3 current trends in the financial marketplace

Photo courtesy of Viola Renate on Flickr

Photo courtesy of Viola Renate on Flickr

Rob Swystun, Pristine Advisers

Just like everything else, the stock market goes through trends. Things come into fashion, things go out of fashion, and just like us, sometimes the stock market likes to flip through old photos and laugh at some of the clothes it used to wear.

Here is a look at three trends currently happening in the marketplace.

1. IPOs are back

After remaining moribund for a long time, initial public offerings (IPO) are back in a big way, with Josef Schuster of IPO specialist firm IPOX Schuster saying it’s the best environment for IPOs since the mid-1990s.

As USA Today’s Matt Krantz pointed out in early August, there have already been 116 IPOs this year, up 35% from that same time last year. And the number of IPOs is on pace to pass  the 128 done in all of 2012 and 125 in all of 2011.

Companies have raised $25.2 billion from IPOs this year and while that’s down 16% from last year, that’s only because of the massive Facebook IPO that occurred in May of 2012. If you exclude that behemoth (more than $15 billion in proceeds) the money raised by IPOs this year would be up more than 68% from this point last year.

So, why is this happening?

IPOs are just playing catch up to the rest of the market, which has been slowly and steadily recovering for the past few years. Stocks are hitting record highs daily and the Standard & Poor‘s 500 is up nearly 20% this year, so it’s only natural that a rise in IPOs would eventually follow.

Now that Facebook has finally closed above its IPO price after its disastrous debut, frightened investors are tiptoeing back up to the market to have a look at other promising IPOs.

A lot of recent IPOs are showing strong performance, plus the FTSE Renaissance U.S. IPO Index is up 32.6% this year. Some of the recent strong performers include:

  • SolarCity – solar panel installer – best-performing IPO in the past 12 months – 407% gain from its December IPO
  • ExOne – 3-D printer company – best performer so far this year – 243% gain since its February IPO
  • Sprouts – organic food store – 122% gain on its first day of trading Aug. 1
  • Athlon Energy 38% gain on its first day of trading Aug. 2.

Although IPOs are back in a big way, investors won’t hesitate to ignore an IPO that seems like it’s happening a little too soon. In fact, a third of recent IPOs are trading below their offering price.

2. Earnings calls are getting sexier

The humble earnings call has been going through a makeover recently, with much attention being paid to recent events by Zillow, Netflix and Yahoo!

Yahoo! Inc. had its CEO Marissa Mayer and CFO Ken Goldman appear on what looked like the set of an evening news show and broadcasted the call over a high-quality streaming video webcast. Analysts called in to ask their questions similar to what they’ve done in the past with the audio-only webcasts. The company also live tweeted during the call.

Meanwhile, Netflix streamed their earnings call via low-quality laptop cameras and also replaced the traditional Q&A session with a moderated session where analysts had to submit their questions for CEO Reed Hastings and CFO David Wells in advance.

And Zillow took questions for its earnings call submitted live via Twitter and Facebook during its Q&A session and shared infographics to tell a more visual story rather than just using numbers alone.

And while the Netflix approach caused some controversy due to the lack of live questions, that can be seen as a learning experience. But all three offered a refreshing approach for what has long been seen as a snooze-inducing quarterly ritual.

Introducing video and social media can’t just be a gimmick, however, as these will stale over time, as well. They should add something to the experience aside from just potential distraction.

3. Activist investing is active

In the first six months of 2013, 14 activist campaigns were launched that involved companies with market capitalizations greater than $1 billion, according to financial research firm SharkRepellant. That is the same as the activist activity in the first six months of 2012, a year that saw 21 activist campaigns initiated against companies with market caps of $1 billion or more. In 2010, there were 11 similar campaigns started. A decade ago in 2003, there were four.

The reason for this jump in activist investing is the same as the reason people will shell out $100 for a pair of shoes that cost about $5 to make (including labor): branding. Once maligned as profiteers who were out to make a quick buck off the backs of others, activist investors have rebranded themselves as shareholder advocates and company watchdogs.

These activists are starting to use words like “constructivism” and “suggestivist” to describe themselves in an attempt to seem less threatening to boards, even as they try to give them the boot and replace them. These activist investors firmly believe that a company is responsible first and foremost to its shareholders and is responsible for increasing shareholder value and, as shareholders, they believe they should have a significant say in how a company is run.

Billionaire activist investor Carl Icahn has been a huge player in financial markets in recent months, taking on Michael Dell’s effort to take Dell private, playing a role in ousting Aubrey McClendon from Chesapeake Energy, and is at the center of the Herbalife kerfuffle. He has also enjoyed recent successes from companies ranging from CVR Energy to Netflix and his Icahn Enterprises has seen its stock rise by 57% this year.

Of course, not everybody is happy with all this activism going on, with corporate lawyer Martin Lipton, actor George Clooney and Silicon Valley venture capitalist Ben Horowitz all speaking out against it.

Lipton said of activist investing: “In what can only be considered a form of extortion, activist hedge funds are preying on American corporations to create short-term increases in the market price of their stock at the expense of long-term value. The consequences of radical stockholder-centric governance and short-termism prompt a series of questions that cry out for re-examination.”

But activist hedge fund managers continue to do their thing in increasing numbers and in increasingly far flung places, with American activist investors taking on both Canadian Pacific Railway in Canada and Sony in Japan — and winning broad support for their actions in those countries.

And the activism looks like it will continue, as a new generation of activist investors, tutored and mentored by the older generation, carries the torch, as seen by Icahn-trained activist Keith Meister, who now runs his own $2 billion Corvex Capital hedge fund and has been trying to get shareholders to vote out the board of CommonWealth REIT.

As the financial landscape continues to change, it’s always fascinating to keep an eye on what trends develop and how long they stick around before something else comes along to take their place. Who knows, in another decade maybe activist investing will be the equivalent to having big ’80s hair.


2 responses to “3 current trends in the financial marketplace

  1. Pingback: Shoestring activism proves to be a thorn in the side of reluctant companies |·

  2. Pingback: A look at three important trends in the financial industry |·

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s