Notes from the 2018 Spinoff Conference brought to you by The Edge which took place on June 6th 2018.. Full notes here.
The Spinoff space is one of the most under-covered and potentially value creating strategies; but do Spinoffs work in today’s markets, and how can you get the best out of these investments? The Edge has brought together renowned fund managers, a seasoned academic and the latest data from their 15-year study to answer questions on how to approach and ultimately profit from these unique situations.
Q1 hedge fund letters, conference, scoops etc, Also read Lear Capital: Financial Products You Should Avoid?
Paul Johnson - Market Efficiency: How to get an edge in the financial market
- How value is determined?
- How markets determine price?
- How to think about markets and risk?
- Craft the perfect pitch
- How to add value through research?
- Market Efficiency
- Search for alpha à variant perspective, value of asset, or timing of yield
- Better price or time determination
- Only professionals remain
- Chasing fewer companies, listings gap
- Paradox of skill à everybody is good
- Fama’s definition à security price reflect all available information
- Fama’s ruled map à disseminated, processed incorporated, stock efficiently priced
- Information must be adequately disseminated, processed absent any systematic bias, incorporated in stock price
- 3 edges: information advantage, analytical advantage, cost/trading advantage
- Informational advantage, you know something the market doesn’t know
- Nonmaterial, material nonpublic, public
- Quasi public à available for a price (non material non public / public)
- Alternative data sets big data : web scraping, social media 300 data providers
- Makes market more efficient
- ...................
Jonathan Morgan
- Where is the edge in the spinoff market?
- Spinoff market up 6.3%
- 4 out of 10 spinoffs fail to generate returns
- 50% greater return if parent company takes longer than 6 months to prepare
- When is the best time to invest? What sectors? What is the best entry time?
- XXXXXXXX
- Spinoff timeline
- Preannounced potential spinoffs, announced spinoffs, trading within its 2 year post spinoff off, posts its 2 year tax free rule
- Identified +900 à pure spinoffs, average client limit at 500 mill, filter a list of 2000 asian, focus on US, main region for deals 77%
- Announced spinoffs, post its 2 year tax free rule
- Announced spinoffs
- Leading sector and market cap
- Should you buy parent pre-spin
- 11% return from announcement vs the market at 9.6%
- Filter through market cap and sector
- Energy sector, large cap 10 bill, 21% outperformance à announcement to spin date
- Example: XXXXX
- Any large cap energy today:XXX,13.5 bill market cap, Q3, 4-5 months from now
- Largest US natural gas announced the spinoff of its midstream business
- Activist pressure form Jana partners with DE Shaw
- ..........................
Read the full article here.
