IBKR Quant-Blog


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Macro

Briefing.com - Feeling Detached


The stock market acted friendly toward the bulls on Thursday, yet the early indication suggests they shouldn't get too attached to it.  The S&P futures are down 22 points and are trading 0.7% below fair value.  The Nasdaq 100 futures are down 96 points and are trading 1.2% below fair value.  The Dow Jones Industrial Average futures are down 172 points and are trading 0.6% below fair value.

What has caused the cold detachment?

Some reports will blame Brexit uncertainty.  That's a stretch considering the pound is up 0.7% today against the dollar and the FTSE 100 is down just 0.8%, which is far from a frantic move in the market that should be most impacted by Brexit fears.

Some reports will cite the clarification from the U.S. Trade Representative's office that the next round of tariffs for China are not on hold, as had been reported yesterday.  There is some merit in this catalyst only because the hopeful headline yesterday helped foster a positive trading tone.  Commerce Secretary Ross reportedly said, too, that it is unlikely that a formal trade deal will be reached ahead of the planned January tariff increase.

Some reports will highlight remarks from ECB President Draghi feeding into the market's peak growth concerns.  To that end, Mr. Draghi acknowledged that there has been a loss of growth momentum that could lead to lower inflation, but that it is unclear if it is a temporary or longer-lasting slowdown.  The ECB, he said, will be in a better place in December to assess the risk.

These factors are all part of the mix, as is a Bank of America/Merrill Lynch downgrade of Home Depot (HD) to Neutral from Buy that has the Dow component down 1.9%.

The primary catalyst that has mixed things up, however, is the disappointing earnings results and/or guidance from NVIDIA (NVDA), Applied Materials (AMAT), Nordstrom (JWN), and Williams-Sonoma (WSM), all of which are getting clobbered in pre-market action.

 

NVIDIA stands out as the biggest disappointment.  It is down 17% as weaker-than-expected demand, which left the company with excess inventory, led to fourth quarter revenue and EPS guidance that is well below current consensus estimates.

The rub for the broader market is that NVIDIA's disappointment, as well as AMAT's disappointing guidance, is expected to hit the semiconductor industry and other growth stocks.  Even Intel (INTC) is indicated 1.4% lower despite announcing a $15 billion share buyback authorization. 

That is the root of the problem for the Nasdaq 100 futures, which are also feeling the weight of negative publicity surrounding Facebook (FB).

The deep root of the problem, though, remains the same.  This market is running headlong into growth concerns that are prompting it to question the earnings growth outlook and its willingness to pay premium multiples for earnings that are in question.

That's why there has been multiple compression in the midst of the third quarter reporting period, which is slated to produce the best quarter of earnings growth since the third quarter of 2010, according to FactSet.

--Patrick J. O'Hare, Briefing.com

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Briefing In Play offers live market-moving analysis, earnings and news coverage, broker ratings changes, as well as comprehensive economic coverage and commentary. Briefing in Play Plus includes everything in Briefing In Play, and features investment idea generation and in-depth analysis. Briefing Trader includes everything in Briefing In Play Plus, and features live trading ideas with specific entry/exit points as well as access to the new streaming audio feature, Trader Audio.

Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from Briefing.com and is being posted with Briefing.com's permission. The views expressed in this material are solely those of the author and/or Briefing.com and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


21549




Aktien

McAlinden Research Partners - Drones Move Closer to True Commercial & Military Autonomy


Summary: As more companies and governments look to capitalize on the application of drone technologies, investment is picking up. The result is bio-inspired designs and a heated race to develop military drones and counter-drones. While the software segment seems to be just getting started, hardware is experiencing some issues.

 

While drones have been used by defense organizations for over a decade, there’s been a notable pick up in the drone arms race lately. In China, drone manufacturers are zeroing in on the country’s armed forces with every self-respecting Chinese state-owned arms company and more than 350 Chinese private firms now making unmanned aerial, surface or ground vehicles. Meanwhile, the British Army is carrying out an unprecedented test of unmanned vehicles and surveillance drones, and spending for drone technology is expected to grow as an overall percentage of the U.S.military’s $640B defense budget. This offers a tremendous opportunity to specialized drone manufacturers and software developers.

 

Investors can gain exposure to the drone industry via the ETFMG Drone Economy Strategy ETF (IFLY).

Drones (IFLY) vs S&P 500 (SPY)

 

 

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Questions, comments or learn more about subscribing to MRP, contact – Rob@mcalindenresearch.com/646-964-6152.

McAlinden Research Partner’s (MRP) strives to identify change-driven, thematic investment ideas, following a proprietary methodology developed by 50 plus year Wall Street veteran Joe McAlinden, former CIO of Morgan Stanley Investment Management, Chief Strategist of Dillon Read & CEO of Argus Research. Subscribers to MRP receive the “Daily Intelligence Briefing” (DIBS) report which provides a deep dive into subjects MRP exploring, in its quest for alpha generating themes.

Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from McAlinden Research Partners (MRP) and is being posted with McAlinden Research Partners (MRP) permission. The views expressed in this material are solely those of the author and/or McAlinden Research Partners (MRP) and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

 


21554




Macro

Janus Henderson - Global Emerging Market Equities: Keeping It in the Family - By Glen Finegan


Glen Finegan, Head of Global Emerging Market Equities, believes that family ties make for a formidable force in both business and investing, and discusses how it is an important consideration in uncovering attractive long-term investment opportunities within global emerging markets.

While wealth generation is a goal for all businesses, some family-controlled firms appear to place an equal emphasis on the goal of longevity. Each successive generation attempts to pass the baton to the next and maintain the good name and wealth of the family. We believe that this combination helps create a long-term and risk-aware approach that is very applicable to allocating capital in emerging markets.

 

Exhibit 1: Market Cap-Weighted Sector Returns

Family-owned companies have outperformed since 2006

Source: Company data, Credit Suisse estimates

 

Unique Ownership Structure

The unique ownership structure of family businesses gives them a long-term orientation that traditional public firms can often lack. The cautious chief executive who balances both risk and reward will be fortunate to remain long at the head of a listed company. Since bonuses and share prices are often related, together they call for maintaining a certain head of steam in terms of business performance.

Any diversion from maximizing profits on a consistent quarterly basis is likely to lead to dismissal. Therefore, it is entirely rational for an executive management team to prefer to fail conventionally by following the herd and taking on too much risk, than to succeed unconventionally. For management teams whose remuneration and long-term wealth accumulation is levered to options and share awards, the risk/reward trade-off is asymmetric.

There’s a big difference between playing with “other people’s money” and the “family silver.” For many, the phrase “family business” conjures up images of a small- or mid-size company with a local focus. This does not, however, reflect the reality or powerful role that family-controlled enterprises play in the world economy today.

Family-controlled businesses are even more prevalent in emerging markets. Within Credit Suisse’s Family 1000 database, the majority of family-controlled businesses emanate from emerging markets, with “…Asia alone contributing 536 or 54% of the total.”1

BCG’s separate and unrelated research corroborates Credit Suisse’s finding: they [family-controlled companies] account for approximately 55% of large companies in India and Southeast Asia and 46% in Brazil.2

The significant presence of this type of businesses also strongly contrasts with the composition of the MSCI Emerging Markets IndexSM. State-owned enterprises (SOEs) make up a substantial proportion of the index.

By using a capitalization-weighted index, the benchmarks appear to favor scale and political influence over returns and family-controlled enterprises. Roughly a quarter of the companies in the emerging markets benchmark can be classified as SOEs – a factor that may expose passive investors to increased risks.3

 

Selectivity is Crucial

Not all family-owned companies practice good corporate governance. And that is why we insist that trust has to be earned over time and we do not simply make an assumption that a family owner will act in the common good. This can be tested through fundamental, bottom up research, and by asking questions such as:

  • How has the family treated its minority shareholders in the past?
  • What businesses do the family own outside the listed entity and are there conflicts of interest?
  • Are there good-quality independent board members providing oversight?
  • Does the family conduct government-related business and if so how does it win contracts or licenses?
  • How is the family regarded by non-financial stakeholders such as local communities and non- government environmental organizations?

These lines of inquiry help form a view of quality over and above looking at historical financial returns.

 

Exhibit 2: Characteristics of a Successful Family Firm

Seeking individuals with long track records of integrity and financial delivery

 

Profiting from Uncertainty

Another attraction of long-term owners, such as families, is their ability to make farsighted, sometimes contrarian decisions, that a professional management team more focused on short-term results and stock market pressure might not. A chief executive with a reduced time horizon can make decisions that are influenced by the short-term and often pro-cyclical moves of the stock market, which can hurt the long-term value of a business. This is particularly the case in commodity and cyclical sectors of the market.

 

Resilient Businesses Through Market Cycles

Seeking a long-term approach to investment and putting themselves in this position by being risk aware when it comes to the amount of debt that the business is willing and able to hold provides potential further benefits.

In modern corporate finance, a judicious amount of debt is considered a good thing because financial leverage maximizes value creation through the leverage of returns. Family-controlled firms, however, often associate debt with fragility and risk. They believe debt means having less room to maneuver if a setback occurs and that it can also lead to being beholden to a bank or bond markets during periods of cyclical economic weakness. As a 2012 Harvard Business Review study states, “family-run companies [may not consistently] earn as much money as companies with a more dispersed ownership structure. But when the economy slumps, family firms far outshine their peers.” And when this study assessed business cycles from 1997 to 2009, it found “that the average long-term financial performance was higher for family businesses than for non-family businesses in every country [they] examined.”4

We believe well-managed, family-controlled businesses are more resilient than non-family-controlled businesses because they emphasize balance sheet strength and capital preservation. Based on a Credit Suisse Research Institute Study, family-controlled businesses retain a higher percentage of earnings (i.e., lower payout ratios) and maintain more stable dividend payout ratios. Because of a higher earnings retention rate, they tend to be less reliant on external financing for capital expenditures or for supporting dividends.

 

Exhibit 3: Payout Ratio Comparison

Payout ratios of family-owned companies are about 13 points lower

Source: Company data, Credit Suisse estimates

 

Ensure Alignment of Interests

Emerging markets present a distinctive context in which to operate a business, with constant evolution – and sometimes revolution – in economic, political, regulatory and financial conditions. The prudence shown by family-controlled groups with focus on intergenerational wealth creation may allow them to navigate these conditions in a manner that supports long-term value creation.

Investing alongside families with good reputations that share our belief in a long-term approach to investment is, in our view, an important way to align interests as we seek to deliver “risk-aware,” superior returns for investors.

 

1Credit Suisse Research Institute. “The CS Family 1000.” September 2017.
2Bhalla, Orglmeister and Tong. “What makes Family Businesses in Emerging Markets So Different?” Boston Consulting Group. September 8, 2016.
3“The Dangers of Benchmark Investing in Global Emerging Market Equities” investment insight may be accessed at janushenderson.com/eme
4Kachaner, Stalk, Jr., and Bloch. “What You Can Learn from Family Business.” Harvard Business Review, November 2012.

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Originally Posted On November 13, 2018

The opinions and views expressed are as of the date published and are subject to change without notice. They are for information purposes only and should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation to buy, sell or hold any security, investment strategy or market sector. No forecasts can be guaranteed. Opinions and examples are meant as an illustration of broader themes and are not an indication of trading intent. It is not intended to indicate or imply that any illustration/example mentioned is now or was ever held in any portfolio. Janus Henderson Group plc through its subsidiaries may manage investment products with a financial interest in securities mentioned herein and any comments should not be construed as a reflection on the past or future profitability. There is no guarantee that the information supplied is accurate, complete, or timely, nor are there any warranties with regards to the results obtained from its use. Past performance is no guarantee of future results. Investing involves risk, including the possible loss of principal and fluctuation of value.

Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from Janus Henderson Investors and is being posted with Janus Henderson Investors’ permission. The views expressed in this material are solely those of the author and/or Janus Henderson Investors and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


21534




Aktien

Finimize - The Walmart Is Not Enough


What's going on here?

Walmart’s quarterly profit beat investors’ expectations on Thursday – but neither that nor its improved forecast for the rest of the year stopped them ditching its stock, which fell 2%.

 

What does this mean?

Walmart’s sales at US stores open at least twelve months were 3.4% higher than the same time last year, better than investors had predicted, and ecommerce grew 43% – faster than last quarter. Just as well, given that Walmart’s spent heavily on growing its online presence; and buying India’s Flipkart should push that growth further still.

The company pointed out back-to-school gear and health and wellness items as particularly strong areas – but groceries still make up about half of Walmart’s sales. Last quarter was also good for groceries – but Walmart has plans to “family size” its future here. Only 2,100 of its more than 5,000 US stores currently let customers pick up online orders – and only 600 deliver groceries to customers’ homes. Quickly increasing these numbers will make shopping at Sam’s more convenient, hopefully increasing sales.

 

Why should I care?

For markets: The world is not enough.

Despite better-than-expected results from America’s biggest retailer, investors sold its shares on Thursday. When established retailers talk about adjusting to an ecommerce-loving world, it can sometimes remind investors that these companies have a long way to go – and that future success is far from guaranteed, especially when Amazon’s the competition. Investors potentially unwilling to go on backing these retailers’ hard graft might have sold not just Walmart’s shares, but Macy’s as well.

The bigger picture: Global grocery champ or chump?

In April, Asda – Walmart’s UK grocery chain – announced plans to merge with rival Sainsbury’s, Britain’s second-largest grocer. Regulators are still considering the proposal, aiming to ensure that the combined company doesn’t have too much power to unfairly raise customers’ prices – and all the while discount chains are running amok. A more expensive supermarket probably won’t help UK retail recover from its slump…

 

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Originally Posted on Thu November 15, 2018

Finimize is the daily email that everyone in finance secretly reads. It's the perfect 3-minute cheat sheet on what happened in the financial news: it's free and without any jargon or as Forbes puts it “Super digestible and well-written. A+”. All content is created by the Finimize team, formerly @Goldman Sachs, Barclays, etc. Join more than 200,000 daily readers.

Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from Finimize and is being posted with Finimize's permission. The views expressed in this material are solely those of the author and/or Finimize and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


21546




Fixed Income

Interactive Brokers - US Fixed Income Calendar: The Week Ahead (Nov 19 - 23)


Interactive Brokers senior market analyst Steven Levine provides some highlights for what to look for in the week beginning November 19. Experience the IBKR Platform!  Use our powerful trading platform to begin trading a simulated account for free and without commitment.

Click here to start your free trial today: https://gdcdyn.interactivebrokers.com/en/index.php?f=1286

 

Produced on November 13, 2018

The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


21553




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Offenlegungen

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