Author Archives: Scalper1

Wisconsin Energy- Let’s Look At It After The Acquisition Of Integrys

Summary Half a year a go I wrote an article about WEC as a dividend growth investor. The latest Q3 report will allow me to understand whether the growth prospects are present. If the acquisition is successful, WEC will have plenty of room to grow. The post merger WEC might offer a 3.5% yield, 6% EPS and dividend growth, and all that in a business that is a regulated monopoly. Introduction Six months ago I wrote an article about Wisconsin Energy (NYSE: WEC ) as a dividend growth stock. At the time, the company was just before the acquisition of Integrys (NYSE: TEG ). Another great article in June also gave investors information about the sealed deal to acquire Integrys. On November 4th, WEC published its Q3 results. The results were great as WEC has beaten the EPS consensus by 3.5% and revenue consensus by 15%. This report and the information given by the company allow me to take a first glance at the new Wisconsin Energy company. Many dividend growth investors such a myself, divide their portfolio by sectors. I don’t like the utilities sector too much, but I am willing to allocate 2.5% of my portfolio to it. In addition, dividend investors also divide the portfolio by “types” of dividend growth stocks. We have stocks with low yields with high growth, medium yield and medium growth and high yield with low growth. It shouldn’t surprise fellow investors that as a 25 years old investor, I prefer the first and second group. However, I also buy shares from the third group for current income as well as diversification. I think that Wisconsin Energy has the potential to be a great investment, as it might offer great starting yield with robust growth especially for a utility company. All that comes as WEC is a regulated company with ROE of over 12%. The outcome of the merger The new Wisconsin Energy is the leading electric and natural gas utility in the Midwest. It has acquired a new growth platform, and it will allow it to access many more clients in the Midwest. Currently, it serves 4.4 million customers which get electricity and gas from the company. It also owns gas and electric infrastructure in several states. The merger has increased the long term debt of the company significantly over the past year. The debt was issued in order to pay for the cash part of the acquisition. However, WEC prioritize to minimize the effects of the additional debt and interest on its free cash flow. It has bought TEG for a relatively low premium when compared to others, and the additional debt didn’t decrease its credit rating. The merger allowed the 8% dividend increase in June, and raised the EPS growth guidance. At the same time, credit rating is intact and the company is managing its debt wisely. The synergies between the companies will allow additional cost savings and higher profit margins. The chairman and the CEO is very happy with the merger result: Since the close of the acquisition at the end of the second quarter, we have made significant progress in focusing our six operating utilities on world-class reliability, customer satisfaction, and financial discipline. I’m very pleased with our post-acquisition work, and we remain highly confident that the merger will deliver tangible benefits to our customers, to the communities we serve, and to the stockholders who count on us to create value. The great management is confident with the merger, and the metrics support their confidence. Revenue, EPS and dividend are up, and margins are regulated by the regulator, but still reach double digits. All this happens in a large utility company that doesn’t receive enough credit from investors. Fundamentals I have discussed the historical fundamentals lengthy in my previous article. I will briefly write the main metrics, and then show the future fundamentals estimates that make me so comfortable with Wisconsin Energy. Revenue growth is irrelevant due to the huge acquisition that resulted in massive growth of the revenue and the amount of shares outstanding. EPS grew over the past decade at a CAGR of over 7%, while dividend grew at a CAGR of over 14%, both figures are impressive. The dividend and EPS are forecasted to grow at around 7% in 2016, and 6% late on. The company is willing to maintain its 67% payout ratio, and is sure in its ability to grow EPS at a CAGR of 6% for the long run. The management is committed to its dividend which is great, and it know it has to manage the debt. Currently, the company enjoys good credit rating. The company has now many more shares due to the merger, and I believe that after some deleveraging, it will use some of its excess FCF to repurchase its shares. Buyback is not something that WEC hasn’t tried already. It used $300 million to buyback its own shares back in 2014. Opportunities Wisconsin Energy is spread across several states and therefore have exposure to several regulators. Indeed, it has the largest exposure to Wisconsin’s legislatures, but the larger spread is an advantage. Moreover, the regulator is acting in stable and fair way towards the company. It allows fair ROE, and doesn’t require too many harsh and expensive measures. The declining price of natural gas is a great opportunity. Wisconsin Energy is pretty green company that uses mostly natural gas and not coal. The whole electric infrastructure is going now towards natural gas which is much cleaner. The lower price will help the company to save money, and the fact that it uses natural gas already will reduce capex that related to transforming coal power plants to gas power plants. On top of that, Wisconsin Energy is a monopoly that enjoys a promises stream of revenues. Indeed, there is tight regulation that comes with it, but still, the company proved that they know how to deal with the regulation and show high ROE and growing revenue, EPS and dividends. Risk The larger amount of debt that the company carries is a risk. Especially now after the probability for raising interest rates is higher. In a higher interest rate environment, the interest expenses will be higher. Yet, the management is aware of that, and is willing to manage the debt carefully until they lower the debt levels. Moreover, the regulation is favorable toward Wisconsin Energy now, but it might change in the future. Expensive laws can forced upon the company, and tighter regulation might demand lower ROE from Wisconsin Energy. Both these measures can harm EPS substantially. Another important point is the lower return on equity. Since the acquisition the return on equity is lower than it used to be. This is due to the acquisition itself, and management will have to take care of it as soon as possible as the decline was pretty sharp. Valuation Valuation may seem a little bit high to some investors, but I disagree. The valuation is fair, and after today’s 4% decline in the stock price it is even more fair. I find the price today reasonable for initiating a new position. WEC PE Ratio (NYSE: TTM ) data by YCharts The forward P/E on this year is 18.15 and for next year it is less than 17. I find it to be reasonable, because you actually buy value with your money. I always like to buy value for cheap, but I don’t mind paying fair price for value as well. Conclusion I will start with a quote and a graph from the latest presentation: WEC is the only company in the S&P Electric Index, S&P Utilities Index, Philadelphia Utility Index and Dow Jones Utilities Average that has grown earnings per share and dividends per share every year for the past 12 years. If you buy Wisconsin Energy now, you buy some real value especially for a utility company. You buy 3.7% dividend yield that will grow at around 6% every year for the medium term, and you get it from a monopoly that knows how to deal with the regulation, deliver good product and satisfy both its customers and its shareholders.

Stock Screening And EV/EBIT

Summary This begins a series of articles communicating my investment philosophy, strategy, and process. I’ve always used stock screens. They’re basically a necessity and more people use them than those just using explicit screening tools. What you screen for matters, and I like to use EV/EBIT for reasons explained below. Screening and using rules like EV/EBIT are fundamental to adding a passive, systematic layer to my investment process, which I feel complements the deep research and intuition. As a new investment manager, I’d like to begin communicating my investment philosophy and strategy in a coherent way. A series of articles will be part of the process of communicating my process. In this, the first article, I will focus on how I source ideas and why I do it this way. Screening I begin with a stock screen. A stock screen is a query of the universe of public securities. There are tens of thousands of public companies globally. There’s too many for one person to do detailed research over any reasonable period (say 1 market cycle or 5-10 years). Unfortunately, I’m one person, so screening it is. There are some gifted investors who manage to be more than one person and who avoid screens. Warren Buffett famously went through every company in the Moody’s stock manuals from A-Z in his partnership days. Others who avoid explicitly using screens and don’t go A-Z rely on intuition to find companies worth analyzing. For example, perhaps an investor reads every new idea published on Value Investors Club or Seeking Alpha, two popular investment research sites I use later in my process. I’d argue this is still screening, just using non-financial criteria. These investors are screening for securities based on the criteria that they are covered on VIC or SA. Criteria are the heart of stock screening and I think they’re a necessity. Evolution What criteria do I use? Since I began investing several years ago, I’ve tried many different criteria. I began with pre-made screens like the Piotroski F-Score, Magic Formula, Ben Graham’s Net-Nets, and others. Gradually I moved toward making my own screens with tools like finviz.com . After a few years, I moved in a different direction. I’d done a lot of reading about the underperformance of most active managers and behavioral psychology. I’d begun playing poker and thinking about the future more in terms of odds and possibilities than certain outcomes. These and other factors led me to use stock screening for more than just finding stocks with metrics that I intuitively like. I began wanting the screens to return a basket of stocks that, based on extensive historical data, would outperform on average. I became interested in systematic strategies. Helpful books on this path were: Joel Greenblatt’s The Little Book that Beats the Market , which I’ve read several times Tobias Carlisle and Wesley Grey’s Quantitative Value James O’Shaughnessy’s What Works on Wall Street Investing on the long side is not zero sum. Stocks in the US have gone up just under 10% nominally and just under 7% really since the 1800s. But as an active investor, I am implicitly not content with market performance. I am trying to achieve what most active investors covet: long-term, sustained market outperformance. Alpha. When you think of market performance as “zero,” the market is zero sum. From there, it is a good idea to frame the question not as “How do I invest?” but instead “How do I sustainably outperform?” Base Rates I think a big part of the answer is by selecting stocks from baskets that outperform. Surely among the unmanageable tens of thousands of stocks out there, there are many baskets of a few hundred, selected based on various criteria, that have historically outperformed. Indeed there are. The academics are all over this. Here I will highlight and contrast just two though. Momentum One is momentum. This is buying stocks that have increased recently and either selling them when they begin to decline (“trend following”) or just holding them for a designated period like one year. This takes many forms because there are many definitions of “increased recently.” Has it increased in the last minute, hour, day, week, month, 50 days, 200 days, year, or 5 years? In general, I’ve gathered that over periods of measurement less than a year, momentum predicts outperformance. Once you extend it further to 5 years, this actually reverses. Momentum then underperforms and stocks that have performed the worst over the prior 5 years (“dumpster diving”) outperform. Here is some data from What Works on Wall Street to support the claim that momentum has predictive value. I won’t elaborate on the details of the tests but they did seem substantive and compelling: Strategy (from universe of All Stocks) Geometric Average Return 1951-2003 All Stocks 13.00% 50 Best 1 year price performance (“1YPP”) 12.61% 50 Worst 1YPP 4.06% Strategy (from universe of Large Stocks) Geometric Average Return 1951-2003 Large Stocks 11.71% 50 Best 1YPP 14.73% 50 Worst 1YPP 9.11% Strategy (from universe of All Stocks) Geometric Average Return 1955-2003 All Stocks 12.55% 50 Best 5YPP 6.89% 50 Worst 5YPP 16.77% Strategy (from universe of Large Stocks) Geometric Average Return 1955-2003 Large Stocks 11.18% 50 Best 5YPP 8.11% 50 Worst 5YPP 14.16% Valuation Metrics – EV/EBIT Another is valuation metrics. A valuation metric is a metric designed to measure the value of a company relative to something else. Valuation metrics are a price tag. They are what you pay over what you get. I label this general category “valuation metrics” because the one metric I am most interested in is not the only valuation metric that predicts market outperformance. Most valuation metrics have significant predictive value. Low PE and Low PB were identified as having predictive value several decades ago and still have substantial predictive value (read: they still work). But there is one that works better than the rest and that is the Enterprise Value to Earnings before interest and taxes multiple or EV/EBIT. First, what is Enterprise Value? Enterprise value is the true economic price of an entire company. It is the company’s market capitalization (share price x number of shares), with adjustments for the cash, debt, and other obligations the company has. Second, what is Earnings before interest and taxes? This is the company’s bottom line, its net income, with interest and tax costs added back. This is done to make performance comparable. A company’s capital structure (the amount of debt and cash it has) changes and this can also be a point of difference between companies. If we want to compare the operating performance of a company with that of another company or its own performance in a prior year, we get rid of the interest and tax to isolate for what we’re trying to measure. Put simply, EBIT is a purer measure of the profitability of most companies’ operations than any other number on the income statement. Together, EV and EBIT create a very powerful metric because they are both very sound measures of what they independently seek to capture: price and profit. As I mentioned, EV/EBIT is a quite powerful metric. I’ve done the following backtest in Bloomberg: US stocks Excluding utilities and financials Market cap > $20mm Equal weight (about 200 holdings at any one time) 1 year holding period Annual rebalancing Lowest 10% of the market on EV/EBIT From 1995-2015 (furthest back I could go with the test) This strategy generated annual returns of 21.68% versus 9.43% for the S&P 500. There are some other predictors in there like the inclusion of micro-caps, which historically outperform, and equal weighting, which outperforms, but there’s nothing wrong with that given that I don’t size based on market cap in my accounts and am able to invest in micro-caps. The biggest issue with this test is the limited sample size of only 20 years, but that’s all I could get with the data I had. In Quantitative Value, Carlisle and Grey subject EV/EBIT to many things that are “proper” for academic studies, but unnecessary and really detract from performance, and yet EV/EBIT still performs really well. They also did the lowest 10% of the market on EV/EBIT and excluded utilities, financials, REITs, and ADRs, but they also: Excluded any company from the universe with a market cap less the 40th percentile on the NYSE which translated in the study to less than $1.4B in 2011 dollars Market cap weighted instead of equal weighted Nevertheless, they found that the strategy returned 14.55% annually over 48 years from 1964-2011, beating the S&P 500 by 5.03% per year. Further, the top decile (highest 10% of population on EV/EBIT) underperformed the market by 2.43%/yr, so there is a spread of about 7.5% in annual performance between the top and bottom deciles. The most meaningful takeaways there are that the predictive ability still holds up with rigorous testing and over many market cycles (almost 50 years is a good-sized sample). Finally, EV/EBIT is one of the metrics used in the Magic Formula. The Magic Formula takes the 3500 largest stocks by market cap in the US and assigns a number rank to each based first on return on invested capital, a profitability metric, and then on EV/EBIT. So each stock has two rankings. These rankings are added together. The 30 stocks with the highest (smallest number) combined rank are equal weighted and rebalanced annually. According to Greenblatt, this strategy did like 30% annual returns over almost 20 years ending around when the book was first published in. Note that it’s been a while since I last read the book so those numbers may not be precise, but the bottom line is that the results were really good. Some issues here are the limited sample size in terms of years and the size of the basket, but the results are still compelling. Studies trying to replicate Magic Formula have found that the inclusion of ROIC actually detracts from its performance. In other words, EV/EBIT’s predictive ability is driving more than 100% of the performance. But Why? So EV/EBIT and momentum both perform well. But why? I don’t think it is enough only to have historical predictive value. It also makes sense. The test I use is “would I look for this if I were analyzing any one stock or business for prospective purchase?” If it doesn’t make sense but looks good and we go with it, we assume a major risk: data mining. One study attempting to illustrate data mining found that 99% of S&P 500 movement over 12 years was predicted by butter production in Bangladesh. Correlation does not equal causation. Past predictive value does not equal future predictive value. Source: Forbes And this is why I really like EV/EBIT. It makes sense. If I were looking at an individual company, a low EV/EBIT would look very appealing to me. In fact, I often value stocks, in part, using this metric. It also makes sense that buying things at lower prices is a good strategy. Momentum does not make as much sense to me. Why buy things now when it’s gotten so much more expensive? Except for certain luxury items, the appeal of most products decreases as the price increases. Conclusion So this is a big part of my process. I screen based on EV/EBIT, generate a list of a few hundred companies, and go through them one by one. There is intuition involved, but I’d say the list generation process is pretty systematic. Both are important and I like where my strategy is positioned. There are elements of both deep analysis and disciplined rules in my process and I think that’s a good place to be. I don’t know if I’ll always be using EV/EBIT and I doubt it will always be my primary focus, but I think the more important point is to have a defined process that makes sense, and, for me, to stay positioned at the crossroads of active and passive investing, rules and intuition as the lines between these seeming dichotomies blur in the future.

Are Utility Stocks In A Bubble?

Summary Utility stocks have benefited significantly from extremely low interest rates over the last 5+ years. Yield-starved investors have chased the sector, and utilities’ high debt loads have benefited from lower financing costs. The utilities sector plunged over 3% on Friday with expectations rising for the first Federal Funds rate hike in nearly 10 years. We look at the sector’s current yield relative to history and how it performed during the last period of tightening. Utility stocks pay some of the safest dividends around and typically sport much higher dividend yields than the market, reflecting their low growth prospects and making them a favorite source of income for retirees living off dividends . Many dividend investors wonder if favorite utility stocks like Duke Energy (NYSE: DUK ), National Grid (NYSE: NGG ), NextEra (NYSE: NEE ), Dominion Resources (NYSE: D ), and Southern (NYSE: SO ) are in a bubble today after benefiting from extremely low interest rates for more than six years. Utilities were clobbered on Friday after strong employment data strengthened the likelihood that the Fed would raise interest rates next month for the first time since mid-2006. The fear is that many investors flooded into higher yielding stocks like utilities because they could not earn enough safe income from the very low yields bonds offer today (see below). Once bond yields begin to rise as the Fed gradually raises its target interest rate, these investors might sell their stocks to purchase bonds. Source: Simply Safe Dividends , Federal Reserve Bank of St. Louis As seen below, we have been living in unprecedented times over the last seven years, with the Fed’s target interest rate remaining just above zero percent. It has never been this low for this long before, so there is plenty of uncertainty regarding how an eventual interest rate increase, as early as December, will impact markets and yield-sensitive sectors like utilities. Have these safe haven sectors been artificially inflated by the Fed’s easy money policy? Will they pop when interest rates begin to rise? Source: Simply Safe Dividends, Federal Reserve Bank of St. Louis Many dividend investors are clearly worried. On Friday, November 6th, a strong US payroll report came out. The Fed watches employment figures and inflation to determine its stance on interest rates, and the strong jobs report signaled that a rate hike in December was now almost a certainty. This would be the first rate increase since 2006. Immediately, many dividend aristocrats and utilities sold off hard. The XLU utility ETF finished the day down more than 3.5% despite the S&P 500 finishing about flat. Clearly the knee-jerk interest rate trade is to sell higher yielding, slower growing companies like utilities in favor of interest rate beneficiaries like banks (the Financials sector was the strongest performer on Friday) and more cyclical growth companies that would benefit the most from an improving economy. Before diving into utilities in particular, let’s take a step back and look at the S&P 500’s dividend yield relative to its history and the Federal Funds Target Rate. As seen below, the S&P 500’s dividend yield sits just below 2% today compared to the Federal Funds Target Rate of 0.25%. If we were living in a dividend stock bubble that could be popped by rising interest rates over the next few years, we would expect the market’s dividend yield over the past several years to be extremely low relative to history. Source: Simply Safe Dividends, Federal Reserve Bank of St. Louis However, this is clearly not the case. The last time interest rates were exceptionally low was during 2003 when they sat at 1% for several quarters before tightening significantly to 5.25%. During 2003, the market’s dividend yield hovered around 1.5%, 25% lower than today’s dividend yield. We can also see the market’s extreme euphoria during the tech bubble when the S&P 500’s dividend yield dipped to 0.98%, half of today’s yield. Perhaps most interesting is the period from 2004 through mid-2006 when the Fed tightened interest rates from 1% to 5.25%. The market’s dividend yield increased around 20%, from 1.5% to 1.8%, but both of these yields are still lower than the market’s yield today. While certain parts of the market are likely more vulnerable than others during a period marked by rising rates, the entire class of dividend paying stocks does not appear bubbly relative to the last 20+ years of market data that we can observe, especially relative to current interest rates. What about the utilities sector? The Conservative Retirees dividend portfolio we oversee has meaningful exposure to utilities and REITs. As you can imagine, Friday wasn’t a great day. While we don’t lose any sleep over our holdings’ abilities to continue paying and growing their dividend payments, we remain mindful of the portfolio’s overall total return potential (income and price return) and continuously look to minimize our downside risk. If utilities and REITs are in a bubble, we should seek returns elsewhere until conditions normalize as a result of rising interest rates. The chart below compares the annual total return of the S&P 500 (blue bars) and the Utilities sector (red bars). The Federal Funds Target Rate (green line) is also displayed to highlight periods of rising and falling rates. Many investors are quick to assume that higher yielding dividend stocks like utilities will be major underperformers over the next five years as interest rates gradually rise. Source: Simply Safe Dividends, Federal Reserve Bank of St. Louis However, we can see that during the last period of rising rates, from 2004 to 2006 when rates increased from 1% to 5.25%, the utilities sector actually outperformed the S&P 500 in each of those years! Despite four straight years of outperformance relative to the market during 2004-2007, utility stocks still significantly outperformed during the 2008 market crash. 2014 was a huge year for the utilities sector, which returned about 30% and easily outpaced the market. Many investors have predicted higher interest rates in each of the past few years, but the Fed has continued delaying, helping utility stocks outperform. However, December 2015 could finally vindicate those expecting higher rates. Not surprisingly, the chart above also shows that utility stocks have return -8.1% YTD, significantly trailing the market’s 3.7% return and reflecting investors’ expectations for a rate hike next month. With rates looking set to move higher, will utility stocks need to meaningfully drop in value to keep their dividend yields relatively attractive for investors? While we can’t predict the future, we can compare the dividend yield of utility stocks today to their yield throughout history. The chart below does just that while overlaying the Federal Funds Target Rate (red line). Utility stocks, as represented by the XLU ETF, closed Friday with a dividend yield of 3.7%. This yield is higher than the 3.4% yield utility stocks had in 2003 when interest rates were 1%, and it’s also higher than the 3.4% yield utility stocks topped out at in 2006 when rates peaked out at 5.25%. Source: Simply Safe Dividends, Federal Reserve Bank of St. Louis The utility sector’s dividend yield has been in a downward trend since 2009, but its current yield appears quite reasonable relative to the last decade and historical interest rates. Once again, we don’t see signs of a bubble here despite Friday’s price shock. Finally, we compared the Utility sector’s dividend yield to the S&P 500’s dividend yield over the last decade. The chart below shows the difference between the two yields. A figure of 2% would mean that the Utility sector’s dividend yield was 200 basis points higher than the S&P 500’s yield (e.g. 5% yield compared to a 3% yield). A lower yield gap suggests that utility stocks could be expensive relative to the market. While the yield premium has come down meaningfully since peaking out at 2.4% in early 2011, its current reading is about in line with where it traded prior to the rate increases that occurred from 2004 through mid-2006. Interestingly, the yield premium fell during this time as utility stocks outperformed the market. Unless cyclical growth stocks really take off and leave utility stocks behind, it’s hard to imagine the yield premium returning to 2.4%. Source: Simply Safe Dividends How Interest Rates Actually Impact Utility Stocks Beyond historical dividend yields and interest rates, remaining focused on companies’ fundamentals is the key to long-term investing success. For this reason, it is important to understand why interest rates are very important to utilities’ actual businesses (not just fickle investor sentiment). First, utilities maintain extremely large debt loads. Constructing and maintaining power plants and infrastructure to deliver electricity and gas are extremely costly activities. The stable cash flows generated by utilities alleviate some of their credit risk, but the regulatory environment in each operating region plays a big role in a utility company’s health. Some companies are able to gain regulatory approval to increase the rates charged to customers to finance the large construction projects and higher borrowing costs they undertake, while others must absorb more of these costs themselves if customers cannot afford higher rates, lowering earnings. Many utilities have benefited from lower interest rates over the last 5+ years, allowing them to cheaply improve their infrastructure and refinance high interest rate debt to improve cash flow generation. Improved cash flow and the lower cost of debt has also enabled some utilities to acquire businesses in non-regulated industries to gain exposure to faster-growing businesses over the past few years, perhaps reducing the sensitivity of their businesses to interest rates. While rising rates make other yield investments relatively more attractive and could gradually increase utilities’ borrowing costs, it is important to remember why interest rates generally rise in the first place. The Fed will only raise rates if it believes the US economy is strengthening and inflationary pressures are gaining steam. In such an environment, consumers are doing well and are more able to afford higher energy prices. For utilities operating in regions with favorable regulation, this means they have a greater ability to pass on their higher borrowing costs resulting onto consumers through higher energy bills, protecting and growing earnings. As we previously showed, during the last tightening period from 2004 through 2006, utility stocks actually outperformed the market in each year! It’s far from a certainty that rising rates over the next few years will be worse for utilities than the rest of the stock market. So, Are Utility Stocks in a Bubble? While the plunge in higher yielding, slower growing companies such as utilities was painful on Friday, it is important to keep the big picture in perspective and remain resistant to swings in market sentiment. Given the world’s fragile state, the Fed seems likely to very gradually raise interest rates, assuming it does indeed start to act in December. Whether rates rise or fall, owning a portfolio of reasonably priced companies that earn solid returns on capital and grow their cash flow (and dividends) over long periods of time will always be a winning strategy. That is what we try to do with our Top 20 Dividend Stocks portfolio , which includes several REITs and utilities. From a historical point of view, dividend stocks do not appear to be in a bubble, but they could decline in the initial months surrounding an interest rate increase like they have in the past . Utilities’ dividend yields also appear reasonable, and these stocks actually outperformed the market during the last period of rising rates from 2004 through 2006. While anything can happen and we are coming off of an unprecedented period of low interest rates, we do not see a bubble today and believe that most utility stocks will continue providing stable income and reasonable downside protection for many portfolios, even if they continue experiencing near-term price volatility.