Canadian Housing is Being Propped Up by Just One City
Without Vancouver’s gains, the market would have dipped -1.1% in February 2016
The Chart of the Week is a weekly Visual Capitalist feature on Fridays.
“Markets can remain irrational longer than you can remain solvent.” – John Maynard Keynes
The last time we gave a good run down of Canada’s housing market was in May 2015, when we noted that The Economist gave it the dubious title of the most overvalued housing market in the world. Since then, in just 10 months, prices in Vancouver and Toronto have soared to marks that are 14.1% and 8.7% higher respectively.
Frothy prices, million-dollar shacks, and buying frenzies have prompted world-class short-sellers to come out of the woodwork. For a speculator such as Marc Cohodes, who advises hedge funds on Wall Street that want to bet against the Canadian housing market, this type of classic bubble behavior is music to his ears.
“The cross currents are beyond crazy in Vancouver — it’s a mix of money laundering, speculation, low interest rates,” says Cohodes, who was once profiled as Wall Street’s highest-profile short-seller by the New York Times. “A house is something you live in, but in Vancouver you guys are trading them like the penny stocks on Howe Street.”
Mr. Cohodes has recently said that Canadian real estate has reached “peak insanity”, and it’s part of the reason that investors around the world are trying to find a way to bet against the market.
Home Capital Group, one of Canada’s largest financial institutions, was one of the most-shorted stocks last year on Canadian exchanges. The same alternative mortgage lender recently also came under scrutiny for suspending 45 of its brokers for falsifying borrower income.
Just as falling oil prices helped to drag the Canadian dollar down, the “lower for longer” price environment for crude has had a similar effect on house prices in the Prairies. Homes in Fort McMurray, the epicenter of the Canadian oil sands, have crashed an average of $117,000 in just a year.
Meanwhile, price tags in the once-strong housing market of Calgary have declined from their peak in October 2014 by -5.4%. The city, which is a financial center for Canadian energy, is bracing for a particular tough year ahead as well. Houses are spending more time on the market, and sales volume and prices continue to fall.
But it’s not just Canada’s oilpatch that is starting to see the writing on the wall. Toronto, which has helped to buoy the rest of the country’s housing growth for years, has also started to cool down.
According to the Teranet – National Bank House Price Index, prices have risen just 0.3% since October in Canada’s largest real estate market. With the prospect of rising interest rates in the future, it’s not expected to heat back up, either. In fact, TD Bank expects that Toronto will have a “moderate” decline in 2017.
And Then There was One…
For investors bullish on near-term gains in Canada’s housing sector, there is one last hope that resides on the West Coast.
Vancouver’ housing market sailed again in February, shooting up a record 3.2% in just one month. This is the best month for the market since August 2006. It was so good, in fact, that it single-handedly propped up Canada’s national index for housing.
Canada’s market as a whole saw gains of 0.6% in the month, but it would have dropped to a lacklustre -1.1% without the inclusion of Vancouver in the 11-city index.
The only problem?
While Keynes is right in that markets can remain irrational for longer than one can stay solvent, it seems that Canadian housing has turned a corner: regional markets in other parts of the country have stumbled, and the last remaining pillar is Vancouver.
It may continue to buck the trend for now, but it is a wobbly pillar at best.
Unlocking the Return Potential in Factor Investing
Factor investing has demonstrated its potential to outperform the general market for years. In this infographic, learn how to apply it in your portfolio.
What is the best way to predict success?
In baseball, the game’s strategy was forever changed when Oakland Athletics traded in the standard scout’s intuition for a data-driven approach. It was a switch that eventually led the team to an impressive 20-game winning streak, depicted in the movie Moneyball—it also kickstarted a broader revolution in sports analytics.
Similarly, successful data patterns are also being discovered by experts in the investing world. One such framework is factor investing, where securities are chosen based on attributes that are commonly associated with higher risk-adjusted returns.
Factor Investing 101
Today’s infographic comes to us from Stoxx, and it explains how factor investing works, as well as how to apply the strategy in a portfolio.
A Selective Approach
There are two main types of factors. Macroeconomic factors, such as inflation, drive market-wide returns. Style factors, such as a company’s size, drive returns within asset classes.
Analysts have numerous theories as to why these factors have historically outperformed over long timeframes:
- Rewarded risk
Investors can potentially earn a higher return for taking on more risk.
- Behavioral bias
Investors can be prone to acting emotionally rather than rationally.
- Investor constraints
Investors may face constraints such as the inability to use leverage.
Astute investors can capitalize on these biases by targeting the individual factors driving returns.
The Common Style Factors
Based on academic research and historical performance, there are five style factors that are widely accepted.
- Size: Smaller companies have historically experienced higher returns than larger companies
- Low Risk: Stocks with low volatility tend to earn higher risk-adjusted returns than stocks that have higher volatility.
- Momentum: Stocks that have generated strong returns in the past tend to continue outperforming.
- Quality: Quality is identified by minimal debt, consistent earnings, steady asset growth, and good corporate governance.
- Value: Stocks that have a low price compared to their fundamental value may generate higher returns.
It is becoming more straightforward for investors to implement these factors in a portfolio.
How Can You Apply Factor Investing?
All investors are exposed to factors whether they are aware of it or not. For example, an investor who puts capital in an ESG fund—targeting companies with good corporate governance—will have some level of quality exposure.
However, there are various approaches investors can take to implement factors intentionally.
Factors perform differently over the course of a market cycle. For example, low volatility stocks have historically performed well during market downturns such as the 2008 financial crisis or the 2015 sell-off.
Investors can consider macroeconomic information and their own market views, and adjust their exposure to individual factors accordingly.
Factors tend to exhibit low or negative correlation with each other. For a long-term strategy, investors can combine multiple factors, which increases portfolio diversification and may provide more consistent returns.
For each factor, there are investments that lie on either end of the spectrum. Experienced, risk-tolerant investors can employ a long-short strategy to play both sides:
- Hold long positions in attractive securities, such as those with upward momentum
- Hold short positions in unattractive securities, such as those with downward momentum
This diversifies potential return sources, and reduces aggregate market exposure.
Capturing Factors Through Indexing
Active managers have been selecting securities based on factors for decades. To capture factors with precision, managers must carefully consider numerous elements of portfolio construction, such as the starting investment universe and the relative weight of securities.
More recently, investors can access factor investing through another method: indexing. An indexing approach provides a framework for capturing these factors, which helps simplify the investment process. Based on objective rules, index solutions provide a higher level of transparency than some active solutions.
Not only that, their efficiency makes them more suitable as tools for building targeted outcomes.
The Future of Factors
In light of indexing’s various benefits, it’s perhaps not surprising that exchange-traded factor products have seen immense growth in the last decade.
In addition, there’s still plenty of room for factor ETF expansion in equities and other asset classes. Only about 1% of factor ETFs invest in fixed income, and 70% of surveyed institutional investors believe factor investing can be extended to the asset class.
As solutions continue to evolve, factor products could become the foundation of many investors’ portfolios.
Ranked: The World’s Most Downloaded Apps
The app economy is expected to be over $6 trillion by 2021—see the world’s most downloaded apps and how they’re driving the future of this market.
Ranked: The World’s Most Downloaded Apps
From strategically finding love, to helping researchers search for extraterrestrial life—there is quite literally an app for almost anything these days.
It is therefore no surprise that apps have become one of the largest consumer ecosystems on the planet, with the global app economy expected to reach $6.3 trillion by 2021.
Today’s graphics pull data from a recent report by Sensor Tower that ranks the top 20 most downloaded apps of 2019. New entrants are rising up and threatening the dominance of more established tech companies—but can they sustain their current position on the leaderboard?
The Champions of the App Economy
According to the report, total app downloads grew to 115 billion in 2019, including almost 31 billion downloads on the App Store and 84 billion on Google Play.
Social media giant Facebook owns four out of five of 2019’s most downloaded apps: Facebook, Facebook Messenger, WhatsApp, and Instagram. Collectively, they boast an eye-watering 16 billion downloads—with WhatsApp holding the top spot for the fourth year running.
Growth in the short-form video category is apparent. The video creation app Likee joined this year’s ranking and sits in sixth place, with the majority of the app’s 330 million downloads coming from India.
The app lets users edit videos using a wide variety of effects, and directly competes with TikTok—a lip syncing app that entered the ranking in 2018 and now threatens WhatsApp’s position at the top of the leaderboard.
Which Apps Are Climbing the Ranks?
TikTok is the newest platform to turn its users into viral sensations, grossing $177 million in 2019. This is equal to more than five times its 2018 revenue. TikTok also bypassed Instagram in 2018, breaking Facebook’s foothold on the top four apps globally.
TikTok is owned by Chinese tech firm ByteDance, the most valuable private company in the world—and 78% of TikTok’s total Q4’2019 revenue came from its native country.
Aside from several short-form video entrants, new players from other industries continue to storm up the ranks. While they don’t make the list of most downloaded apps yet, their recent success could change that.
Netflix is the only streaming service to make it into the top 20 most downloaded apps, but the launch of Disney+ could potentially change that.
Despite a November launch, Disney+ became the second most popular new app of 2019. Within a month, the service generated $50 million in revenue.
To put this into context, Disney+ acquired 34% of all streaming app downloads in less than three months, or 30 million subscribers—half of Netflix’s current 60 million U.S. subscribers. That figure also surpasses Hulu and Amazon Prime’s figures for the entirety of 2019.
With 2.4 billion people playing mobile games in 2019, gaming is also set to become a major player in the app economy.
Two popular console franchises, Call of Duty and Mario Kart, recently entered the mobile market to become two of the most successful games in the category.
The free mobile version of Call of Duty had the second best quarter of any mobile game ever, with 170 million worldwide downloads. Only Pokémon GO had a better quarter, with more than 300 million installs when it launched in 2016.
The success of these apps can be attributed to their already established consumer base, and the evident shift in more gamers moving to mobile platforms as smartphone technology and processing speeds improve.
Countries Leading the App Economy
The app economy is also being fueled by growth in emerging markets including China, India, Brazil and Russia, thanks to faster internet speeds and increasing smartphone adoption rates.
Specifically, India’s increasing digitization is driving significant growth in the market. The country witnessed nearly 5 billion app installs in the last quarter of 2019—surging ahead of the U.S. with just over 3 billion installs.
Note: As Google Play is not available in China, the country was excluded from this chart.
India’s demand could be attributed to the fact that half of its 1.3 billion population is under the age of 25. A younger, tech savvy audience has resulted in India becoming TikTok’s top market, commanding 45% of the app’s first time downloads in 2019.
The App Economy 2.0
With an explosion in user spending, and seemingly endless opportunities for innovation, the global app economy shows a tremendous amount of promise, but is still in its early days.
Consumers spent $101 billion on apps globally in 2018. This is double the size of the global sneaker market, and nearly three times the size of the oral care industry.
—Danielle Levitas, EVP of Global Marketing & Market Insights at App Annie
Rising consumer spend combined with other forms of monetization, such as advertising and mobile commerce, could soon enable the app market to surpass the trillion dollar barrier in revenue.
While many experts claimed that the app industry was dead in its tracks, it’s safe to say that those predictions are now being irrefutably challenged.
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