Choose to Challenge

 

Today is International Women’s day. Rather than open with a standard opinion on something from finance last week, I’m going to use this space to talk about how women have impacted my professional career. Since I’ve started working, I’ve actually had just as many female managers as I’ve had male. The amount of sage advice each of them has given me has helped shape my career. I’ve been fortunate to work with so many amazing female colleagues. Many of them have aided not only in my professional development, but also personal. While my wife and I do not have children, I’m a very proud uncle. I’m happy to see more diversity, so in the future my niece, Ava, will have more doors opened to her. I see her determination and dedication in the way she plays hockey. I see her creativity and imagination when she plays off the ice. I see her kindness and thoughtfulness in the way she interacts with her friends and family. I know she will be successful in whatever she does in the future. Hopefully the women in this list below will be strong examples for young girls like Ava on what can be accomplished and pave the way for even more opportunities as her generation grows up.

100 Most Influential Women in Finance list

According to RealSimple.com, “the International Women’s Day theme for 2021 is #ChooseToChallenge, which highlights the importance of challenging biases and misconceptions in the interest of creating a more inclusive and gender-equal world.” At Refinitv, I think we do an excellent job of this. We have excellent female leadership and talent across the firm. With our company moving under the LSEG banner this month, the new combined company has five women of its twelve person Executive Leadership team. I wanted to see how that stacked up, so I ran a multi-factor rank with many of the gender factors found in the Refinitiv ESG dataset to rank it in a few major indices. LSEG would rank in the 37th percentile in the FTSE100, the 24th percentile in the Stoxx 600, or if in the US it would be in the 2nd percentile of the Russell 1000. Here’s a look at the most female friendly companies in the Russell 1000. These companies have outperformed the index on average. A market cap weighted portfolio of the top decile outperforms the median index constituent by 122bps over the last year and the 2,400bps over the last three years. This portfolio underperformed the index as a whole by 573bps over the last year, but beats it by 135bps over the three year period.

Before I get into Earnings, here are a few things I’ve got my eye on in markets this week:

• As I write this, futures are down and we’re looking at a negative open. Watching how the stimulus passing is digested.
• A few names to watch on lockup expire this week - DASH, SNOW, and VRM
• We should hear some new plans around 5G from the VZ, TMUS, and T investor events.
• Roblox (RBLX.O) direct listing, which is expected Wednesday
• UBS Global Consumer and Retail Conference has a lot of big names presenting

Earnings Watch

We’re now into the tail end of Earnings Season. Less than 10% of large and mid cap North American companies still need to report. Looking through the numbers more than 70% of names have beat estimates. On a sector basis, Real Estate has only beat in 59% of reports, but the big surprise for me was that Energy names only beat 45% of the time on more than 130 names reporting. The average surprise there is -33%. Though the average two price reaction for misses is only down 1.2%.

Let’s have a look at my sole name from last week. 

• Splunk had a big Predicted Surprise number coming into the week, and they did not disappoint. However, the future guidance was weak. There were 23 revisions downward after their report. As you can see, the stock actually opened up quite strong on excellent volume. That didn’t last too long, as the stock started to see some pressure about 15 minutes into Thursday’s session. That pressure didn’t really subside for the remainder of the week.

This week

A couple of big names companies reporting this week that will be of interest are Oracle and DocuSign. I’ve also got my eye on AMC, as their CEO recently got a nice fat bonus for extraordinary efforts during the shutdown. Our mean estimate is a huge loss of $3.61/share. Another interesting story name to me will be Thor Industries reporting on Tuesday. RVs have been a big hit in the last year, and the estimates have revenue growth at 26%. For the data oddities, I have two names.

• It’s easy to see why SNC-Lavalin (SNC.TO) is a name to follow. That -119% Predicted Surprise is quite large. This is started with some updates at the beginning of February from CIBC. They revised lower from $0.16 down to -$1.66. That followed with TD, RBC, Scotia, and Canaccord all following suit over the next month. TD’s Michael Tupholme is our bold estimate as he’s one of two five-star analysts covering this company. Four estimates here are outdated by more than 120 days. The odd thing here is the open interest in the calls is more than 6x that of the puts.
• United Natural Food (UNFI.K) has a small Predicted Surprise, but there were two things that stood out to me. First, the implied volatility is in the 83rd percentile. It’s risen over 11pts in the last week. It’s pricing in a pretty big move this week, but in the last ten reports there have been four moves of more than 25%. The second thing is in the detailed estimates. There are two older estimates (~90 days) that are significantly above the mean. This makes me suspect of the ability to beat, plus the momentum of the most recent estimates is lower. However, the increase in out of the money call buying pulls me back to an upside surprise. I’m also not sure how to factor in last week’s rise of nearly 20% on the announcement of an extended distribution deal with Whole Foods.

Best of the Week

See my open

Best of the Rest

I’m not really sure this should be in a Best of section, but let’s talk about the BUZZ ETF from Van Eck. It generated a lot of chatter on the internet this week. Mainly due to its biggest fan, Barstool founder, Dave Portnoy. If you haven’t seen his Twitter posts on this, you should check these out. The first is an over the top announcement and the second is probably a whoops after lawyers alerted him to the possible issues the first could bring from the SEC. This ETF has been released before on the index benchmark, but this time is a little different. We’re in a different environment. It has already pulled in $280M in the first couple of days. As a reminder, Eikon users have access to an underlying index like that the ETF is based off via MarketPysch. This data has been a pretty good indicator of trends.

Van Eck's new BUZZ ETF to track social media chatter

BUZZ & The Portnoy Problem

Dave Portnoy - BUZZ aggressive intro - Watch time: 3 min

Dave Portnoy - BUZZ CYA post - Watch time: 3 min

Like me, many of you reading this have not felt much of the financial effects of the pandemic. I realize it’s a luxury to be facing a shortage of Peletons or having to wait a few weeks for delivery of a new car when many are worried about their livelihoods. I liked how Ben touched on how many of our privileged cohort are experiencing shortages in our day to day lives. His final link to SPACs is obvious to you now, but where does it end?

Shortages Everywhere You Look

Continuing off Ben’s last point, the Breakingviews team at Refinitiv partner Reuters put this well. If you don’t know who the sucker is at the table, it’s most likely you. For example, it doesn’t look good when you’re touting your ability to find companies, raising money to buy one then selling your take in the target.

Breakingviews - The house always wins with SPACs

Investor Chamath Palihapitiya confirms selling shares in Virgin Galactic

“Mr. IPO”, Professor Jay Ritter, joins the Rational Reminder podcast to look at a deep dive on IPO performance and SPACs. This is a great discussion around the capital raising process and all the research that Professor Ritter has done on the subject.

IPOs, SPACs, and the Hot Issue Market of 2020 - Listening time: 67 minutes

This is an example of one of my favorite things about Twitter. The banter around topics we normally have to read boring research reports on. Wayne Himelsein started this, but there are opinions from a ton of finance experts here. For those of you in portfolio management or portfolio performance, I highly recommend reading through this argument and clicking through some of the links provided in the thread.

Sharpe Ratio is not just wrong, it's offensive.

This week FTSE Russell announced the new IPO additions to its indices and the schedule for the mid-year rebalances. The IPO additions were mainly focused in the Health Care sector, 21 of the 30 going into the Russell 2000 and 5 of 9 for the Russell 1000. While these are mostly small weights of the index, the additions will shift the weight of Health Care in the Russell 2000 by about 21bps. There are also about five names that will need to trade at or more than 10 days of volume by index followers, according to Jefferies.

Russell US Indexes adds 47 new IPOs, announces schedule for 33rd annual Russell Reconstitution

Speaking of illiquid trades, last week I covered an article on some downside risk that Ark is building. This week there were a couple of different looks into their structure and mechanics of their trading. Corey Hoffstein and Jason Buck took on this in some detail in the second episode of their new podcast. It’s definitely something to keep an eye on. Here’s the names where ARK owns more than 10%. We can see the performance hasn’t been too hot of late. I’ve created a monitor to track them with Short Interest, Implied Volatility, and a few additional volume metrics.

The resilient mechanics within ARK ETFs

Will a flood of liquidity sink the ARKK? - Watch time: 19 minutes

Shifting to fixed income, which I covered a bunch last week, I found some interesting data around trading there. More and more trading has shifted to electronic and the technology around this is improving the workflow. Initially, we saw electronic trading in fixed income fall about a year ago, but with many traders getting settled in at home, it has risen dramatically. As Overbond CEO, Vuk Magdelinic, points out more AI tools, cloud computing, and interoperability with the desk should allow for automated bond trading a reality. The JP Morgan FICC survey can really give you a sense of how their clients agree with this and also how this technology will only increase over the next few years. The final article looks at the details of trading and arbitrage of a bond ETF. I’ve included this here, because I think all the tools mentioned in the previous articles will lend to making this more efficient.

Pandemic sees electronic fixed income trading skyrocket in 2021

Tradeweb Has Record ADV Of $1.06tr

Interoperability: Bringing Automated Trading to Complex Dealer Desk Technology

JP Morgan - FICC e-Trading 2021 Survey

The anatomy of bond ETF arbitrage

It seems that the repo market is at it again. Last week the 10yr rate moved into negative territory for the fourth time in the last year. My colleague, who is more the fixed income expert says this indicates massive shorts in the recent bond market sell off. Repo "squeezes" are often associated with short term market bounces as the cost of remaining short bonds is so high.

U.S. 10-year Treasuries borrowing rate in repo market goes negative, indicating stress

I honestly wouldn’t mind a larger shift of financial services to Dublin. While my parent company is now the London Stock Exchange Group, I still think I’d prefer a visit to Dublin. Personal preferences aside, this tracker looks at the effects of Brexit on jobs in the region.
EY Financial Services Brexit Tracker: UK Financial Services Firms continue to incrementally move assets and relocate jobs to the EU, but changes since the Brexit deal are small

With everyone dissecting every phrase or word coming out of Omaha last week, I thought this piece on Yahoo was different. This highlights a Fortune magazine cover from 2009 covers another one of Warren’s great investments. The ADR listed here on the Pink Sheets was up about 1,400% over that period. As of a recent sell off it’s still up 1,000%. This compares favorably to the US indices, but trails the big tech names like Amazon and Tesla.

13 years after investing in an obscure Chinese automaker, Warren Buffett’s BYD bet is paying off big

Goldman Sachs doesn’t start a trading desk to deal with individual retail investors. This is not the first time they’ve set something like this up, but this market does seem a little different. As the Reuters article notes, now we have corporations holding bitcoin and BNY Mellon has a unit to help clients hold digital assets.

Exclusive: Goldman Sachs restarts cryptocurrency desk amid bitcoin boom

Just when we’ve started to get used to the idea of Bitcoin, there’s now non-fungible tokens (NFTs). I’d have to admit that I don’t understand these much, but this article helped answer a bunch of questions. I love this idea in a few of the applications like music and art, but can’t seem to grasp the ideas around things like Top Shot. I get what it is, but don’t understand why it has any value. But then again I spent my weekly allowance on cardboard cutouts with simple pictures on them. Why did sports cards have any value either?

INSIDE THE NEWEST CRYPTO CRAZE: THE NFT

Thanks for reading. Have a most excellent week.

Michael