Free-cash-flow is King, Citi says

Research from Citi seemed to bare out the old stock market adage that 'cash is King', which might favour remaining in certain ares of the market such as global IT and Health Care.

That came as some market observers were spying the potential for opportunities in the investment landscape from a move back towards following so-called 'value' strategies.

If an investor used the price-to-book value accounting metric then that suggested relative valuation opportunities across global sectors was at 2000 extremes, while possible opportunities based on price-to-earnings and dividend yields looked "much less compelling" than at the turn of the century, Citi's global equity strategy team said in a research report sent to clients.

However, they pointed out that while so-called 'value' strategies performed well in the 2000s back then growth in emerging markets was strong and in developed markets leverage was on the rise.

"A repeat of that combination seems less likely in the future," analysts Robert Buckland, Mert C Genc, Beata M.Manthey, Cosimo Recchia and Jonathan Stubbs said.

Free-cash-flow yield, on the other hand, had been "much more effective" in capturing the recent drivers of equity markets.

"It favoured high profitability, but was suspicious of capex."

The metric had also suceeded in capturing areas of M&A activity.

"In contrast to traditional value strategies, FCF yield still favours global IT and Health Care. It is now tempted to dabble in Materials, but is cautious on Energy. It favours capex-lite US equities over capex-heavy EM."