{"id":12566,"date":"2024-09-29T16:45:37","date_gmt":"2024-09-29T20:45:37","guid":{"rendered":"https:\/\/economicherald.net\/?p=12566"},"modified":"2024-09-29T16:45:37","modified_gmt":"2024-09-29T20:45:37","slug":"hot-money-monday-cpi-mrp-and-alpha-a-trio-investors-should-watch","status":"publish","type":"post","link":"https:\/\/economicherald.net\/?p=12566","title":{"rendered":"Hot Money Monday: CPI, MRP and Alpha \u2013 a trio investors should watch"},"content":{"rendered":"

CPI falls to 2.7pc, boosting investor confidence
\nLower inflation means higher real returns for stocks
\nMarket risk premium and Alpha are also important concepts for investors<\/p>\n

\u00a0<\/p>\n

The CPI<\/h2>\n

Last Wednesday, the Australian Bureau of Statistics released the latest inflation numbers, showing that Australia\u2019s CPI rate<\/strong> has fallen to 2.7% in August, down from 3.5% in July.<\/p>\n

This is the first dip within the RBA\u2019s target band of 2-3%, and the lowest level we\u2019ve seen since 2021.<\/p>\n

For stock investors, this is good news because if you want to keep your hard-earned cash from losing its purchasing power, understanding the interplay between stock returns and inflation is crucial.<\/p>\n

After all, a decent return might not feel so great if it doesn\u2019t outpace rising prices.<\/p>\n

When inflation is low, the stock\u2019s real return \u2013 what you actually earn after factoring in inflation \u2013 tends to be higher.<\/p>\n

Real Return = Nominal Return \u2013 Inflation Rate<\/h2>\n

For instance, if your investments grow by 5.7% and the current inflation rate is 2.7%, your real return would be 3%. This means that when inflation is lower, your returns are effectively higher.<\/p>\n

Worth noting that the Nominal Return here refers to the total return of the stock \u2013 ie; capital gains and dividends.<\/p>\n

\u00a0<\/p>\n

The MRP<\/h2>\n

Another important concept for investors is the market risk premium (MRP)<\/strong>, which represents the extra return expected from a stock portfolio compared to a risk-free investment, such as government bonds.<\/p>\n

Stock investors should aim for higher returns than government bonds because investing in stocks inherently involves greater risk.<\/p>\n

The MRP reflects that additional risk that investors assume when they choose to invest in the stock market rather than in safer assets.<\/p>\n

Stock investors typically look at the yield on 10-year government bonds when calculating the market risk premium.<\/p>\n

The 10-year bond is commonly used because it strikes a balance between short-term and long-term rates, providing a more reliable measure of the risk-free rate over time.<\/p>\n

\u00a0<\/p>\n

Australian 10-year government bond yield<\/h2>\n

Source: MarketWatch <\/em><\/p>\n

\u00a0<\/p>\n

The Alpha<\/h2>\n

Yet another important concept is called the Alpha return<\/strong>.<\/p>\n

Alpha measures how much better or worse a stock performs compared to a benchmark, such as the the SPI ASX200 index benchmark.<\/p>\n

It essentially represents the \u201cextra edge\u201d an investment has, so when a stock\u2019s return beats the benchmark index, that\u2019s considered positive alpha.<\/p>\n

This measure is important because it helps investors assess how well a portfolio or fund manager is doing compared to simply tracking the overall market.<\/p>\n

For many investors and fundies, achieving alpha is the ultimate goal.<\/p>\n

Also it\u2019s worth noting that if a portfolio manager charges fees but only achieves a return that matches the market \u2013 resulting in zero alpha \u2013 investors might actually end up losing money after covering those costs.<\/p>\n

\u00a0<\/p>\n

ASX small caps with the best returns this year so far<\/h2>\n
<\/div>\n
\n
<\/div>\n

Code Name Price Return YTD EZZ EZZ Life Science $3.52 442% SIX Sprintex $0.07 431% LRV Larvotto Resources $0.37 429% CHW Chilwa Minerals $0.91 420% LTP LTR Pharma $1.74 404% FND Findi $5.19 404% SKS SKS Technologies $1.48 393% ASL Andean Silver $1.17 331% KLI Killi Resources $0.19 311% KP2 Kore Potash $0.05 283% <\/p>\n

<\/div>\n<\/div>\n

WordPress Table Plugin<\/a><\/p>\n

\u00a0<\/p>\n

Now read this: \u2018Eat well or sleep well?\u2019 \u2013 this trading signal helps choose stocks based on your risk tolerance<\/a><\/strong><\/em><\/p>\n

\u00a0<\/p>\n

The post Hot Money Monday: CPI, MRP and Alpha \u2013 a trio investors should watch<\/a> appeared first on Stockhead<\/a>.<\/p>","protected":false},"excerpt":{"rendered":"

CPI falls to 2.7pc, boosting investor confidence Lower inflation means higher real returns for stocks Market risk premium and Alpha are also important concepts for [more…]<\/a><\/p>\n","protected":false},"author":0,"featured_media":12567,"comment_status":"","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[],"class_list":["post-12566","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-finance"],"yoast_head":"\nHot Money Monday: CPI, MRP and Alpha \u2013 a trio investors should watch - Economic Herald<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/economicherald.net\/?p=12566\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Hot Money Monday: CPI, MRP and Alpha \u2013 a trio investors should watch - 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