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The Timber Log

The Timber Log - 7/28/2021

By David Cleary, CFA | Jul 31, 2021 8:15:00 AM
The Timber Log is a quick overview of Timber Point Capital’s weekly investment meeting.  If you would like to join the call or have questions about the content, please reach out to Patrick Mullin at pmullin@timberpointcapital.com
 
The information contained herein does not constitute investment advice or a recommendation for you to purchase or sell any specific security.

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We were surprised to see the YTD returns in small cap land…thought it had been more difficult!

  • Small cap returns depend on style - Value index up 24.5%, Growth index up 7%, Core up 15%
  • In early Feb ’21, growth and value styles were up mid-teens YTD, Growth up 17% vs. Value 15%
  • Divergence since then a function of reopening hopes – Value peaked up 32% in early June!
  • Growth bottomed early May, down 2%, has not returned to YTD double digit returns
  • Core small cap (IWM) had outperformed SPX 500 on YTD basis by 1400 bps in early March
  • Core now trailing SPX 500 by 500 bps, despite 15% return – big performance turnaround!
  • Small caps began to outperform large with vaccine news in Nov ’20…delta variant is a factor in underperformance!

 

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IPO market hitting records in terms of volume and proceeds – SPAC’s are slowing…

  • 99 traditional IPO’s (non-SPAC) had highest quarterly activity in over 20 years (3Q2000)
  • $41 billion of proceeds from traditional IPO’s the most in two decades (4Q99)
  • Healthcare busiest sector (46), followed by technology (42)…then consumer (9)
  • SPAC IPO’s raised $12 bln during 2Q21 vs. $87 bln in 1Q21…this compares to $2 - $3 mln/qtr in 2017 – 2019
  • IPO pipeline remains robust with 105 companies having filed looking for ~ $12 bln in proceeds
  • Interesting that 2Q14 saw largest quarterly issuance during 2010 decade (83) - IWM peaked in early July ’14 and bottomed in early October, down 12%...

 

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China regulatory crackdown on technology companies impacting local and EM equities

  • China makes up ~ 1/3 of the EM index, Chinese stocks down 11% YTD in dollar terms
  • There has been a correlated impact on other Asian markets, only Taiwan positive YTD
  • This may not be a short-term phenomenon - Chinese govt taking long view on anti-competitive practices and data privacy
  • How much of Chinese govt actions to hurt US investors? Certainly not lost on them…
  • Unintended consequences are likely in terms of business and capital formation
  • Historically Chinese tech startups have relied on foreign seed capital
  • Hong Kong IPO’s on track for slowest quarter since 2009
  • Global investors will demand a return premium for future investments in China

 

Written by David Cleary, CFA

David Cleary, CFA is the Founder and Lead Portfolio Manager at Timber Point Capital Management. Previously he spent 23 years at Lazard Asset Management where he held a series of senior portfolio management roles over multi-asset and global fixed income strategies. Additionally, he served as the firm’s global head of fixed income, a $26 billion platform. Prior to Lazard, David worked at UBS and IBJ Schroder, mostly in fixed income asset management roles. He began working in the asset management field in 1987 upon his graduation from Cornell University, with a BS in Business Management and Applied Economics. He is a CFA charterholder.

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