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Absolute Return Podcast #35: When Deals Fall Apart: An Investor’s Perspective

By October 15, 2019 No Comments


October 15, 2019—Hong Kong Stock Exchange Drops its Bid for London Stock Exchange. Why are we not Surprised?

Greece Sells Bonds at a Negative Yield. Should Investors be Buying?

Brookfield Sells North American Palladium to South African Firm in Unusual Deal. What Makes the Deal so Interesting?

QE4? The Fed Restarts Asset Purchases in Bid to Placate Money Markets. Why did they do it?

A Discussion on September Factor Performance.

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Transcript

Welcome investors to the Absolute Return Podcast. Your source for stock market analysis, global macro musings and hedge fund investment strategies. Your hosts Julian Klymochko and Michael Kesslering aim to bring you the knowledge and analysis you need to become a more intelligent and wealthier investor. This episode is brought to you by accelerate financial technologies. Accelerate because performance matters. Find out more at www.Accelerateshares.Com.

Julian Klymochko: Welcome listeners to Episode 35 of The Absolute Return podcast, I am your host Julian Klymochko.

Michael Kesslering: And I am Michael Kesslering

Julian Klymochko: Today is Saturday, October 12th, 2019. Going to chat about a number of important market events this week. Nothing too crazy happening, but nonetheless have a few really important events to chat about.

    • We are going to talk about the Hong Kong Stock Exchange. They dropped their bid for the London Stock Exchange. Why are we not surprised that this deal fell apart.
    • Greece, they sold bonds at a negative yield, which is just shocking. Should investors be buying these bonds?
    • Brookfield, the Big Asset Management Shop. They sold North American Palladium to a South African firm in a really unusual deal. We are going to talk about what makes this deal so interesting.
    • QE4, is this the restart of quantitative easing? Or the Fed restarted its asset repurchase program in a bid to placate money markets. We are going to talk about why they did it.
    • Lastly, we are going to finish off with a discussion on September factor performance.

Honk Kong Stock Exchange

Julian Klymochko: Interesting but unsurprising news in the M&A space with Hong Kong stock exchange ultimately dropping its bid for the London Stock Exchange. This was supposed to be a thirty six point four billion dollar deal. It was unsolicited of course, the Hong Kong Stock Exchange, the HKEX, making a hostile play for the LSE, the London Stock Exchange. But it was really dead from the start. It faced big push back from LSE shareholders. Its board of directors and regulators faced a lot of political pushback, so it was really a tremendous amount to climb. HKEX ultimately throwing in the towel pretty quickly. It was rejected last month by LSE board of directors. They said complications ranging from political unrest in Hong Kong. That is a huge political event globally. They also cited potential problems with regulators, and the London Stock Exchange certainly is not a stranger to various M&A deals, whether they’re the target or the acquire and all of the regulatory heir that comes with those. HKEX released a statement saying that it is disappointed that it has been unable to engage with the management of the LSE in realizing this vision and as a consequence has decided it is not in the best interests of HKEX holders to pursue this proposal. Just wanted to quickly touch on the strategic rationale. What HKEX the Hong Kong Stock Exchange was looking to do. They saw London as the centre of trading between East and West, and basically they wanted to merge such that they could a live trading nearly 24 hours per day between the two bourses.

My take and it is important to or for investors to really take this into account when you see an M&A proposal is to evaluate. Is this really a bonafide offer? And does this have a good chance of coming to fruition and actually closing? We previously discussed when this deal was first announced or this potential deal, this unsolicited offer, that it really was not a legitimate offer.

We thought that it had a really small chance of probability, if any. So we are not surprised to see it fall apart, which is really what we expected. The reason it fell apart was a number of fronts. Number one, this deal was contingent on LSE dropping its friendly acquisition of Refinitiv the financial data provider in which its shareholders really, really liked.

LSE shares rallied north of 20 percent off that Refinitiv deal. So ultimately, the price that HKEX was offering to the LSC was really insufficient. LSE shareholders wanted at least 15 percent higher and Hong Kong was just unable to put up that sort of cash. Effectively LSC shareholders needed what is known as a knockout bid, which is a price so high that you really cannot refuse it. The other thing is it really stood no chance of regulatory approval. LSC attempt merger with Germany’s Deutsche Bourse a number of years ago. This was ultimately abandoned due to regulatory issues. Singapore Exchange’s bid for ASX was rejected by Australian regulators in 2011. There is just all these national interest concerns and you see it over and over and over again.

These global exchange deals continue to fail just due to national issues, regulatory issues, so that investors need to keep that in mind that these deals are incredibly difficult to do, even if they are friendly just from a regulatory standpoint. Then lastly, politically, this was viewed as a Chinese takeover because the Hong Kong stock exchange is ultimately controlled. It is publicly traded, but it is controlled ultimately by Beijing.  This deal faced a ton of concerns over its governance, Hong Kong’s government, which is controlled by Beijing. They actually have the ability to appoint seven of HKEX’s 13 board members. So effective control of the Hong Kong stock exchange lies within the Chinese government. Obviously, that is a non-starter to London politically and LSE shareholders just from a corporate governance perspective. Nonetheless, some price action here: LSE shares dropped as much as six and a half percent on the news, which is surprising because I did not really think that investors should be pricing in any chance of success, so perhaps that was an opportunity. HKEX shares rose 2.3 percent, effectively offsetting the decline that happened when this deal was announced. Nonetheless, it is important to chat about what happens when these deals fall apart. What are your thoughts on this ultimately failed unsolicited takeover?

Michael Kesslering: So when we had originally discussed this a number of weeks ago. We talked about how this is part of LSE, broader shifting strategy, moving from being really reliant on listing fees to becoming more aligned on the data side and get generating their fees in that sense. And so that was kind of the rationale that we talked about for the Refinitiv deal is that it really broadens their business, lines and their exposures for revenue and a deal with the Hong Kong Stock Exchange it would be effectively doubling down on the activity based revenues that they’re traditionally seeking. So it really didn’t make a lot of strategic sense outside of just the general synergies that you would have with similar business lines merging together. The other interesting thing that LSE has come out and said was that they do want exposure to mainland China like many businesses, but they did not really have a lot of interest of going through a proxy like Hong Kong. So that is interesting to note, as you had mentioned, where Hong Kong has traditionally been, the middle ground between east and west economic systems. But yeah, I guess looking at this as well, you mentioned that there is very little chance of this getting through regulators. And, you know, it’s just kind of not really a great attempt to actually get a deal secured by Hong Kong. This brings up a good question. Something that you mentioned. Is what do you do when an M&A deal falls apart? This is kind of a good case study on the topic.

Julian Klymochko: Yeah, it is really interesting to take a look at what happens when an M&A deal falls apart and what an investor should do. If you are left holding the stock because typically you see significant downward pressure as event, driven investors and arbitrages sell the stock. Some are actually forced sellers because it is their mandate to only hold deal stock. If the deal is dead, then they are effectively needing to exit selling at whatever price that they get.  This can actually lead to some irrational selling, in my opinion, talking from LSE shareholder perspective. Like ultimately you got a look at the business from a fundamental perspective. On that front, LSE is a tremendous deal in Refinitiv. Highly accretive by over 20 percent, and the exchange business is a really attractive business, especially as they tack on more consistent financial data revenue. Certainly, LSE shareholders are going to be fine here. The stock will continue to do well.

I wanted to touch on some more recent deal breaks over the past number of years. We have seen quite a few and they typically break over regulatory slash political issues. Touching on Aecon. This was a Canadian construction company, engineering construction. They actually had a friendly deal to sell to a Chinese company. Unfortunately, this was blocked by the Canadian regulators, on national security grounds, which is odd for a construction company building roads and such. Would not think that it is much safety risk. Nonetheless, this was a friendly deal at $20 and 37 cents cash per share. The stock got smoked after it broke. It traded down to about 14 bucks and change.

And that was really the bottom of it, which we see typically after the day after the deal break, that’s when there is the most selling pressure in the stock. Then after a number of months, it will ultimately trade up to fundamental value. Aecon recovered quite nicely, but a year after the deal break had actually traded briefly above its previous deal price. Nonetheless, now it trades at 17 and changed so down roughly, you know, 12 percent off that deal price. We look at another interesting one, Rent-A-Center, which had a deal with a private equity firm, friendly deal to get acquired at 15 bucks per share. I believe that was Vintage Capital perhaps a couple of years ago. What happened here is they had a friendly deal that the acquirer’s really unique situation because the merger agreement expired. And typically they just renew that merger agreement with the goal of closing the deal, but the Rent-A-Center board knew that business was really picking up and they are no longer impressed with that $15 price. So they were actually pretty eager to get out of the deal because they thought the value of their company was actually worth more than the original $15 deal. The private equity firm Vintage Capital actually forgot to extend the merger agreement, which was a huge mistake because now Rent-A-Center trades at $26.50, you know, close to 80 percent above where the deal was.

Nonetheless, on that deal, the day after, arbs really puked out of the stock. It tanked, probably 8 to 10 percent been nothing but a rally since the day afterwards, pretty much the bottom in the stock and it’s rallied way, way through the deal price. Then Vintage really had egg on their face. Not just that, but they are on the hook for a massive break fee of about north of 90 million dollars.

Michael Kesslering: Very expensive mistake.

Julian Klymochko: Yeah, so I am sure heads had to roll on that one. Wanted to touch on one more deal on Avista, which was a utilities deal in the U.S., which I always advise investors to stay far, far away from because they are subject to the utilities commission in each state in which they operate, which is a really, really, really big nightmare for companies to get the approval of the utilities commissions. Obviously, on this one, this one broke because it got blocked from the Utilities Commission. It was a deal, friendly deal at 53 bucks per share. It tanked upon news of deal, breaking down to about 40. That has traded up since then to about 48 and changed.

So the main message here is more often than not, the worst time to sell is the day of a deal break, because that is when selling pressure from arbs, event driven traders and other investors that really don’t care about fundamental value or the price they’re getting. They are basically forced sellers. That is effectively the worst time to sell a deal stock. You typically not always, but on average, you see quite the bounce back from that low point. I always joke that perhaps it would be a good investment strategy to only buy broken deal stocks on the day of deal break. Think you would actually have some pretty significant alpha there, but to conclude on this one. LSE shareholders going to be fine here. They got a great fundamental business, which is how you should ultimately evaluate a deal stock after that deal falls apart.

Greece

Julian Klymochko: Some pretty mind-blowing news in the sovereign bonds space with Greece, which is a country that actually defaulted on its debt in 2015. Four years ago, they defaulted, could not repay their debt. They actually sold debt at a negative yield for the first time, which is just absolutely ridiculous in my opinion. But apparently some investors are into that sort of thing. What happened here was the Greek government issued a nearly 500 million euros of three-month debt at a yield of negative zero point zero 2 percent. So investors having to pay the Greek government for them to lend the money. The nation of Greece emerged from an eight-year international bailout program just last year. So their struggles have really been well documented ever since the global financial crisis, they have really had a tough go of it.

Greece’s economy has been growing at around 2 percent a year lately, but remains deeply depressed after shrinking by about one quarter during the financial crisis. Their economy has really faced a tough go of it over the past dozen years. Nonetheless, negative yielding debt. We have continued to talk about this. It has really proliferated throughout the Eurozone with sovereign bonds, you have had a big rally in sovereign bond prices, which as listeners know, the higher the prices, the lower the yield. As these bond rally, you’re seeing that yields are being pushed lower and lower. This bond rally shoved Portuguese borrowing costs down to record lows last week. The Greek government is selling this negative yielding debt for the first time ever, meaning more and more investors are willing to take a loss on their investments. So guaranteed no return investment if held to maturity.

And why is this happening? Well, it is largely just a function of QE in Europe, quantitative easing and very low interest rates from the European Central Bank. What this does, it really begets more risk averse behaviour by investors. To touch on like the ECB stimulus efforts and which number one really have not been working. I mean, things just keep going from bad to worse. There is a lot of gloom and doom about the prospects for the global economy.

Now, that has made about two thirds of the government debt in the euro area to trade at a negative yield. And just to touch on what the ECB has been up to. They took their key benchmark rate further into negative territory last month. They reduced it, the key interest rate by one tenth of a percentage point to minus 0.5 percent. And what that means is the central banks benchmark interest rate here in Europe, it’s negative 0.5 percent. That key so-called risk free rate is really the gravity in which all other financial assets trade to us on a spread based off of, and so that key interest rate acts as gravity, bringing all other risk assets down. Hence, you are now seeing quite a bit of negative yielding debt throughout the Eurozone and that is really just spreading. It is starting to become imported into North America where you are really seeing yields plummeting not to negative territory, but what is the 10 year at right around now like 1.6, 1.7 percent. So getting kind of dangerously close to that zero percent range. Nonetheless, negative yielding on a real basis adjusted for inflation. What are your thoughts on just this craziness and the Greek debt? And would you advise investors on buying it?

Michael Kesslering: To add some further context, this when you are referring to the negative Greek debt that was the three month debt and looking at their 10, they also sold 10 year bonds at a 1.5 percent yield on Tuesday. For context here, you know, looking back just a year ago, that same 10 year yield for Greece was 4.5 percent and was double digits as early back as 2016.

Julian Klymochko: Right, I remember when they were in crisis. It was 20, 30 percent.

Michael Kesslering: In the midst of the Greek debt crisis back in 2012. The high that it got to is thirty-seven percent. That is less than 10 years ago. Now there, you know, just barely above 1 percent, with the 10 year. Like you said, it is really crazy, and so the only way it ever would make sense for anybody to be buying these are institutions that are, you know, forced to take the overnight rate from the ECB.

Julian Klymochko: Not just that, but speculators betting on someone to pay an even higher price.

Michael Kesslering: The greater fool theory.

Julian Klymochko: Yeah, exactly.

Michael Kesslering: Yeah, and for any normal investors, say, North American based investors. Absolutely it does not make sense to be looking at Greek debt at this point in time, as you mentioned. That really just relies upon finding somebody to pay a higher price for it. That really is not backed by the fundamentals.

Julian Klymochko: Right, so investors, this is a situation to observe, but in terms of buying. Stay far, far away from Greek debt.

Brookfield

Julian Klymochko: We saw a really interesting deal announced in the M&A space this week in the resource sector where Brookfield Business Partners. They struck a friendly deal to sell its controlling stake in North American Palladium, which is publicly traded. They are selling it to South Africa’s Impala Platinum Holdings in a one billion dollar cash transaction. This deal is unique, such that North American Palladium minority investors, they are receiving $19 and seventy-four cents per share while Brookfield (they have an 81 percent controlling stake) they are receiving only sixteen dollars per share, which is a 19 percent discount to what minority investors are receiving. This $19.74 ultimately represented a zero percent premium takeover. Basically where the stock was trading, it was trading very well. Our funds did have a position in it at the time, subsequently exited upon this deal announcement. We thought it was a good stock to hold, but no position at this time.

Nonetheless, you rarely see this happen on merger deals. What I am talking about is where a controlling shareholder gets a really, really good deal for minority shareholders, which is just what happened here. Hats off to Brookfield, they are really taking care of minority shareholders who are getting way more than Brookfield is taking for their stake. Minorities getting nineteen seventy-four per share. Brookfield taking only $16 to facilitate this deal getting done, so good on them.

Wanted to touch on some background on the deal. So Brookfield first got involved in North American Palladium as a debt holder in 2013. They advanced $130 million to the company at a 15 percent interest rate. It was clearly highly distressed; it was a distressed debt investment. North American Palladium was struggling and ultimately it was a loan-to-own deal, where you get in on the debt with the view of converting to equity in the future. The company needed these funds to complete its lac des iles Palladium Mine. This is northwest of Thunder Bay in Ontario and Canada. Over the next few years, North American Palladium ran into operational problems, and soon was facing a big cash crunch, liquidity crunch and crumbling palladium prices. In 2015, North American Palladium ultimately went through a recap. That is how Brookfield converted its debt to equity in the process to become the biggest shareholder with the really, really large stake in the stock. So previous shareholders really getting diluted on that one, and Brookfield becoming a controlling shareholder through converting their debt and to equity. But luckily, in the last few years after that recap was done, the company’s fortunes have really turned around. They have improved significantly. The mine expansion was a huge success. You had a dramatic turnaround in the price of palladium. It is really reaching new highs. You have had a huge bull run in that, and the stock has done exceptionally well over the past number of years.

Talking about some numbers over the past year. Palladium has risen about 55 percent. So big nice bull market there. What’s that based on is really just rising demand from the automotive industry and squeezes on the supply side. But with respect to Brookfield’s position here, clearly not a permanent owner. They typically like to get into companies on the trough end of a cycle. And clearly what they’re looking to do here is exit when things are going very well. Multiples are high. Commodity prices are high, and so they are trying to really top-tick the cycle here. Ultimately, Brookfield making three times their money within six years. So a successful investment. What are your thoughts on it?

Michael Kesslering: Yeah, like you had mentioned, this really wasn’t a deal where Brookfield was necessarily taking a bullish or bearish view on palladium prices. It was really, like you had mentioned a distressed debt scenario where they were able to take control of the asset and generate the returns in that way. One other interesting aspect of the deal is there is a 30 day go shop provision that, you know, there are some potential competing bidders, but that pool of bidders really is not that large. There is a few South African palladium producers. Overall, unless another private equity firm became involved. Which is somewhat unlikely, as you know, the mining business is a very capital-intensive business.

Julian Klymochko: And for listeners what a go-shop provision is they effectively get to go out and shop at the company, run effectively an auction process to see if there are any other buyers willing to pay a higher price, which is not too common. I would say it happens in maybe 10 to 15 percent of deals where the target company is actually allowed to go out and solicit higher offers. Typically, they are not allowed to do that and they are only allowed to take a look at other offers if it comes in on an unsolicited basis.

Michael Kesslering: Absolutely, and so when looking at the go-shop provision and the likelihood of a competing bidder to come through. Was going over some research from GMP, where one of their analysts believes that if there was a competing bid, it would likely only have upside to Brookfield shares at $16, likely not for the minority shareholders. I would just be an offer to sweeten the bid to Brookfield. Although the one interesting aspect is that if one of these strategic acquirers is making to make this deal, it would likely have to be in cash, as Brookfield no longer has any interest in holding shares in any palladium companies. They would have to increase the cash portion, which from those producers standpoint may be quite difficult for them to do. They would be more attuned to doing a share deal. So that is something interesting to follow here in the next couple of weeks. Whether a competing bid does come around, although I do view the likelihood is fairly small.

Julian Klymochko: Yeah, I also wanted to discuss why would minority shareholders get such a big premium over what Brookfield was taking. Clearly, Brookfield saw fair value at roughly sixteen dollars per share. But the big problem was the stock was trading at 19 and change. So it’s a big premium to where they wanted to sell it. So it’s not like an acquirer could come in and take out the whole company at 16, because even though Brookfield controls 81 percent, this deal and all of the other deals are still subject to what’s known as a majority of minority vote. Within a deal like this, obviously, Brookfield is going to vote for the deal, which is 81 percent of the company. But you still need approval of 50 percent of the minority shareholders. So the 19 percent of shares that Brookfield does not own. They are going to need to approve the deal by a vote of 50 percent. If there is a big take under i.e. an acquisition price lower than the market price, who is going to vote for that? Right, no one.

QE4

Julian Klymochko: Looks like we had the commencement of QE4 for more quantitative easing as the Fed restarted its asset purchases. What they did was Federal Reserve Jay Powell – he said that the central bank, the Federal Reserve, will resume its bond buying program for reserve management purposes.

Powell stressed to the market that the balance sheet expansion did not represent another quantitative easing package. But I mean, the market was sceptical, we are sceptical of previous QE was about 45 billion of bond buying. This one is 60 billion, they are saying the key differentiator and why this does not qualify as more quantitative easing is that previous QE was longer term treasuries. They are doing their previous rounds of QE was buying long term treasuries in a bid to push down long term interest rates and getting ultimately stocks to rise the so-called wealth effect. But here they’re buying, you know, short term securities to try to get some more normalcy in the money markets, the repo market, which kind of lately went a bit haywire with repo market yields really skyrocketing. The Fed is looking to step in to help normalize things, but what quantitative easing is, it is typically open market purchases of treasuries, mortgage backed securities. This actually occurred first in the global financial crisis, as I stated, to get this wealth effect going. So typically, it happens in periods of significant distress, huge recession, economic contraction, equity bear markets. I mean, we are seeing none of that. What are your thoughts on what the Federal Reserve is doing here? It is this kind of unexpected and strange.

Michael Kesslering: Absolutely, and viewed by as very aggressive as I will get to. First, what was the aim of this? So the aim was, like you mentioned by the Fed, was to restore the amount of cash reserves that banks hold, at the Fed. When the Fed buys T-bills from banks, it pays for the purchase by crediting the bank’s reserve accounts at the Fed. That is the kind of mechanism that is used here. This was seen as an aggressive move by analysts just to put that into perspective. These planned purchases of $60 billion per month are well in excess of the growth in the money in current circulation, which is at about a $5.6 billion per month. So it’s about 12 times larger than what the organic growth in currency is doing. So it’s really bringing a lot more liquidity into the market, really bringing the world awash with capital. As you had mentioned, Powell really wanted to stress that this was not quantitative easing. That something that we have discussed before is kind of the messaging that Powell has. Market participants have long complained about his messaging to the markets. His rationale is that since the Fed is buying shorter dated T-bills rather than long-term bonds, that it is quite different from QE. Although I would argue that really it may be a slightly different goal, but the mechanism is still the same. And it’s just buying different securities.

Julian Klymochko: Yeah. If it walks like a duck, quacks like a duck, it is a duck. Clearly, this is quantitative easing despite the Fed denying it. Nonetheless, I mean, we took a look at it from a real micro perspective. I wanted to touch on this from a macro perspective. Number one is it’s important to note the complete 180 degree turn that Powell and the Fed have done, not just on interest rates. Last year they are hiking rates and said they are going to steadily continue to hike. Then they stopped, and now they are in a cutting cycle. Also on the balance sheet last year, they were keen on reducing their balance sheet from the previous effects of QE. They have a steady balance sheet runoff and then markets got skittish in Q4. So they halted their balance sheet run off and now they’re back to balance sheet expansion. They are out more QE, with QE4. Expanding the balance sheet. Meanwhile, S&P 500 is what, 2 percent off all time highs. You have had the largest expansion in history basically in the U.S. The economy is doing great. Unemployment is at an all-time low, 3.5 percent, but not unless you scratch your head and think, is this another negative sign for the global economy here? Clearly, the Fed is skittish. They have already cut interest rates twice this year, really trying to shelter the U.S. economy from a weak global growth. Then there is all this trade policy uncertainty. The Fed, the Federal Open Market Committee, the FOMC, is meeting again late October.

The markets betting on an additional interest rate reduction to one point seventy five percent to 2 percent that is one thing to keep in mind. Got a quote here from Chairman Jay Powell. He stated, “We will act as appropriate to support continued growth. A strong job market and inflation moving back to our symmetric 2 percent objective.” But with this commencement of QE4, it seems like he’s really, really keen on making markets happy. Investors you going to like this if you are an investor. I mean, it keeps asset prices going up, and the Federal Reserve certainly is supportive of the S&P 500 here. That is all I got to say about QE4.

September Factor Performance: What a wild month!

Julian Klymochko: So we put out a blog post this week entitled, September Factor Performance: What a wild month! September was just a crazy month in terms of multi-factor performance. What we have seen like year to date prior to September. I mentioned the quote, the trend is your friend until it ends. And that really characterize things. I mean momentum and trend, were working very, very well. Value in quality were just sucking it up this year until September. You had a complete reversal. We chatted about this massive short squeeze from the start of September to the middle of September, where you had the worst performing stocks year to date stage, a huge dead cat bounce. You had a massive short squeeze. The best performing stocks year to date to September all tanked. I remember looking at the Russell 2000, the bottom six stocks year to date, the worst performers rallied on average north of 10 percent. I believe it was September 10th

Michael Kesslering: And 11th.

Julian Klymochko: Yeah across those two days. Then you look at a best performing stocks, the six best performing stocks year to date to September 9th, and they actually tanked on average over 10 percent. So you had a complete reversal, in my opinion, of a massive unwind of a long short portfolio book that really, really went crazy and that actually peaked pretty much right after I put out our blog posts regarding that short squeeze. It peaked mid-September where you had long, short multi-factor performance doing incredibly poorly.

I mean, the long book was up maybe 3 percent in the short book was up 16 percent. So long short investors were feeling a ton of pain and that completely reversed. You see a massive reversal in value, which led to huge outperformance where overvalued stocks, Long short lost double digits, mostly due to the short portfolio. Just tanking momentum into mid-month was just getting its face ripped off with a massive rally in short portfolio. But that largely reversed price momentum still doing poorly in the month, but it recovered nearly half of its losses. But you had all this craziness going on and multi-factor performance, but value doing very well. But momentum in one of the worst months ever and multi-factor as a model mid-month, it was down double digits just given the massive short squeeze and the short book. Ultimately, it ended flat just because that short squeeze completely reversed. Clearly, it was a pretty isolated event, probably one long, short momentum fund, getting a margin call, having to de-lever very, very quickly and leading to a lot of pain, a lot of very, very strange moves in the market. Ultimately, stocks always traded back down to fundamentals despite what is going on and what happened here. Investors got to be aware that, yeah, multi-factor did go crazy, but ultimately was a really, really good buying opportunity position for funds to get into multi-factor investments. Had a really good spread and it ultimately snapped back pretty quickly.

Michael Kesslering: Absolutely, and for investors, it really the takeaway here is to, wherever you can try to, you know, elongate your time horizon. So increasing your time horizon and how you are judging your investment book is really advisable. As you had mentioned, you know, there were buying opportunities, but you know, throughout the month, really at the end of the month, nothing really happened. But there was a lot of volatility in between.

Julian Klymochko: Yeah, and a lot of time for investors to make mistakes, too. I mean, yeah, this massive volatility. I think that is great advice to give investors a longer-term timeframe where some of these dislocations in the market are actually buying opportunities, not an opportunity to panic, sell. Ultimately, things tend to work out for investment strategies like these. You have to take that into account is long-term performance and short-term volatility. Short-term blips happen with pretty much every strategy. So that’s something to really keep in mind, is to have a long term timeframe of these things and just now that they do happen from time to time.

And that’s about it for episode 35 of The Absolute Return Podcast. As always if, you liked it. You can check out more at absolutereturnpodcasts.com or any of your podcasts providers. Tell your friends about it. Leave us a review. Check out our older episodes and be sure to check out our episode next week. Until then, I hope you have a great week and we will chat with you soon. Cheers.

Thanks for tuning in to the Absolute Return Podcast. This episode was brought to you by Accelerate Financial Technologies. Accelerate, because performance matters. Find out more at www.AccelerateShares.com. The views expressed in this podcast to the personal views of the participants and do not reflect the views of Accelerate. No aspect of this podcast constitutes investment legal or tax advice. Opinions expressed in this podcast should not be viewed as a recommendation or solicitation of an offer to buy or sell any securities or investment strategies. The information and opinions in this podcast are based on current market conditions and may fluctuate and change in the future. No representation or warranty expressed or implied is made on behalf of Accelerate as to the accuracy or completeness of the information contained in this podcast. Accelerate does not accept any liability for any direct indirect or consequential loss or damage suffered by any person as a result relying on all or any part of this podcast and any liability is expressly disclaimed.

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