What You Need To Know This Week — October 17th, 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 IPOS REACH FEVERED PITCH WITH OCTOBER ISSUANCE BREAKING $10.5 BILLION RECORD
Blank check initial public offerings continued at a brisk pace this week with $1 billion of SPAC IPOs spread over five new issues. Topping the list this week is the $575 million IPO of Peter Thiel-backed Bridgetown Holdings, a SPAC focused on technology, financial services, and media acquisitions in Southeast Asia. Investors were lukewarm on the initial public offerings, with all five new issues trading around the $10.00 IPO price. The $10.5 billion of blank check IPOs throughout the first half of October has already surpassed June’s previous $10 billion monthly record.
FIRST CITIZENS TO BUY CIT GROUP IN $2.1 BILLION BANK MERGER
In this year’s second largest regional bank merger, First Citizens BancShares announced the friendly, $2.1 billion acquisition of CIT Group in an all-stock merger of equals transaction. The merger, struck at an 11% premium to CIT’s unaffected share price, will create the 19th-largest U.S. bank based on assets. Investors cheered the news, as CIT’s stock surged 26.7% while First Citizens’ shares rallied 16.7%.
ALPHA + BETA OUTPERFORMS AS MUTUAL FUNDS STRUGGLE TO KEEP UP
The past year’s historic volatility presented investors with an opportunity to stand out from the Canadian benchmark index’s unwieldy and substandard performance. The first quarter’s historic market drop, in which the S&P / TSX Composite fell more than -37% in just 22 days, should have allowed Canadian equity fund managers to stand out from the benchmark. Unfortunately for most Canadian investors, the majority of long-only Canadian equity mutual funds woefully underperformed the major stock market index. In fact, according to S&P Dow Jones Indices, a stunning 88.4% of Canadian equity mutual funds underperformed the S&P / TSX Composite Index in the twelve months ending June 30, 2020. Over that timeframe, the average Canadian dividend and income equity fund dropped -8.4% while the S&P / TSX 60 fell -1.4%. Comparably, an Alpha + Beta strategy, such as the Accelerate Enhanced Canadian Benchmark Alternative Fund (TSX: ATSX), attained a +3.7% return, supporting the case for enhanced indexing.
Notable Insights, Articles, Podcasts, and Tweets
Listen to Accelerate CEO, Julian Klymochko, discuss investing in SPACs and how investors can get easy access to a diversified portfolio of SPACs through the Accelerate Arbitrage Fund (TSX: ARB) on the Bloomberg Trillions podcast.
Nearly 900,000 Americans filed new unemployment claims last week, increasing approximately 77,000 from the week prior. Economists had expected 825,000 claims. The U.S. unemployment rate has fallen to 7.9%, below its peak of 14.7% earlier in the year.
At the Milken Global Institute Conference this week, panel participants determined that “The 60% stock / 40% bond portfolio is largely a relic of the past, with alternatives likely to become a bigger portion of investors’ portfolios over the next decade.”
Time to rotate to value stocks? Goldman Sachs believes that a 2020 vaccine approval “would likely drive a rotation towards value.”
Given the exceptional risk-reward characteristics of SPAC arbitrage in the current environment, it may be the closest thing to the holy grail in investing.
Despite numerous scathing reports alleging impropriety and an SEC investigation, shares of New York-listed Chinese tutoring company GSX Techedu continue to only increase, causing large losses for short sellers in the process. Moral of the story? Individual investors should leave short selling to the pros.
50% of private equity-owned companies were moderately or very affected by the pandemic, with 10% in “intensive care.” Oddly, this dynamic likely does not show up in the firms’ mark-to model valuations, indicating that private equity returns may be significantly lower than those stated to investors.
TikTok’s rival Triller is looking to capitalize on the former’s current geopolitical woes by going public via a SPAC, seeking to take some market share away from its more popular short-video app competitor.
After the deal hit some mid-flight turbulence, Air Canada and Transat struck a restructured merger in which Air Canada cut the price it will pay for its smaller rival by a shocking 72%, reducing the price per share of the acquisition from $18.00 to $5.00. The substantial adjustment in consideration comes amidst unprecedented challenges to the airline industry.
