Market Is 2nd Most Overvalued, after 1999’s, David Tepper Says

The stock market today is the second most overvalued in recent memory, trailing only that of 1999, during the dot-com era, says hedge fund chief David Tepper.

“The market is pretty high and the Fed has put a lot of money in here,” said the founder of Appaloosa Management (assets: $13 billion, as of year-end 2019), in remarks that some analysts contended helped pull down stocks for the day. “There’s been different misallocation of capital in the markets. Certainly, you are seeing pockets of that now in the stock market. The market is by anybody’s standard pretty full.”

The S&P 500 lost 1.75% Wednesday, hitting a three-week low, also surely owing to Federal Reserve Chairman Jerome Powell’s comments that the odds of a lasting economic slump may worsen without more government relief spending.

Appearing in a mid-day CNBC program, Tepper said we are in “maybe the second-most overvalued stock market I’ve ever seen. I would say ’99 was more overvalued.”

Want the latest institutional investment industry news and insights? Sign up for CIO newsletters. 

The S&P 500 is trading at a trailing price/earnings (P/E) ratio of 22, in line with where it has mainly been over the past four years amid history’s longest bull run. In 1999, the average P/E was 33. This year, after the market skidded in February and March, it has retraced a lot of its losses and now sits at 13% below the Feb. 19 high.

Unimpressed, Tepper contended that the recent rally doesn’t necessarily have the momentum to keep going—and escape another dive, although he doubted it would go below the February low point. “There might have been a bottom put in … but that doesn’t mean you can’t fall significantly from these levels,” he said.

Taking on the big tech names that have driven the market higher, Tepper labeled some of the values on Nasdaq “nuts.” One high-flying name he cited as an exception, despite its 112 P/E, was Amazon. He called the online retailer, whose revenue skyrocketed 26% in the first quarter (versus the year-ago period), “perfectly positioned.”

Tepper, who said he is just 10% to 15% long on equities, is eyeing transforming his hedge fund firm into a family office. That would give him more time for other pursuits, such as his ownership of football’s Carolina Panthers.

His thoughts carry a lot of weight on Wall Street and his public pronouncements often have a role in moving the market. After Wednesday’s TV appearance, stocks started to dip. He won fame for, among other things, the canny play he made in 2009, through bargain-buying of beaten-up financial stocks, such as Bank of America, then going for $3 a share. Appaloosa cleaned up, making $7 billion when financial firms recovered from their 2008 near-death experience.

Appaloosa Founder Tepper Buys the Carolina Panthers

The Worst Might Be Over for Stocks, JPM Says

Tags: Amazon, Appaloosa Management, David Tepper, dot-com bubble, Jerome Powell, Stock Market

The $1.11 billion Rockefeller Brothers Fund, a philanthropy founded by the eponymous family that made its fortune from oil, is boasting that divesting from fossil fuels in 2014 has provided better returns for its portfolio than if it hadn’t divested.

The fund said that in the five-year period ending Dec. 31, 2019, its portfolio returned 7.76%, while an index portfolio made up of 70% stocks and 30%, which includes coal, oil, and gas holdings, returned only 6.71% annually over the same period.

“When we joined the divestment movement, we were convinced that a more profitable and less risky investment portfolio could be constructed without exposure to fossil fuels,” Valerie Rockefeller, chair of the Rockefeller Brothers Fund’s board of trustees, and great-great-granddaughter of John D. Rockefeller, said in a release. “Now we have five years of financial data to back it up.”

Rockefeller Brothers began to divest from fossil fuels in 2014 and has since all but eliminated coal and tar sands from the endowment and dramatically reduced total fossil fuel exposure. It also has expanded its so-called “impact investments,” which it says are on pace to become 20% of the portfolio within a few years. The fund defines impact investments as investments that deliver market-grade returns and generate meaningful and measurable impact on the fund’s mission to advance social change.

Want the latest institutional investment industry news and insights? Sign up for CIO newsletters. 

When the first comprehensive analysis of fossil fuel exposure in the endowment was conducted by its money management firm Agility, carbon-intensive coal and tar sands accounted for 1.6% of the portfolio, and total exposure to all fossil fuels stood at 6.6%.

The divestment commitment Rockefeller Brothers made in 2014 vowed to eliminate from the portfolio of all exposures to coal and tar sands, which it says are particularly carbon-intensive, and then examine how best to purge the endowment of oil and gas. To cut fossil fuel exposure, the fund sold off mutual funds, exchange-traded funds (ETFs), hedge funds, and other investment vehicles that owned the stocks or bonds of energy producers—or any company that held fossil fuel reserves.

Rockefeller Brothers says that, as of the end of 2019, the endowment was 99% fossil fuel free. Coal and tar sands account for less than 0.1% of the fund, while the other 0.9% that still has fossil fuel exposures are legacy investments that are running off. These are a subset of assets the fund categorizes as traditional, which means they do not have explicit agreements preventing managers from holding fossil fuels.

Traditional investments account for 31.6% of the Rockefeller Brothers’ investment portfolio. New investments in this category are assessed to determine that they don’t hold fossil fuel reserves and are not involved in fossil fuel industries. For example, a fund that invests in biotechnology stocks may not have a specific mandate to exclude fossil fuels, but the definition of the fund’s investment objectives will all but guarantee such an exclusion.

To determine which public companies hold coal, oil, and gas reserves and are ineligible for the Rockefeller Brothers endowment, Agility relies primarily on the MSCI Fossil Fuel Reserves Screen. This identifies nearly 400 companies across a range of industries that own fossil fuel reserves. That’s out of a total universe of about 8,500 securities in the MSCI All Country World Index that the fund uses as its equity benchmark.

“Oil is obviously a definitional part of my family’s past,” Rockefeller said. “But it has no place in our future.”