Tag Archives: management

M&A Daily: Is This The Next Big Bank Deal?

Summary Top news on M&A activity. What has happened in M&A in the past day? First Niagara hires JPM to run sale process. Welcome to the edition of M&A Daily. Please join Sifting the World for exclusive access to event driven, value investing, and arbitrage opportunities. Here are some examples of such opportunities in today’s market. First Niagara Will First Niagara launch a new wave of bank deals? First Niagara (NASDAQ: FNFG ) hired JPMorgan (NYSE: JPM ) to manage its sale process. It is worth about $12 per share in a deal. Such a price would work for a buyer, assuming about 25% cost savings. Potential buyers include BB&T (NYSE: BBT ), New York Community (NYSE: NYCB ), TD Bank (NYSE: TD ), and KeyCorp (NYSE: KEY ). BioMed BioMed Realty Trust (NYSE: BMR ) hired an advisor to exploring a sale. This could be either a strategic deal or an LBO. Private equity firms including Blackstone (NYSE: BX ) are considering making bids. Citrix With the approval of Elliott Associates, Citrix (NASDAQ: CTXS ) is looking for a buyer. One possible strategic buyer could be Dell . Paul Singer and his colleagues at Elliott Associates are not to be easily pleased. They believe that CTXS is worth over $90 per share by 2017. A bidder would have to bid at least 14-15x e2015 EBITDA to secure a deal. For background reading on this situation, check out Citrix: Elliott Associates’ Latest Activist Target . Mylan Mylan (NASDAQ: MYL ) countersued Perrigo (NYSE: PRGO ) over statements it made as a part of its corporate defenses. The $10.46 net arbitrage spread offers a 21% annual return to a year-end close. 2016 Presidential Campaign Update M&A Daily recently endorsed Steve Schwarzman for President based on his unerring defense of the carried interest loophole. To balance the ticket (between PE and hedge fund guys), we would like to announce our endorsement of Cliff Asness for Vice President in no small part due to this effort on behalf of truth, justice, and the American way of life. Merger Arbitrage For further reading, check out Merger Arbitrage Interview Series: Heath Winter Of ArbitrOption Capital Management, LLC . Heath is a friend, former colleague, and expert on using equity options to exploit arbitrage opportunities. M&A Daily If you are reading this for the first time and would like to receive breaking news on M&A opportunities, please subscribe. When reading this on the website, you can do so by clicking on the button below. Disclosure: I am/we are long FNFG, BMR, CTXS, PRGO. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: Chris DeMuth Jr is a portfolio manager at Rangeley Capital. Rangeley invests with a margin of safety by buying securities at deep discounts to their intrinsic value and unlocking that value through corporate events. In order to maximize total returns for our investors, we reserve the right to make investment decisions regarding any security without further notification except where such notification is required by law.

Who Wants SCHC? I’m Trying To Buy Some

Summary The Schwab International Small-Cap Equity ETF is getting very appealing again as it is dipping much lower amid international fears. I’ve been admiring this ETF for a while but couldn’t get the right entry price, I have a limit order pending. The ETF has a large volume of small-cap securities that are difficult to acquire for your portfolio which enhances diversification. The international equity allocations are fairly diversified. I wouldn’t mind even more diversification, but this is certainly good. I see a reasonable allocation of around 3% to 5% of the portfolio value to SCHC. I’m also using SCHF for part of my international position. The Schwab International Small-Cap Equity ETF (NYSEARCA: SCHC ) is one of the ETFs I have been keeping an eye on over the last month or two. On September 22nd, 2015, I put in a limit buy order for some shares. I’m still waiting to see if the price drops far enough to trigger the order, but it is “good til cancelled” and the standard period is 60 days until it would automatically cancel. Why I like SCHC The Schwab International Small-Cap Equity ETF is a fairly nice fit the diversified equity portfolio. While there are many options for international exposure, there are only a few of them that focus on the small-cap international market. Quite a few years ago there was a theory that small capitalization companies were capable of delivering superior performance because a lack of coverage by analysts would result in less efficient pricing and therefore higher risk premiums could be demanded. With the advent of total market indexes and broad market indexes, the demand for small cap companies increased and it was capable to effectively diversify the risk. International markets tend to be less developed than the U.S. financial market and I believe we may witness the same kind of performance in those markets. As more research is done and risk premiums are reduced, the international small-cap market may see some fairly solid performance. Heads I Win, Tails We Tie If my theory fails to pan out, there is still a benefit to SCHC that qualifies as “good enough”. Because the fund is focused on small-cap holdings it has very little overlap with other major international funds. I already use the Schwab International Equity ETF (NYSEARCA: SCHF ) for part of my international exposure. While there may be some solid correlation in returns due to similar risk factors for international markets, the individual holdings are very different. By adding a small position in SCHC to my international holdings I’m hoping to gain a slight amount of additional diversification. If SCHC simply matches SCHF for total return over the next few years but excels in different quarters, there will still be some benefits to be had from rebalancing the positions. These are probably going to be limited to fairly minor gains, but minor gains rather than a loss is a perfectly acceptable outcome to me. Volume of Holdings SCHC has a fairly impressive 1,666 holdings to go with an expense ratio of .18%. Since the expense ratio remains under .20%, it isn’t high enough to really chase me off and it feels reasonable when considering the sheer volume of international small-cap holdings. These are not the most liquid and easiest to acquire securities. All in all, I feel that I’m getting some value out of paying that ratio. Geography The following map breaks down the geographic allocations of the fund: (click to enlarge) I wouldn’t mind seeing slightly larger allocations to the smaller sections, but this is certainly a reasonable diversified batch. The top 3 countries are on different continents, which is a refreshing change from some of the “international” ETFs that place almost all of the equity in Europe. I have no issue with holding equity in European countries, but I’m buying these funds for diversification so seeing a strong mix of different markets is very favorable. Ideal Allocation I like SCHC as an allocation for 3% to 5% of my portfolio. I would still aim to keep a significant portion of the international equity allocation in the larger capitalization markets that may be more resilient to a sell off. If the markets really turn south and SCHC does sell off, I would want to keep increasing my allocations to take advantage of fear based selling. I think the best way to do that may be to just set ranges for where I want the position to be within the portfolio and to rebalance whenever it gets too high or too low. Since the ETF is free to trade from Schwab accounts, I can rebalance without much concern. What Goes with SCHC? Naturally investors will want a core position in domestic equity funds, but SCHC also benefits from being in a portfolio with long duration treasury securities. Those securities have a negative correlation with SCHC and would be ideal for a portfolio that includes rebalancing. Conclusion After another day of fear drove market prices around $28.50 per share, it seemed worth tagging on a limit buy order and seeing if I’d be able to snag some shares of this ETF. I’ve liked it for a while but didn’t have an order ready and waiting on the August 24th event where so many funds went on incredible sales. Now that we are seeing another attractive entry range, I have an order waiting to scoop up some shares. Disclosure: I am/we are long SCHF. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: Information in this article represents the opinion of the analyst. All statements are represented as opinions, rather than facts, and should not be construed as advice to buy or sell a security. Ratings of “outperform” and “underperform” reflect the analyst’s estimation of a divergence between the market value for a security and the price that would be appropriate given the potential for risks and returns relative to other securities. The analyst does not know your particular objectives for returns or constraints upon investing. All investors are encouraged to do their own research before making any investment decision. Information is regularly obtained from Yahoo Finance, Google Finance, and SEC Database. If Yahoo, Google, or the SEC database contained faulty or old information it could be incorporated into my analysis.

Revisiting 10 Asset Allocation Funds Amid Market Turmoil

Earlier this year, I reviewed ten asset allocation mutual funds with a range of strategic designs as an academic exercise for exploring how multi-asset strategies stack up in the real world. Seven of the ten funds post losses for the trailing one-year period through yesterday (Sept. 22), along with one flat performance and two modest gains. One lesson in all of this is that investment success (or failure) is usually driven by two key factors: asset allocation and the rebalancing methodology. For the elite who beat the odds, the source of their success is almost certainly bound up with superior rebalancing methodologies that shine when beta generally takes a beating. Earlier this year, I reviewed ten asset allocation mutual funds with a range of strategic designs as an academic exercise for exploring how multi-asset strategies stack up in the real world. Not surprisingly, the results varied, albeit largely by dispensing a variety of gains as of late-February. But that was then. Thanks to the recent spike in market volatility (and the slide in prices), a hefty dose of red ink now weights on these funds. Seven of the ten funds post losses for the trailing one-year period through yesterday (Sept. 22), along with one flat performance and two modest gains. This isn’t surprising considering the setbacks in risky assets over the last month or so. But the latest run of weak numbers is also a reminder that asset allocation comes in a variety of flavors and the results can and do vary dramatically at times. One lesson in all of this is that investment success (or failure) is usually driven by two key factors: asset allocation and the rebalancing methodology. Of the two, rebalancing is destined to be a far more influential force through time. Assuming reasonable choices on the initial asset mix, results across portfolios – even with identical allocation designs at the start – can and will vary by more than trivial degrees based on how the rebalancing process is executed. And let’s be clear: it’s no great challenge to select a prudent mix of asset classes to match a given investor’s risk profile, investment expectations, etc. Tapping into a solid rebalancing strategy (tactical or otherwise) is a much bigger hurdle. But at least there’s a solid way to begin. For most folks, holding some variation of Mr. Market’s asset allocation strategy – the Global Market Index, for instance – will do just fine as an initial game plan. The choices for tweaking this benchmark’s design will cast a long shadow over results if the weights are relatively extreme – heavily overweighting or underweighting certain markets, for instance. Otherwise, the details on rebalancing eventually do most of the heavy lifting, for good or ill as time rolls by. With that in mind, we can see that most of our ten funds have had a rough ride recently. The reversal of fortune has been especially stark for the Permanent Portfolio (MUTF: PRPFX ) this year. After leading the pack on the upside in April and May (based on a Sept. 23, 2014 starting point), the fund has since tumbled and suffers the third-worst slide among the ten funds for the trailing one-year return. (click to enlarge) At the opposite extreme, we have the Bruce Fund (MUTF: BRUFX ) and the Leuthold Core Investment Fund (MUTF: LCORX ), which are ahead by around 3.5% for the past 12 months. Those are impressive results vs. the rest of the field. Note the relative stability for BRUFX and LCORX over the past month or so. Is that due to superior rebalancing strategies? Or perhaps the funds beat the odds by concentrating on asset classes that fared well (or suffered less) in the recent and perhaps ongoing correction? We can ask the same questions for the other funds in search of reasons why performance suffered. In any case, the answers require diving into the details. A good start would be to run a factor-analysis report on the funds to see how the risk allocations compare. Another useful angle for analysis: deciding how much of the performance variations are due to what might be considered asset allocation beta vs. alpha. A possible clue: BRUFX’s longer-run results are also impressive while LCORX’s returns are relatively mediocre in context with all of the ten funds, as shown in the next chart below. Is that a hint for thinking that BRUFX’s managers have the golden touch in adding value over a relevant benchmark? Maybe, although the alternative possibility is that the fund is simply taking hefty risks to earn bigger returns. In that case, the risk-adjusted performance may not look as attractive. Perhaps, although several risk metrics (Sharpe ratio and Sortino ratio, for instance) look encouraging and give BRUFX an edge over LCORX, according to trailing 10-year numbers via Morningstar. (click to enlarge) Meanwhile, keep in mind that an investable version of the Global Market Index – a passive, unmanaged and market-weighted mix of all the major asset classes – is off by roughly 5% for the trailing one-year period. That’s a middling result relative to the ten funds, which isn’t surprising. In theory, a market-weighted mix of a given asset pool will tend to deliver average to modestly above-average results vs. all the competing strategies that are fishing in the same waters. In other words, most of what appears to be skill (or the lack thereof) is just beta – even for asset allocation strategies. But there are exceptions. That doesn’t mean that we shouldn’t customize portfolios or study what appear to be genuine advances in generating alpha in a multi-asset context. But as recent history reminds once again, beating Mr. Market at his own game isn’t easy. But for the elite who beat the odds, the source of their success is almost certainly bound up with superior rebalancing methodologies that shine when beta generally takes a beating.