield is currently 3.64% which is a little down against the 03 December 2013 yield of 3.73%.
• The FTSE 100 Price to Earnings (P/E) Ratio is currently 11.78.
• The Price and the P/E Ratio allows us to calculate the FTSE 100 As Reported Earnings (which are the last reported year’s earnings and are made up of the sum of the latest two half years earnings) as 518.  They are up 1.1% month on month but down 6.5% year on year.  The Earnings Yield is therefore 8.5%.

The first chart below provides a historic view of the Real (CPI adjusted) FTSE 100 Price and the Real FTSE 100 P/E.  Look at the trend line of the Real Price.  After you strip out the effects of inflation the perceived market value is doing not much more than oscillating above and below a flat line.  This then presents a problem for any buy and holder reinforcing the importance of dividends.  The second chart provides a historic view of the Real Earnings along with a rolling Real 10 Year Earnings Average for the FTSE 100.

Click to enlarge

Click to enlarge

As always let us now turn our attention to the FTSE 100 Cyclically Adjusted PE.  This is also shown in the first chart above.  For completeness let me also detail the usual reminders.  I do not use P/E ratio’s to make investment decisions from and instead use this CAPE.  This is because the P/E ratio does not take the business cycle into account which the CAPE tries to adjust for.  The method used is similar to that developed by Professor Robert Shiller for the S&P500.  The calculation is the ratio of Real (ie after inflation) FTSE 100 first possible day of the month Price to the 10 Year Real (CPI adjusted) first possible day of the month Earnings.  Unfortunately the dataset I have created only goes back to July 1993.  Therefore to get a meaningful set of numbers I have had to average in to a PE10 for the first 10 years.  What this means is that July 1994 is actually a PE1, July 1995 is a PE2 and so forth until July 2003 when we have a full FTSE 100 PE10.

The ASX 200 Cyclically Adjusted PE (aka ASX 200 PE10 or ASX200 CAPE) – January 2013 Update

This is the Retirement Investing Today monthly update for the Australian ASX 200 Cyclically Adjusted PE (ASX 200 CAPE).  The last update can be found here.

Before we run the CAPE analysis let us first look at some of the key Australian Stock Market metrics:

• The ASX 200 Price at market close on Friday was 4,709 which is up 1.3% from last month’s Price of 4,649 and up 10.5% year on year.
• The MSCI Australia Dividend Yield is currently 4.6%.  I accept this Index as an ASX200 proxy for both Dividend Yield and P/E Ratio based on this analysis.
• The ASX 200 Earnings (calculated using MSCI Australia P/E Ratio and ASX 200 Price) are currently 304.  This gives an Earnings Yield of 6.5%.
• The MSCI Australia P/E Ratio is currently 15.5 compared with the dataset (since December 1982) average P/E of 18.3

The first chart today shows a historic view of the Real (inflation adjusted) ASX 200 Price and the ASX 200 P/E.  The second chart provides a historic view of the Real (after inflation) Earnings and the Real (after inflation) Dividends for the ASX 200.

Click to enlarge

 Click to enlarge

A Retirement Investing Today Review of 2012

This is a belated 2012 review of my own personal situation.  It comes a little later than most personal finance bloggers for 2 main reasons:

• A portion of my exposure to Australian Equities is held with Vanguard Investments Australia in the form of the Vanguard Index Australian Shares Fund.  This fund distributes income on the 31 December and so it takes a few days for the distribution to be declared and the unit price to adjust.  I can’t close out my year until this occurs.
• I monitor the value of the Retirement Investing Today Low Charge Portfolio on a weekly basis rolling up the values every Saturday.  This means for me my year actually started at the market close on the 06 January 2012 and finished on the market close on the 04 January 2013.

My personal investing strategy is now aligned around the mantra – Save Hard, Invest Wisely, Retire Early so let’s review my year around those 6 short words.

Save Hard

My aim is to regularly save 60% of my earnings.  Earnings I define as my gross (ie before tax) earnings plus any employee pension contributions.  When the year is rolled up I actually missed my target with a result of 55% of earnings being saved.  So where did the money go:

• 32% was invested into Pension Wrappers
• 18% was invested into ISA’s, NS&I Index Linked Savings Certificates and non tax efficient locations 
• 5% was used by my better half to ensure both our early retirement ambitions stay in sync.  Therefore this money didn’t make it into my Invest Wisely but are still family savings so I’ve chosen to include them.

Year end score: Conceded Pass.  The amount saved was nowhere enough for Early Retirement Extreme however it should still be plenty for a nice Early Retirement.  My plan for next year is to get that savings rate back up to 60%.

Invest Wisely

I have continued with the Retirement Investing Today Low Charge Strategy.  My asset allocations at year end are shown in the chart below.

 

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I have continued to invest as tax efficiently as possible.  At year end 69.1% of the total portfolio is invested this way with the distribution being:

• 39.2% held within Pension Wrappers with the majority being within a Sippdeal SIPP
• 17.3% held within NS&I Index Linked Savings Certificates
• 12.6% held within ISA Wrappers.  100% of which is invested within the TD Trading ISA.  I continue to use TD Direct Investing as the Investments I hold within the ISA, plus the fact that I have over £5,100 with TD means I have no annual fees to pay.  This helps ensure I minimise fees and taxes and not just taxes.

Year end score: Pass.  Sure I am only 69.1% tax efficiently invested but I have at least maximised the opportunities made available to me in the year while ensuring I maintain my risk profile.

The S&P 500 Cyclically Adjusted PE (aka S&P 500 or Shiller PE10 or CAPE) – January 2013 Update

This is the Retirement Investing Today monthly update for the S&P500 Cyclically Adjusted PE (S&P 500 CAPE).  Last month’s update can be found here.

As usual before we look at the CAPE let us first look at other key S&P 500 metrics:

• The S&P 500 Price is currently 1,461 which is a rise of 2.7% on last month’s Price of 1,422 and 12.3% above this time last year’s monthly Price of 1,301.
• The S&P 500 Dividend Yield is currently 2.1%.
• The S&P As Reported Earnings (using a combination of actual and estimated earnings) are currently $87.55 for an Earnings Yield of 6.0%.
• The S&P 500 P/E Ratio is currently 16.7 which is up from last month’s 16.3.

The first chart below provides a historic view of the Real (inflation adjusted) S&P 500 Price and the S&P 500 P/E.  The second chart below provides a historic view of the Real (after inflation) Earnings and Real (after inflation) Dividends for the S&P 500.

Click to enlarge

Click to enlarge

As always let us now turn our attention to the metric that this post is interested in which is the Shiller PE10.  This is also shown in the first chart which dates back to 1881 and is effectively an S&P 500 cyclically adjusted PE or CAPE for short.  This method is used and was made famous by Professor Robert Shiller.  It is simply the ratio of Real (ie after inflation) S&P 500 Monthly Prices to 10 Year Real (ie after inflation) Average Earnings. 

It is important to highlight that my calculation method varies from that of Professor Shiller.  He only uses S&P 500 Actual Earnings data where because I use the S&P 500 PE10 to actually make investment decisions from I also include extrapolated Earnings estimates right up to the present day.  This is to try and make the value as current as possible.

Posting the Quarterly Roundup on Monevator (Again)

There is no post today as I’m guest posting over on Monevator what is now a regular quarterly feature – The Monevator Private Investor Market Roundup.  The Roundup reviews various global markets over the last quarter and is in my usual non-emotional (well not too much emotion) fact based analysis and today covers equities, UK housing and commodities.  Some of the content is unique to the Roundup and is not available on Retirement Investing Today.

If this is of interest (and you are not a regular reader of Monevator) here is the link to The Monevator Private Investor Market Roundup for January 2013. ( ) While you’re there you might want to subscribe to Monevator via email, RSS, Twitter or Facebook as the team over there really do make a lot of sense.

As always it would be great to hear your thoughts.