What You Need To Know This Week — August 8th, 2020
What You Need To Know This Week
A weekly recap to keep you informed on the most important events this week impacting markets, business, tech and the global economy.
SPAC ACTIVITY OFF THE CHARTS WITH RECORD IPOS AND CONSTANT DEALS
There has been nearly $6 billion of capital raised across 13 SPAC initial public offerings since July 30th as new issuance reaches a furious pace. The SPAC asset class now exceeds $50 billion, more than doubling since the start of April. On the tails of Bill Ackman’s record $4 billion SPAC IPO came Churchill Capital with its fourth blank check offering, raising an upsized $1.8 billion last Thursday. Meanwhile, electric vehicles and online gambling are prime sectors that SPAC investors are excited about in the current environment, especially given the recent bull market in the shares of hot stocks Nikola and DraftKings. Accordingly, blank check DiamondPeak Holdings announced a business combination with electric truck company Lordstown Motors. In contrast, dMY Technology Group announced a merger with the online casino and sports wagering firm Rush Street Interactive.
CLOCK IS TICKING FOR MICROSOFT’S ACQUISITION OF TIKTOK
TikTok, the viral video app taking the world by storm, is under pressure to sell itself before President Trump bans the app in the lucrative U.S. market. ByteDance, TikTok’s Beijing-based owner, is currently in talks to sell the app to tech giant Microsoft for as much as $50 billion. The potential deal would launch Microsoft near the top of the social media ladder, although behind market leader Facebook, given TikTok’s more than 100 million U.S. users. President Trump has given the companies until September 15th to reach a deal, or else he’ll force TikTok to shut down. One sticking point? Trump is demanding a finder’s fee.
M&A IS BACK WITH NEARLY $50 BILLION OF MERGERS ANNOUNCED THIS WEEK
With only one U.S. M&A deal announced in April and one in May, it was looking like the coronavirus had killed corporate mergers. Now it appears that executives and company directors have their confidence back as nearly $50 billion of deals were announced this week. Telemedicine leader Teladoc Health announced the acquisition of Livongo Health for $18.5 billion in a mix of cash and shares. German health group Siemens Healthineers expanded into cancer care with the $16.4 billion acquisition of Varian Medical Systems in an all-cash deal struck at a 24% premium to Varian’s unaffected stock price. “Cable Cowboy” John Malone is merging two cable companies he controls, Liberty Broadband and GCI Liberty, in an $11.5 billion all-stock deal. In addition, two sub-$1 billion deals were announced, including insurance tie-up Third Point and Sirius and a real estate merger involving Jernigan Capital and NexPoint Advisors.
Notable Insights, Articles, Podcasts, and Tweets
Listen to a clinic on the video game and movie industries from an investor’s perspective with Matt Ball on the Invest Like the Best podcast.
Wealth Professional: “There are a whole variety of reasons why someone might want ARB in their portfolio. But I think the long run returns show that it’s an investment that has proven its ability to generate consistent returns over all markets and over long periods of time.”
According to the recent study, “An Inconvenient Fact: Private Equity Returns & The Billionaire Factory”, between 2006 and 2015, private equity “carry” (performance fees) collected was $370 billion for investment performance that was merely equivalent to that of small cap indices. Meanwhile, the number of PE multibillionaires rose from 3 in 2005 to 22.
The ETF space is crowded, which makes distribution a challenge. Key differentiating factors include offering value-added resources for financial advisors such as portfolio construction tools, market commentary and research.
In a recent research report in which Goldman Sachs analyzed the special purpose acquisition company market, they found that SPACs beat the market in the short-term. Of the 56 SPACs Goldman analyzed, on average, they beat the S&P 500 & Russell 2000 indices by 1% and 6%, respectively, in the first month after their deal announcement. After three months, their return was 11% ahead of the S&P 500 & 15% better than the Russell 2000. The Accelerate Arbitrage Fund currently has a 40% allocation to SPACs across 56 issuers.
Barron’s: “Aside from better sponsors, you now see plenty of marquee hedge funds and long-only guys investing, and every major bank underwrites SPACs. That doesn’t mean there won’t be cycles — we’re definitely in a frothier period — but I think SPACs are here to stay… The way I’ve always thought about SPACs is that it’s a downside-protected investment. If I don’t like the proposed business combination, there’s a way for me to get my cash back. But if the deal is exciting, then there’s some upside.”
According to Dan Primack at Axios, SPACs are becoming the new buyout barons as they increasingly compete with private equity for acquisition targets.
An in depth analysis of leveraged buyouts, venture capital and everything in between by Michael Mauboussin’s team at Morgan Stanley: Public to Private Equity in the
United States: A Long-Term Look.
Canada’s pension plans are outperforming global peers and are better at hedging against liability risks, according to a recent study. Researchers point to the use of in-house portfolio management teams as a critical driver of their success. “We estimate that, by managing a high proportion of their assets in-house, Canadian funds reduce costs by approximately one third.”
Calpers, the $400 billion pension fund giant, announced that its Chief Investment Officer Ben Meng resigned days after a blog published allegations that he had made incomplete disclosures about his investment portfolio. The blog indicated that Mr. Meng had personal investments in some of the private equity groups that Calpers invested in. He had joined the fund just last year.
Smash-hit Fortnite, the battle royale-style video game dominating kids’ lives these days, raised $1.78 billion in new funding at a $17.3 billion valuation. Participating investors include Lightspeed Venture Partners, Ontario Teachers’ Pension Plan Board, BlackRock, Fidelity, David Tepper, T. Rowe Price and KKR.
The retail speculator mania isn’t happening only in the U.S. From India to Russia to Malaysia, amateur retail traders are getting into the stock market at an unprecedented rate. Dirt-cheap, or even free, trading combined with tremendous volatility (and perhaps a lack of sports betting) are key drivers of the phenomenon.
The Canadian economy added 419,000 jobs in July, ahead of economists expectations of a 400,000 job gain. The unemployment rate fell from 12.3% to 10.9%.
Amazon CEO Jeff Bezos sold $3 billion worth of Amazon stock this week. The market participants likely on the other side of his trades are primarily index investors and retail speculators.
Bitcoin’s 5-year Sharpe ratio, which measures its return per unit of risk, stands at 1.25. This ratio exceeds most investable asset classes (the higher the better). In addition, its low correlation to traditional asset classes supports the thesis that solely owning stocks and bonds doesn’t provide investors with a sufficient amount of diversification, Bitcoin, along with other alternative assets, serves a role in a truly diversified investment portfolio. The cryptocurrency is up over 65% this year.
