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The Paper Trail: Crossing the Threshold

We're nearing the halfway mark of 2024, which means you're legally obligated to comment on how quickly the year is going by. 

Wishing all of my readers a happy and safe Independence Day next week! Make sure you take plenty of fireworks pictures. They always appear just as good, if not better, on your iPhone than they do in real life.

Before your 4th of July festivities begin, please enjoy this month's investment research compilation. 

June's research roundup features:

  • Meme stocks with high short interest
  • India vs. China in EM portfolios
  • Specialty finance
  • Down rounds in venture capital
  • The liquidity and exit environment in private equity
  • Alternative investments in wealth management
  • Professional sports as an asset class
  • U.S. stock market concentration
  • European direct lending
  • And much more!

“bps” (reading time < 10 minutes)

Is buying stocks with high short interest a winning strategy?

"While Roaring Kitty may come out to roar once in a while, the rest of the time, stocks with high short interest are more likely to whimper than roar."


Meme Stonks Revisited (Verdad)

Has the long India/short China trade run its course in emerging markets?

"Might it still be worth embracing the Rising Tiger, Falling Dragon theme? Possibly. But the risk is hardly trivial, and evaluation of the trade should be based on much more than just extrapolation of prior returns or even the macroeconomic picture."


Rising Tiger, Falling Dragon: Theme Du Jour in EM Equity Investing (Acadian Asset Management)

What is "Specialty Finance"?

"Large corporations have always needed services like trade finance, inventory finance and asset finance. Agri-businesses have always financed their operations with loans secured against next season’s produce. Consumers have been taking out credit cards, mortgages and auto loans for decades. Specialty finance providers have moved into these services as banks have scaled down their presence since the Global Financial Crisis."


Specialty Finance: High-Yielding, Short-Duration and Uncorrelated Private Credit (Neuberger Berman)

Do "down rounds" in venture capital have to be a bad thing?

"As companies that have raised down rounds know from experience, there doesn’t need to be a stigma from taking this path. Indeed, in the long run, the alternative may turn out to be significantly worse."


Embracing Down Rounds: A Potential Path to Long-Term Equity Value (Adams Street)

How has ETF regulation affected the adoption of Managed Futures?

"The “ETF rule” and “Derivatives rule” were passed to help facilitate greater competition and innovation within the industry and the corresponding impact on the alternative ETF market since has been profound. In the five years ending December 31, 2023, the number of ETFs within Morningstar’s Alternative and Non-Traditional Equity category groups grew from seventy-seven ETFs representing $5.7 billion in assets to three hundred eighty representing just under $140 billion in assets."

The Managed Futures Ecosystem: The Rise of the Managed Futures ETF (AlphaSimplex)

Is the liquidity freeze in private equity beginning to thaw?

"After two years of many GPs holding steady and waiting for the storm to pass, they are starting to act and bringing assets to market. And while the flood gates have not opened just yet, the momentum is building."


Liquidity on the horizon? (Dawson Partners)

“pieces” (reading time > 10 minutes)

How should wealth managers think about designing an alternative investment allocation for their clients?

"Before adding alternatives to a portfolio, it is critical for you to think about “the why”. Why invest in alternatives for this investor? What role or purpose does an alternatives allocation play within the investor’s overall portfolio? How would an alternatives allocation contribute towards or detract from the achievement of the investor’s goals? The answers will depend not only on objectives, but liquidity needs, tax posture, risk capacity, and other circumstances unique to each investor."


Crossing the Threshold: Mapping a Journey Towards Alternative Investments in Wealth Management (CAIA Association)

Is the U.S. stock market too concentrated?

"Fundamental results can justify rising concentration. From 2014 to 2023, the top 10 stocks were 19 percent of the market capitalization, on average, while the companies made up 47 percent of the total economic profit. In 2023, the top 10 equities were 27 percent of the market capitalization and the firms contributed 69 percent to the total economic profit. The relative market capitalizations of the stocks of these companies is not without a fundamental foundation."


Stock Market Concentration: How Much Is Too Much? (Counterpoint Global)

Is the environment for private equity buyout-backed exits showing signs of improvement?

"The total number of buyout-backed exits is essentially tracking flat on an annualized basis while exit value is trending to finish at $361 billion, a 17% increase from the 2023 total (see Figure 4). Although that’s certainly a move in the right direction, 2024 is still shaping up to be the second-worst year for exit value since 2016."


Searching for Momentum: Private Equity Midyear Report 2024 (Bain & Company)

Have professional sports franchises been a good long-term investment?

"In short, we identify three major drivers of long-term returns: (1) major, one-time demand shocks, historically driven by media rights renewals; (2) long-term wealth accretion in the economy overall, reflected in aggregate stock price increases over the long-term, through with more muted effects on sports valuations during short-term equity market stress; (3) a long-term live entertainment or “experience economy” industry factor, though again, the ride is “less bumpy” in premium sports."


Ross-Arctos Sports Franchise Index (RASFI): Sports Asset Class Returns Over the Long-Term (Arctos Partners/U. Michigan Ross)

Is selecting active managers in long-only, public equities a worthwhile endeavor for allocators?

"Selecting the right managers is only the first step. Constructing portfolios requires careful consideration of manager and market dynamics to adjust for shifting factor exposures and avoid unintended bets for which investors are unlikely to be compensated."


VantagePoint: Building Resilient Public Equity Portfolios (Cambridge Associates)

How does the European direct lending market compare to that of the U.S.?

"According to our analysis, the European sponsor coverage market is likely seven to 10 years behind where the US market is today. Furthermore, Europe no longer provides a yield premium compared to the US, as it historically did during the infancy of the asset class. As the European market continues to evolve deal structures and pricing are converging, and largely similar across the two markets."


Transatlantic Pathways: Charting the Course of Direct Lending in the United States and Europe (Man Group)

About the author

Phil Huber, CFA, CFP®

Phil is the Head of Portfolio Solutions for Cliffwater, a leading alternative investment adviser and fund manager. Prior to joining Cliffwater in 2024, Phil was the Chief Investment Officer for Savant Wealth Management, a multi-billion dollar wealth management firm. Phil has been involved in the financial services industry since 2007. He earned a bachelor’s degree in finance from the Kelley School of Business at Indiana University. He is a member of the CFA Society of Chicago. More about me here. Twitter: @bpsandpieces

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