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New Update: Healthcare Costs Increasing by Over 60% in Some States. Will you be impacted?

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Investing Insights for Avery Dennison Employees: The Pros and Cons of Dollar-Cost Averaging vs. Lump-Sum Contributions

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Healthcare Provider Update: Healthcare Provider for Avery Dennison Avery Dennison has partnered with various healthcare providers for employee health benefits; however, specific provider affiliations may vary by region and specific employee health plans. To obtain the most accurate and relevant information regarding Avery Dennison's current healthcare provider, it is advisable for employees to consult their Human Resources department or employee benefits documentation. Potential Healthcare Cost Increases for Avery Dennison in 2026 In 2026, healthcare costs for Avery Dennison employees utilizing Affordable Care Act (ACA) marketplace plans may soar as premium hikes are projected to exceed 60% in some states. This stark increase is driven by the potential expiration of enhanced federal premium subsidies and rising medical costs. As many as 92% of marketplace enrollees could face an average out-of-pocket premium increase of over 75%. Employees should proactively assess their health plan options now to mitigate financial impacts and explore available employer-sponsored alternatives. Click here to learn more

Table of Contents

The Value Series

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Given the current elevated market volatility, we think now is a good time to revisit important value metrics in our four-part series. As an employee or retiree of Avery Dennison, who likely has little market analysis experience, we understand that the valuation process can seem confusing. However, we are here to tell you that the valuation process does not have to be complex to be successful. Simple valuation techniques such as the price-to-book ratio are generally easy to use and have been proven to be effective if utilized correctly.  Investors are often looking for ways for their clients to beat the market. If you're one of those investors, you may want to consider the following strategy that has been implemented by the investment greats. Some value investors have historically beat the average annualized returns of the S&P 500, and many have successful track records spanning several decades to prove it. Avery Dennison employees, it is important to be knowledgeable regarding tactics used by famous investors such as Warren Buffett, Benjamin Graham, David Dodd, Charlie Munger, Christopher Browne and Seth Klarman. The investment style implemented by these professionals focus on four metrics that characterize a value investment. These four metrics include the Price to Earnings Ratio, the Price to Cash Flow Ratio, High Dividend Yield and the Price to Book Ratio. These metrics, as you will see, are strong indicators of undervalued security. If undervalued security is brought back to fair value then we would see positive returns on that security.  For Avery Dennison employees, it is possible to utilize these metrics to better position yourself in the market for heightened returns. We will examine the effect of investing based off of certain characteristics and how their investment returns are correlated. Today, I want to end the four-part TRG Value Series with the granddaddy of metrics, the Price-to-Book value ratio (P/B).

What is Book Value?

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Book value is preferred by many value investors to cash flow and earnings metrics because it is more stable year-to-year whereas cash flow and earnings can vary greatly. This is an important property for those at Avery Dennison to look out for due to the following reason: When a business at a cyclical trough with diminished cash flow and earnings might look expensive on the basis of price-to-cash flow or price-to-earnings, that same business may appear cheap on the basis of price-to-book value. This is because book value won’t fall much or at all in a downturn, and vice versa. Thus, the argument goes, the price-to-book value gives a more reliable picture of a company’s usual business performance, which Avery Dennison employees can use to elevate their investment decisions and investment performance. Benjamin Graham popularized the indicator in his books “Security Analysis” and “The Intelligent Investor”. Nobel Prize winner Eugene Fama and his research partner Kenneth French used the ratio in their three- and five-factor models to describe stock returns. Professor Joseph Piotroski uses the ratio as the only valuation measure in his F-Score methodology.

Testing

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We understand the importance of data driven research for Avery Dennison employees and retirees. Set out below are the results of two Fama and French backtests of the book value-to-market equity (the inverse of the PB ratio) data from 1926 to 2013. As of December 2013, there were 3,175 firms in the sample (Carlisle-PB, P2). The value decile contained the 459 stocks with the highest earnings yield, and the glamour decile contained the 404 stocks with the lowest earnings yield.

 

 

The average size of the glamour stocks is $7.48 billion and the value stocks are $2.54 billion. (Note that the average is heavily skewed by the biggest companies. For context, the 3,175th company has a market capitalization today of $404 million, which is smaller than the average, but still investable for most investors). Portfolios are formed on June 30 and rebalanced annually. When accounting for this backtest, Avery Dennison employees may recognize how two portfolios are weighted by market capitalization, which means that bigger firms contribute more to the performance of the portfolio, and smaller firms contribute less. Here, we can see that the value decile has comprehensively outperformed the glamour decile, returning 12.6 percent compounded (17.7 percent in the average year) over the full period versus 8.6 percent for the glamour decile (10.9 percent in the average year) (Carlisle-PB, P3).

 

These returns are considerably lower than the returns found for the price-to-earnings and cash-flow ratios discussed earlier. Despite the irregularity, Avery Dennison employees must be aware that the earnings and cash flow back tests ran back to only 1951, and the book value return data begins in 1926. The difference is due to the 1929 crash, which had an oversized impact on returns. The impact of the crash is visible on the chart; it took twenty years for the value decile to fully recover. Avery Dennison employees must also note how something similar has happened to the glamour decile since 2000; it hasn’t grown in 13 years. To make a comparison possible of the book value’s performance to the performance of earnings and cash flow over the same period, I also measured the returns beginning in 1951. Since 1951, the low P/B value decile has generated a compound annual growth rate (CAGR) of 15.0 percent and an average annual return (AAR) of 17.9 percent. Over the same period, the glamour decile returned a CAGR of 9.6 percent and an AAR of 12.6 percent (Carlisle-PB, P5). These returns are approximately the same as the returns generated by the low P/CF and P/E studies over the same period.

 

 

In their study, they found that the quintile of the lowest P/E stocks significantly outperformed the high P/E quintile. The portfolio containing the lowest P/E stock returned 11.61% annualized compared to 4.83% for the highest P/E portfolio and 7.55% for the used universe of stocks. The graph below shows how the cumulative returns compare (it’s not even close). Avery Dennison employees can utilize this information to avoid investing in underperforming assets and better predict economic trends that translate into higher ROI.

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Weighting

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It is important for employees and retirees of Avery Dennison to understand how market capitalization-weighted returns are useful for demonstrating that the outperformance of value over glamour is not due to the value portfolios containing smaller stocks. Unless you’re running an index (or hugging an index), they’re not really meaningful. The easiest portfolio weighting scheme is to simply equally weight each position. (If we’re prepared to put up with a little extra volatility for a little extra return, we can also Kelly weight our best ideas). Kelly Weighting is determined by the Kelly Criterion which is a formula used to determine what percentage of their capital should be used in each trade to maximize long-term growth. There are two key components to the formula (Kelly % = W- [(1 - W) / R]): the winning probability factor (W) and the win/loss ratio (R). The winning probability is the probability a trade will have a positive return. The win/loss ratio is equal to the total positive trade amounts divided by the total negative trading amounts. The result of the formula will tell investors what percentage of their total capital they should apply to each investment. By utilizing the Kelly Weighting, investors employed or retiring from Avery Dennison can have a better grasp of their exposure to each individual asset in their portfolio and make informed decisions regarding their asset allocation.

 

Avery Dennison employees should also account for the equal weight return statistics for book value.  In the equal weight backtest, the value generated a 20.2 percent compounded return (27.3 percent on average), beating out glamour’s 6.3 percent compounded return (10.4 percent on average) (Carlisle-PB, P10). Since 1951 the equally weighted P/B value decile has generated a compound annual growth rate (CAGR) of 20.0 percent and an average annual return (AAR) of 25.4 percent (Carlisle-PB, P11).

 

 

 

 

Over the same period, the glamour decile returned a CAGR of 6.4 percent and an AAR of 10.8 percent. These returns are close to the same as the returns generated by the low P/CF and P/E studies over the same period. When accounting for this information, Avery Dennison employees must recognize that the value portfolios outperformed because they bought more book value per dollar invested than the glamour portfolios: 4.57x on average versus 0.25x in the glamour portfolios (Carlisle-PB, P12). In the equal-weight portfolios, value has significantly outperformed glamour since 1999, beating it by an extraordinary 15.9 percent compounded, and 16.1 percent in the average year (Carlisle-PB, P13).

The Brandes Research Institute

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Because we understand just how important data-driven solutions are for our Avery Dennison employees and retirees, we have provided another study, which discusses the P/CF ratio. In a Brandes Research Institute study, Exhibit 6 below illustrates the global all-cap findings across three price metrics.

 

 

 

 

The results confirmed a consistent value premium across all metrics. We will focus on the P/CF ratio and the outperformance in the decile 10 value stocks. The smallest outperformance between decile 1 glamour stocks and decile 10 value stocks can be observed with the P/B measurement, where the average outperformance was 7.1% (Brandes, p. 8).

About The Retirement Group    

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The Retirement Group is a nation-wide group of financial advisors who work together as a team.

 

We focus entirely on retirement planning and the design of retirement portfolios for transitioning corporate employees. Each representative of the group has been hand selected by The Retirement Group in select cities of the United States. Each advisor was selected based on their pension expertise, experience in financial planning, and portfolio construction knowledge.

TRG takes a teamwork approach in providing the best possible solutions for our clients’ concerns. The Team has a conservative investment philosophy and diversifies client portfolios with laddered bonds, CDs, mutual funds, ETFs, Annuities, Stocks and other investments to help achieve their goals. The team addresses Retirement, Pension, Tax, Asset Allocation, Estate, and Elder Care issues. This document utilizes various research tools and techniques. A variety of assumptions and judgmental elements are inevitably inherent in any attempt to estimate future results and, consequently, such results should be viewed as tentative estimations. Changes in the law, investment climate, interest rates, and personal circumstances will have profound effects on both the accuracy of our estimations and the suitability of our recommendations. The need for ongoing sensitivity to change and for constant re-examination and alteration of the plan is thus apparent.

Therefore, we encourage you to have your plan updated a few months before your potential retirement date as well as an annual review. It should be emphasized that neither The Retirement Group, LLC nor any of its employees can engage in the practice of law or accounting and that nothing in this document should be taken as an effort to do so. We look forward to working with tax and/or legal professionals you may select to discuss the relevant ramifications of our recommendations.

Throughout your retirement years we will continue to update you on issues affecting your retirement through our complimentary and proprietary newsletters, workshops and regular updates. You may always reach us at (800) 900-5867.

Sources

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  1. What to do with an Early Retirement Ebook

  2. Social Security Ebook

  3. Lump Sum vs. Annuity Ebook

  4. 401(k) Rollover Strategies Ebook

  5. Closing the Retirement Gap Ebook

  6. Brandes Institute, The. “Value vs. Glamour: A Long-Term Worldwide Perspective”. 2014. < https://www.brandes.com/docs/default-source/brandes-institute/value-vs-glamour-worldwide-perspective>. 

  7.  Carlisle, Tobias. “Investing Using the Price-to-Earnings Ratio and Earnings Yield (Backtests 1951 to 2013)”. May 26, 2014. <http://greenbackd.com/2014/05/26/price-to-earnings-ratio-backtest-1951-to-2013/>.

  8. Causeway Capital. “The Compelling Case for Value Stocks”. 2018 https://www.causewaycap.com/wp-content/uploads/2018/02/201802-TheCompellingCaseforValue-1.pdf

  9. Research Affiliates. “To Win with ‘Smart Beta’, Ask if the Price is Right” September 7, 2016 < https://seekingalpha.com/article/4004564-win-smart-beta-ask-price-right>

  10. Tweedy Browne Company LLC. “What Has Worked in Investing: Studies of Investment Approaches and Characteristics Associated with Exceptional Returns.” 1992. <http://www.tweedy.com/resources/library_docs/papers/WhatHasWorkedFundVersionWeb.pdf>.

  11. Yuan, Vera. Guru Focus. “Earnings, Free Cash Flow, Book Value? Which Parameters Are Stock Prices Most Correlated To?”. August 2, 2013. < http://www.gurufocus.com/news/225255/earnings-free-cash-flow-book-value-which-parameters-are-stock-prices-most-correlated-to->.

  12. Fama and French Backtesting http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html

How does the transition of the Avery Dennison U.S. Pension Plan to a group annuity contract affect current employees who are nearing retirement, and what steps should they consider taking during this transition to ensure their benefits are secure from Avery Dennison?

Current Employees Nearing Retirement: The transition to a group annuity contract should not affect the accrued benefits of current employees nearing retirement. The terms of the annuity payments will match those provided by the previous pension plan. Employees should ensure their personal information is updated and consult with the Avery Dennison Retirement Center to understand the timing of their benefits commencement during the transition period.

In what ways does Avery Dennison support employees who are considering their options for retirement benefits, particularly those who may not have previously explored their pension plan details prior to the transition to an insurer?

Support for Employees Exploring Retirement Options: Avery Dennison assists employees by providing detailed information through their retirement center and online resources. Employees are encouraged to review the changes and implications of the annuity transition and contact the retirement center for personalized advice, particularly if they have not previously explored their pension plan details.

Can you elaborate on the implications of the group annuity contract for employees who have recently retired from Avery Dennison, particularly concerning how their benefits are administered compared to the previous pension plan structure?

Recently Retired Employees: For those who have recently retired, the administration of their benefits will shift from Avery Dennison to the selected insurer but this should not change the amount, timing, or form of the benefits they receive. This ensures continuity in the administration of benefits without affecting the retirees directly.

For employees currently receiving benefits through Avery Dennison, how will the transition to the selected insurer impact the continuity and reliability of their monthly payments, and what measures are in place to safeguard these payments?

Continuity and Reliability of Payments: The transition involves the selection of a highly rated insurer, ensuring the reliability of ongoing monthly payments. Avery Dennison has put measures in place, including a thorough selection process involving an independent fiduciary, to safeguard these payments.

What are the specific protections offered to beneficiaries under the group annuity contracts once the Pension Plan transitions away from Avery Dennison's administration, and how do these protections differ from those provided under the Pension Benefit Guaranty Corporation (PBGC)?

Protections for Beneficiaries: After the transition, the state guaranty associations, rather than the Pension Benefit Guaranty Corporation (PBGC), will offer protection to beneficiaries. This shift means that while the federal insurance via PBGC will no longer apply, state-level insurance, which has its own limits and guarantees, will take over.

In light of the transition to the group annuity, how should employees at Avery Dennison go about updating their personal information, such as addresses or banking details, and what timelines should they be aware of during this process?

Updating Personal Information: Employees should update their personal details such as addresses or banking information through the Avery Dennison Retirement Center by specific deadlines during the transition period. Post-transition, such updates should be made directly with the new insurer.

How does Avery Dennison ensure that the financial health of the selected insurer for the group annuity contract is sufficient to meet the obligations to its retirees, and what standards are applied during the selection process?

Financial Health of the Insurer: Avery Dennison ensures the financial adequacy of the selected insurer through a rigorous selection process managed by an independent fiduciary. This includes evaluations of the insurer's financial stability, claims-paying ability, and overall business practices.

After the transition to an insurer is complete, what should employees of Avery Dennison do if they have questions regarding their retirement benefits, and how will communication be handled moving forward to ensure clarity and support?

Post-Transition Communication: After the transition, employees should direct their questions regarding retirement benefits to the selected insurer's service center. Avery Dennison will provide contact details and further instructions in a welcome kit following the transition.

How does the U.S. tax legislation impacts the retirement benefits of Avery Dennison employees who are transitioning to a group annuity, particularly concerning taxation of these annuity payments during retirement?

Impact of U.S. Tax Legislation: The transition to a group annuity may affect the taxation of retirement benefits. Employees are advised to consult with tax professionals to understand the specific impacts based on their personal circumstances.

For employees seeking more information regarding the details of their retirement benefits and the implications of the insurer transition, how can they contact Avery Dennison to discuss their specific circumstances and gain clarity on any outstanding questions?

Accessing Further Information: Employees seeking more details about their retirement benefits post-transition can contact Avery Dennison through their designated Retirement Center or access information via the company's dedicated benefits website. This is crucial for obtaining clarity on specific circumstances and outstanding queries regarding the transition.

With the current political climate we are in it is important to keep up with current news and remain knowledgeable about your benefits.
Avery Dennison announced a major restructuring plan that includes layoffs affecting approximately 10% of its global workforce. The company is also revising its pension and 401(k) plans to better align with current economic conditions.
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For more information you can reach the plan administrator for Avery Dennison at 207 Goode Ave Glendale, CA 91203; or by calling them at +1 626-304-2000.

*Please see disclaimer for more information

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