Stocktake: Marissa Mayer’s Yahoo pay deal is senseless

Some estimates suggest Yahoo chief executive Marissa Mayer will have pocketed more than $200 million by the time she walks away from Yahoo, the fallen search giant which recently sold its web assets to Verizon for $4.8 billion.

Mayer’s pay package has been met with incredulity, given her failure to turn around the company, although defenders point to the 151 per cent gain in Yahoo’s share price during her four-year tenure.

As defences go, it’s a profoundly weak one. Almost all of Yahoo’s share price rise can be attributed to its 15 per cent stake in Chinese e-commerce behemoth Alibaba, a purchase made back in 2005. The company also benefited from its 35.5 per cent stake in Japanese-listed Yahoo Japan, a separate firm that has enjoyed healthy share price gains in recent years.

Blaming Mayer for Yahoo’s decline is harsh – the rot set in long before she took over in 2012. The notion she has somehow earned her gargantuan pay package, however, is fanciful, to say the least.

Top-paid CEOs are worst performers

Yahoo is not the only company where CEOs are rewarded for failure, according to a new MSCI report.

The report, Are CEOs Paid for Performance?, examined pay deals at 429 US companies. Ironically, the worst performers enjoyed the biggest pay deals: $100 invested in the quintile of companies with the highest-paid CEOs would have grown to $265 over a 10-year period, compared to $367 for the companies with the lowest-paid CEOs.

Share price gains are a crude way of measuring CEO worth; after all, an energy executive should not be blamed if shares tank due to a collapsing oil price.  However, MSCI found the same phenomenon was evident within sectors; companies with top-paid CEOs lagged while their lower-paid brethren outperformed. In other words, paying over the odds is not just unnecessary; it may actually be harmful.

No place like home for investors

Home bias – investors’ tendency to overweight domestic stocks in portfolios – seems to be a universal phenomenon, judging by a new Vanguard report.

Vanguard examined five major markets – the US, Britain, Canada, Australia and Japan – and found investors are guilty of home bias in all five markets. US investors have 79 per cent of their money in US stocks, even though America accounts for just 51 per cent of global market capitalisation, while UK investors have 26 per cent of their money in UK equities – almost four times more than the UK's global index weight (7 per cent).

Although Japanese equities have chronically underperformed over the past 25 years (the Nikkei has more than halved), locals still believe there’s no place like home – 55 per cent of Japanese money is invested in their domestic market, which accounts for just 7 per cent of global market cap. Canadians are even worse, investing 59 per cent of their money in a market with a global index weight of just 3.4 per cent.

The biggest sinners, however, are the Aussies. Australian equities accounts for a paltry 2.4 per cent of the global equity market, but Australians have two-thirds of their money invested domestically.

No budge in boring markets

Given the market pandemonium that prevailed in the wake of the Brexit referendum result less than six weeks ago, it’s remarkable that recent trading has been so, well, boring.

The S&P 500 barely budged in the second half of July, exhibiting a 10-day trading range of just 0.92 per cent – the second-tightest 10-day range in history, according to Dana Lyons from J Lyons Fund Management. Over the same period, stocks gapped up or down at the opening bell by an average of just 0.02 per cent, according to Bespoke Investment Group, levels unseen over the last two decades.

The current sleepiness is at odds with 2016’s market tone. Early in the year, Lyons notes, the S&P 500 had 29 straight days where stocks moved by over 1 per cent, while stocks were absolutely all over the place following the Brexit vote.

How long it will last is anyone’s guess, but after a topsy-turvy year nervy investors should appreciate the current calm while it lasts.

Republican hedge funds blinded by beliefs

Mixing politics and investing can be a costly affair, as evidenced by a new study examining the returns of Republican- and Democrat-leaning hedge fund managers following Barack Obama’s presidential victory in 2008.

Back then, some of the more excitable members of the conservative commentariat were warning Democratic monetary policy would cause hyperinflation. It seems Republican hedge fund managers – identified by campaign contributions – let their political biases get the better of them; they underperformed their Democratic counterparts in every single month between December 2008 and September 2009, lagging by 7 percentage points.

A back-of-the-envelope calculation indicated this bias cost investors $13.7 billion – a high price to pay for managers' desire to "maintain a consistency of beliefs". See http://goo.gl/xuQGkL.