Factor-based investing spreads from stocks to bonds - Canadanewsmedia
Connect with us

Investment

Factor-based investing spreads from stocks to bonds

Published

on


COMPARED with equity investing, bond investing can seem stuck in the dark ages. As hedge funds and asset managers use whizzy algorithms to trade shares automatically, bond-fund managers still often call traders by phone. So when new investing strategies do arise, they make an even bigger splash. “Factor” investing is the latest example.

This is the idea, credited to economists Eugene Fama and Kenneth French, that predictable, persistent factors explain long-term asset returns. Their 1992 model for equities used the size of firms and what became known as “value” (the tendency for cheap assets to outperform pricey ones). Later models added factors such as “momentum” (the tendency of prices to keep moving in the same direction). Factor-based analysis has squeezed active managers (since it explains much of their returns) and helped drive the rise of passive investing. Investors can access factors in equities, often called “smart beta”, through cheap index-tracking funds or exchange-traded funds (ETFs) from the likes of BlackRock and State Street Global Advisors.

Messrs Fama and French considered factors in bond returns as early as 1993, though not the same ones as for equities (they reckoned, for instance, that for bonds value had “no obvious meaning”). Federal requirements since 2002 to disclose transaction prices and volumes have enabled closer analyses. A recent paper by researchers at AQR Capital Management, a $226bn hedge fund founded by a student of Mr Fama that specialises in factor investing for equities, looks at four factors for global sovereign bonds and American corporate ones: carry (high-yielding bonds beat low-yielding ones), quality (safer assets have better risk-adjusted returns), value and momentum.

These were not only strongly correlated with bond returns over the past two decades, but also largely uncorrelated with factors in equity markets, credit risk for bonds and macroeconomic variables such as inflation. Since active bond-fund managers tend to make excess returns mainly by buying riskier bonds, and a traditional bond index-tracking fund means exposure to the firms and countries that issue the most debt, factors provide a third, distinctive investment option.

AQR’s first dedicated fixed-income offering, a fund of American high-yield (that is, junk-rated) bonds, was launched in mid-2016. It outperformed the benchmark index by 2.1 percentage points in its first year, and 2.6 points in its second. Tony Gould of AQR credits not only the factor modelling for its success. He says that the higher cost of trading bonds compared with equities needs to be built into the bond-picking process. The firm has since started two more bond funds. Other such firms that used to focus on equities are looking into bonds, too. Man Numeric, for instance, a quant fund in Boston, wants to apply its expertise in company-level analysis to high-yield bonds.

Among the mass-market offerings are BlackRock’s first smart-beta bond fund, launched in 2015. It switched from active management to index-tracking in 2018, and the firm now has several index-tracking bond ETFs that use factors (mostly quality and value). Fidelity Investments launched two bond factor ETFs in March, and Invesco launched eight on July 25th.

Factor investing for bonds is still so new that many investors have not even heard of it. But opportunities to use it are growing because of recent European regulations mandating price and volume disclosure for bonds. Just five years ago a fund manager would have struggled to find enough data for non-American bonds, says Collin Crownover of State Street Global Advisors. Now the firm is applying quality- and value-factor analysis to corporate bonds in euros and sterling. The way index-trackers and smart-beta approaches laid waste to stock-pickers suggests that managers of active bond funds should be quaking.

Let’s block ads! (Why?)



Source link

Continue Reading

Investment

Income Investing Ideas – Today's Editors' Picks

Published

on

By


[unable to retrieve full-text content]

  1. Income Investing Ideas – Today’s Editors’ Picks  Seeking Alpha
  2. Full coverage



Source link

Continue Reading

Investment

Uber is investing its growth into its next chapter — including scooters and bikes

Published

on

By


Uber isn’t expanding the global footprint of its ride-hail service at breakneck speed anymore. It also isn’t close to being profitable yet. That’s in large part because the company, under CEO Dara Khosrowshahi, is spending a lot of its money building out its next chapter, which goes far beyond ordering car rides with your phone.

The Uber of tomorrow includes food delivery, scooter- and bike-sharing, car rental, flying cars, partnerships with transit networks, plus expanding its rides business in key global markets such as India, the Middle East and Latin America.

“Cars are to us what books are to Amazon,” Khosrowshahi has said. Just the beginning.

Fortunately for Uber, its business is still growing rapidly — though a bit slower these days — putting it in a position to invest in these newer areas.

According to financial documents supplied by Uber, the company generated $2.8 billion in revenue last quarter, a nearly $1.1 billion increase over the same period a year ago, representing 63 percent growth. (That’s down from 70 percent year-over-year growth in the first quarter.)

But Uber still lost close to $900 million last quarter, down 16 percent from a $1.1 billion loss in the same period a year ago.

“Going forward, we’re deliberately investing in the future of our platform: Big bets like Uber Eats; congestion and environmentally friendly modes of transport like Express Pool, e-bikes and scooters; emerging businesses like Freight; and high-potential markets in the Middle East and India where we are cementing our leadership position,” Khosrowshahi said in a statement.

It’s not exactly a surprise that the company continues to lose cash. Uber executives have been vocal about their plans to pour funds into growing the surprisingly successful UberEats food-delivery business while strengthening their position in the Middle East and India.

UberEats, for its part, is already in more than 290 cities. At Recode’s Code Conference in late May, Khosrowshahi said that Eats is growing 200 percent at a $6 billion bookings run rate. The company doesn’t break out how much it spends on specific businesses, but a recent report from The Information indicates that losses are “low single digits as a percentage of gross bookings.”

As for its global footprint, winning in the international markets it hasn’t already exited remains especially important. (Uber’s most recent exits include deals with Southeast Asian rival Grab and Russian competitor Yandex, which combined to generate a nearly $3 billion gain for Uber in early 2018.) While the Grab deal was in part an admission that Uber couldn’t compete with its homegrown rival, it was also a sort of call to arms in markets like India, Latin America and the Middle East.

On top of that, Uber has invested in becoming, as Khosrowshahi put it, the Amazon for transportation — a platform that riders can use to access several different modes of transport. It’s a critical part of creating a viable alternative to personal car ownership — and thus more of a reliance on Uber.

To that end, in addition to acquiring Jump Bikes for about $200 million, Uber has also participated in a $335 million financing round for scooter-sharing company Lime. Under that partnership, Uber will let its users rent Lime scooters in its app.

This is all in the lead-up to a potential public offering, which Khosrowshahi said will happen by the end of 2019. It’s critical that the company is able to show that there are new viable growth opportunities while continuing to build out existing revenue streams.

“I think being able to demonstrate [to investors] that we are a company that is able to deliver multiple growth engines and is able to incubate and execute upon a few different opportunities; I think that’s a really important story,” Uber COO Barney Harford previously told Recode.

Let’s block ads! (Why?)



Source link

Continue Reading

Investment

These Are The Top 5 Beverage Companies Investing In Cannabis

Published

on

By


Over the past year, a number of partnerships developed between the cannabis industry and big alcohol. Heineken is now the latest beverage company to throw their hat into the ring.

Falling Beer Sales

In January of this year, researchers of a ten-year-long joint study undertaken by two US universities and one in Lima, Peru showed a 13.8 percent drop in beer sales following marijuana legalization. Overall, data showed that sales of alcohol were, on average, 15  percent lower in states with legalized cannabis. The study also showed that marijuana and alcohol have a widely overlapping consumer base.

Sales volume of light beers such as Coors Light and Bud Light took the most significant hit dipping by 4.4 percent, while Budweiser and Coors dipped by 2.4 percent. Also, according to the data, Denver’s beer sales plummeted by 6.4 percent following the legalization of cannabis.

Another study which took place in 2016 showed similar results. Performed, by the New York-based research firm Cowen & Company, the study found sales of beers made by the larger domestic producers had “collectively underperformed” over the past two years in Colorado, Oregon, and Washington.

The report stated, “With all three of these states now having fully implemented a [marijuana] retail infrastructure, the underperformance of beer in these markets has worsened over the course of 2016.”

[Read More: These Are 5 Marijuana Stocks Worth More Than $1 Billion]

Given these facts, it’s no wonder that both cannabis and alcohol companies are looking at the potential market for cannabis-infused adult beverages. These are some of the companies, both large and small, lining up to be contenders in this space:

Heineken

Almost two weeks ago, on July 30, Heineken (NASDAQOTH:HEINY) launched Hi-Fi Hops, a cannabis-only beverage in a handful of dispensaries in California under its Lagunitas brand. The beverage is designed to taste like beer but does not contain alcohol.

Currently, the beverage comes in a ten-milligram version with tetrahydrocannabinol (THC), and a hybrid version with five milligrams of THC and five milligrams of CBD. Although the drink costs $8 per can, according to reports sales continue to rise.

Constellation Brands

Constellation Brands (NYSE:STZ), North America’s first publicly traded cannabis company, is a multi-billion-dollar firm known for brands such as Corona. Last year, Constellation Brands announced that it would partner with Canopy Growth Corporation (TSX:WEED) (NYSE:CGC) to research the possibility of developing a cannabis brew.

Constellation wound up taking a 9.9 percent equity stake in Canopy Growth Corp. totaling approximately $190 million and has since given itself a chance to expand that stake by acquiring more than $150 million in convertible debt from Canopy. Constellation Brands and Canopy will work together to create new products, including beverages, to reach markets where marijuana is legal.

Last month, Canopy Growth announced a deal to acquire Hiku Brands, a retail-focused craft cannabis producer for CAD$269 million.

Molson Coors Brewing Co.

Back in January Molson’s noted their concerns about falling beer sales. Earlier this week, Molson Coors Canada announced a joint venture with The Hydropothecary Corporation (TSX:HEXO), a recognized leader in Canadian medical cannabis to develop a line of non-alcoholic, cannabis-infused beverages. Molson Canada is the Canadian arm of beverage giant Molson Coors Brewing Company (NYSE:TAP)(TSX:TPX).

[Read More: Matt Barnes on Cannabis, Cancer, and Beating Snoop Dogg at Flag Football]

The Molson-HEXO deal is structured as a standalone start-up company, complete with its own management team and board of directors. Molson Coors Canada will retain the majority controlling interest with a 57.5 percent ownership stake.

Alcanna

Alberta-based Aurora Cannabis Inc. (TSX:ACB) recently announced a license agreement with Alcanna, Canada’s largest private-sector liquor retailer. In February, Aurora paid CAD$103.5 million ($82.5 million) for a 19.9 percent ownership interest in Alcanna, which at the time was called Liquor Stores N.A. Alcanna already started converting some of its 229 liquor stores into cannabis retail outlets.

The exclusive agreement allows Alcanna to open retail cannabis stores under the Aurora brand in provinces where private retail will be permitted. Alcanna will build, own, and operate the new cannabis stores, which will carry a suite of brands from Licensed Producers, including Aurora-owned MedReleaf and CanniMed.

Great North Distributors

Aphria Inc. (TSX:APH) (USOTC:APHQF) signed an agreement with Great North Distributors, Inc. a wholly-owned Canadian subsidiary of Southern Glazer’s Wine & Spirits to serve as the exclusive distributor for Aphria’s adult-use cannabis products throughout Canada. The deal gives Aphria 100 percent coverage of all cannabis retailers, whether provincially or privately operated, across Canada from the first day of legal adult-use marijuana sales.

Other Beverage Brands To Watch

Province Brands in Ontario, Canada is developing new enzymes and fermentation techniques. The aim of the research project is to create a product with a high that is roughly equivalent to a single beer. So far the company’s experiments have produced a brew with about 6.5mg of THC.

Interestingly, Province Brands claims that the product being developed is brewed from what is now considered a byproduct of marijuana production — the stalks, stems, and roots of the cannabis plant.

The company seems fairly confident that it can do so and plans to invest CAD$50 million into building a first-of-its-kind facility for brewing cannabis beverages.

***

Keith Villa, the founder of Blue Moon Brewing, recently retired from his position at Molson Coors. He and his wife are now founders of CERIA Beverages, a brewing company in Colorado that is working directly with cannabis research company ebbu to develop a THC-infused, alcohol-free beer.

***

Doctor D’s, maker of a probiotic drink, is said to be diving into the cannabis beverage market. Founder Stuart Dimson said that CBD-infused beverages are very attractive to health-conscious consumers who are already purchasing his drinks. Doctor D beverages are already sold in 2,000 stores nationwide. However, none of them are licensed to sell cannabis.

A Growing Trend of Cannabis Beverages

These are just some of the players aiming for the cannabis-powered adult beverage market. In the short term, it’s the cannabis companies and the craft brewers who have the most to gain by the trend. In the long run, however, depending on how well received these products are, the large alcohol companies may or may not be able to make up for diminishing beer sales.

Although recreational marijuana will become available by mid-October in Canada, cannabis-infused edibles and beverages will have to wait until rules are drawn up sometime in 2019.

The rules of the game would have to change for there to be a significant upside for the multi-billion dollar players in the alcohol industry. At this time, no U.S. states allow the sales of cannabis products in liquor stores, bars, restaurants, sports stadiums, and other places where alcoholic beverages are commonly served and sold. Realistically that situation is not expected to change in the foreseeable future. But, in both Canada and the U.S. cannabis laws are still in flux and probably will be for many years to come.

Let’s block ads! (Why?)



Source link

Continue Reading

Trending

Copyright © 2018 Canada News Media

%d bloggers like this: