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Unhyped Information to Improve Investment Success

Posted on June 15, 2023June 15, 2023 by phoffman@channelchek.com

Retail Traders Looking in the Right Place, Never Had it So Good

Do you feel like every time you buy a stock, it goes down? You’re not alone, it’s a common complaint. Yet there’s a large universe of industries, companies, and ideas to choose to invest in. And at the same time, a flood of people who make a living telling you where you should invest. So why do so many investors buy after a run-up, perhaps even at the high, then watch their holdings languish?

Part of the problem may be in how the self-directed investor, consumes information. Watching investment news, digesting a fast-talking influencer’s words, or being told which moving average to rely on is, at best a good start to knowing what the masses are seeing, but taking time away from the hype, and absorbing well-presented material, data, and other information will provide a better look at companies in a way that could help prevent the late-in-the-trade buys that retail investors are known for.

Multiple Sources of Investment Information

When it comes to making investment decisions, the probability of success should increase if you take a look from different angles by using a few sources of trusted information. Beginner investors learn quickly that, if success was as easy as just buying your favorite TV stock pickers love of day, viewers of shows like Mad Money on CNBS would all be rich. It clearly doesn’t work that way.

But if you’re not prone to acting on hype, watching stockpickers fall in and out of love, every show is entertaining. If you are prone to hype, as most humans are, you have to be suspicious of anyone who has to come up with a stock or two for each show (or article). Then speak or write about it with a convincing and engaging style. Keep in mind, viewers or readers are their customers, they lose customers if they’re boring, they gain customers by instilling hope. Yet, as a person who managed billions in institutional funds, I can attest to you that most days, it is best to sit on your hands, monitor your current holdings, and keep scouring resources for high-probability stocks to watch.

Celebrity CEOs

Another problem with mainstream media’s financial news is the coverage universe is typically only familiar household names. You can turn on Fox Business, read the Wall Street Journal, or even Yahoo Finance and expect that on any given day there will be information on Apple, Tesla, and Microsoft, and they’ll be highlighting celebrity CEOs of similar companies. As mentioned earlier, there is a large universe of stocks to choose from. If the only stocks that have your attention are the huge names, largely held by funds and transacted by Wall Street’s most powerful, you could be in the same position you’d be in if you came down from the stands at a pro basketball game and played for a couple of quarters. You’re considered lucky if you put any points on the board.

Broadening your watchlist stocks to include companies that you have to search for, because they aren’t hyped, may include making a few additions to your stock market news, information, and analysis regimen.

News Information and Analysis

In addition to the traditional sources for investment ideas, including TV market analysts, stock picking columnists, and any paid-for advertorial seen on even big name financial websites and publications. You may wish to explore lesser-known companies and review emotionless equity investment research. Outside of stock research, you may find an appealing company you never heard of by viewing videos that invite you to “Meet the CEO” and listen to someone who knows the company better than anyone. If you’re in a metropolitan area, you may get on an email list to see what roadshows are within driving distance so you can attend and better understand an opportunity. Investors who aren’t near financial hubs that attract roadshows can still benefit from face-to-face presentations, including questions and answers at an investor conference geared toward their interests.

Investment Research

Receiving up-to-date research from analysts that never forget they have a reputation to maintain used to be difficult for retail investors. It was expensive to subscribe to financial firms’ research, and with good reason. Large investor’s could afford it because they stood to benefit most from the insights, justifying the cost. And the firm doing the research and setting the price was justified because maintaining a staff of analysts is expensive. But it kept a lot of good info from smaller players. This has evolved recently and become more fair.

The availability of quality stock research began to fall off last decade as regulatory bodies began making rules on who can provide valuable research, based on financial licenses, company registrations, and compensation arrangements.

Equity research that was once paid for by subscribers, has now taken a similar path as “free” trading apps. Retail customers, or institutional are not the ones paying for it, in many cases, the company that wants to be evaluated is. This is called company-sponsored research or CSR.

There are a number of firms that now provide this investor service, Channelchek, with the expertise of the equity analysts at Noble Capital Markets, is the largest provider of CSR in North America.

So no hype investment research is available, and more companies are recognizing how it helps interest in their stock if investors have trusted sources evaluating their business.

Video Presentations

While it isn’t hard to find the CEO of Tesla or many other mega-cap companies talking about their plans, the CEO’s of the thousands of less celebrated, often higher potential, companies have to be sought out and there has to be a means to understand their plans, ideas, and expectations. Technology has helped solve some of this. In fact YouTube and similar platforms has opened the floodgates to information on everything from fixing your air conditioner, to how to braid hair. While there are many video presentations best avoided, presentations direct from company management, in a six months or younger video, can provide tremendous insight, and confidence to pull the buy trigger, or even confidence to decide not to.

A large selection of content of this type can be found in Channelchek’s Video Library.

In-Person Roadshows

A roadshow is essentially management of a company, getting out of their office and meeting in different towns with investors. This could be done individually, perhaps at a financial institutions office, or in a reserved area in a public restaurant or other venue. This is particularly interesting as not only do investors get to look the person presenting directly in the eye, they benefit from questions being asked from all the other interested investors – they often have a great question you hadn’t thought of.

While every firm that conducts road shows has its own way of getting the word out, Noble Capital Markets organized roadshows list their calendar of roadshows on Channelchek.

Investment Conferences

While roadshows are great if it’s a company you want to hear from, and if it is convenient, a conference with many interesting companies, and perhaps in a vacation destination, can really help investors in a few short days hear many management presentations, ask questions and listen to other’s questions, and meet and network with investors of all levels. These events tend to be held in vacation destinations, so self-directed investors tend to bring family members, and professionals can spend a productive day of work enjoying a beautiful change of scenery.

I won’t even try to hide that I have a favorite conference.

Each year Noble Capital Markets puts on a popular two or three day investor event called NobleCon. Now in its 19^th year, it attracts companies with interesting stories and business models from various industries, and professional and retail investors from three continents.

Now in its 19^th year, NobleCon19 will be held in Late Fall 2023. The plans are pretty hush, but the opportunities for presenting companies and those looking to enhance their portfolios, I’m told, will be even greater than previous NobleCons. That’s a high hurdle.

Take Away

Understanding that the person on TV saying a stock is a buy, sell, or hold is, in a way, part of a reality TV show that needs to entertain to retain an audience, could improve your investment performance. Much of what is written is the same. Frankly, most days, there is little or nothing worth acting on, but they aren’t going to tell you this – it’s just not in their best career interest.

Alternative sources of ideas and information involve less hype and include, company- sponsored research, management discussions on video, roadshows, and investment conferences.

Most years there are many opportunities, most of these are under the radar companies that, even after they do well, are still under the radar. The ability to find these companies is becoming easier to all investors, but not if they are not looking for it.

Paul Hoffman

Managing Editor, Channelchek

Copper Market Poised for Unprecedented Growth

Posted on June 15, 2023June 15, 2023 by phoffman@channelchek.com

New Projections for Copper Demand High, Price Seen as Still “Muted”

The copper market could see an “unprecedented” inflow in the coming years as investors seek to profit from the metal’s anticipated surge in value, driven by growing demand for electric vehicles (EVs) and renewable energy, according to Citigroup.

In an interview with Bloomberg last week, Max Layton, Citi’s managing director for commodities research, said he believes now is an ideal time for investors to buy, as the price of copper is still muted on global recession concerns. The red metal is currently trading around $8,300 a ton, down approximately 26% from its all-time high of nearly $11,300, set in October 2021.

According to Layton, copper could top out at $15,000 a ton by 2025, a jump that would “make oil’s 2008 bull run look like child’s play.”

Citi also pointed out that copper may dip further in the short-term but could begin to rally in the next six to 12 months as the market fully recognizes the massive imbalance between supply and demand, a gap that’s expected to widen as demand for EVs and renewables expands.

This article was republished with permission from Frank Talk, a CEO Blog by Frank Holmes of U.S. Global Investors (GROW).

Find more of Frank’s articles here – Originally published June 12, 2023.

Internal Combustion Vehicle Sales Set To Peak This Decade: BloombergNEF

As I’ve mentioned before, electric vehicles (EVs) require up to three times more copper compared to traditional internal combustion engine (ICE) vehicles. This presents a challenge because the number of newly discovered copper deposits is decreasing, and the time it takes to go from discovery to production has been increasing due to rising costs. According to S&P Global, out of the 224 copper deposits found between 1990 and 2019, only 16 have been discovered in the last decade.

Meanwhile, EV sales continue to rise. Last year, these sales reached a total of 10.5 million, and projections by Bloomberg New Energy Finance (NEF) suggest that they could escalate to around 27 million by 2026. Bloomberg predicts that the global fleet of ICE vehicles will peak in as little as two years, after which the market will be dominated primarily by EVs and, to a lesser extent, hybrids. By 2030, EVs might constitute 44% of all passenger vehicle sales, and by 2040, three could account for three quarters of all vehicle sales.

Tesla Stock Supported By String Of Positive News

Tesla, which remains the world’s largest EV manufacturer, has seen its stock increase over 100% year-to-date in 2023, making it the third best performer in the S&P 500, following NVIDIA (+166%) and Meta (120%). In fact, shares of Tesla have now fully recovered (and then some) from October 2022, when CEO Elon Musk purchased Twitter for $44 billion. This raised concerns among investors about Musk’s ability to run the EV manufacturer while taking on a new, time-intensive project, not to mention also juggling SpaceX.

Friday marked the 12th straight day that shares of Tesla have advanced, representing a remarkable winning streak that we haven’t seen since January 2021.

The Austin-based carmaker got a huge boost last week after it announced that its popular Model 3 now qualifies for a $7,500 EV consumer tax credit. This action means that in California, which applies its own $7,500 tax rebate for EV purchases, a brand new Tesla Model S is cheaper than a Toyota Camry.

To qualify for the U.S. tax credit, Tesla had to make changes to how it sourced materials for its batteries in accordance with the Inflation Reduction Act (IRA), signed into law in August 2022. The IRA stipulates that 40% of electric vehicle battery materials and components must be extracted or processed in the U.S. or in a country that has a free trade agreement with the U.S. This manufacturing threshold will increase annually, and by 2027, 80% of the battery must be produced in the U.S. or a partner country to qualify for the full rebate.

Tesla stock also benefited from last Thursday’s announcement that drivers of EVs made by rival General Motors (GM) would be able to use Tesla’s North American supercharger network starting next year. The deal not only gives GM customers access to an additional 12,000 charging stations across the continent, but it also vastly increases Tesla’s market share of the essential charging infrastructure.

Musk’s Copper Quest

Thinking ahead, Musk reportedly met virtually last month with L. Oyun-Erdene, prime minister of Mongolia. The details of their discussion were not fully disclosed, but it’s worth pointing out that Mongolia is a copper-rich country, home to the world’s fourth-largest copper mine, operated jointly by Rio Tinto and the Mongolian government. In May, Rio Tinto announced that production had finally begun at the mine, which sits 1.3 kilometers (0.8 miles) below the Gobi Desert.

With access to this copper, perhaps Tesla is planning to build a metals processing plant in Mongolia? This would make sense, as the company maintains a factory in Shanghai, China.

US Global Investors Disclaimer

Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of (03/31/2023): Tesla Inc.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content.

June’s FOMC Announcement Shows No Immediate Change, But Expects More Hikes

Posted on June 14, 2023June 14, 2023 by phoffman@channelchek.com

The FOMC Left Policy the Same in June, But Became More Hawkish

The Federal Open Market Committee (FOMC) voted to hold its target rate steady on overnight interest rates at 5.00% – 5.25% after the June 2023 meeting. This is considered a pause, not a halt to a hawkish stance as indicated by the post-meeting announcement. The announcement indicated FOMC members, on average, expect Fed Funds to be 50bp higher by year-end. This could come about as two 25bp moves. The lack of policy shift was in overnight bank lending rates and the quantitative tightening cycle previously announced. However, a slightly more hawkish Fed includes statements that are more certain that rates will still be pushed up, and member projections of where funds will be at year-end, which include one member seeing as high as 6.25% for the first time.

The vote was unanimous.

The minutes discuss that indicators suggest that economic activity has continued to expand at a modest pace. Job gains have been robust in recently, and the unemployment rate has remained low. However, they are concerned that inflation remains well above its targeted range.

After the meeting, the Fed says it believes the U.S. banking system is sound and resilient. They expect tighter household and business credit conditions are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain.

“The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 5 to 5-1/4 percent,” according to the Fed’s announcement. “Holding the target range steady at this meeting allows the Committee to assess additional information and its implications for monetary policy,” it continued.

The Fed indicated that it will continue to assess “incoming information for the economic outlook.” The FOMC’s said its assessments will take into account readings on labor market conditions, inflation pressures and inflation expectations, financial and international developments, as well as other data.

The Summary of Economic Projections (SEP), relative to previous meetings, makes clear that Fed members are on average expecting to have to do more to combat inflation tan they had previously forecast.

Fed Chair Powell generally shares more thoughts on the matter during a press conference beginning at 2:30 PM EST after the statement.

Paul Hoffman

Managing Editor, Channelchek

Source

https://www.federalreserve.gov/newsevents.htm

Which Stocks are Most Impacted by Changing Interest Rates?

Posted on June 14, 2023June 14, 2023 by phoffman@channelchek.com

Why Interest Rates Impact Large and Small Company Profits Differently

Small-cap stocks are less sensitive to interest rate changes than large-cap stocks. Generally, when interest rates rise, it can create a bigger drag on larger companies for a number of reasons. Meanwhile, companies with small market caps are unaffected or less affected on average. While there are many factors that impact stock prices, interest rates are certainly on the list – depending on company size, rates will impact them differently.

Interest rates have moved quite a bit over the past 18 months, and they aren’t expected to stabilize now. Here are some of the stock market dynamics at play.

Revenues and Costs

Small-cap companies typically have less debt than large-cap companies. This means that they are less sensitive to changes in interest rates, as the cost of borrowing does not affect them as much as big borrowers when rates rise.

The main reason for lower debt levels is they typically have less ability to borrow through the capital markets. Smaller or less established companies in general find the cost of issuing a public market note as being behigher than the benefits. And since rising interest rates, increase the cost of borrowing, small-cap companies are not rolling large amounts of debt at the new interest rate levels. Whereas debt is often a much larger part of big company’s overall strategy and cost of capital.

It also helps that small market-cap companies are often in industries that are less sensitive to the overall economy. If rates are rising, fears of a recession often creep into investor’s mindsets. For example, smaller technology and life sciences companies are, by comparison, less sensitive to economic cycles than cyclical industries such as large manufacturing and big oil. Put another way, many smaller companies are more focused on discovery, innovation and growth, these are not as dependent on economic conditions.

However, small-cap investors should be aware that small-caps are often more volatile than large-caps. So the investor can experience larger swings in price, both up and down. This can make this investment sector more attractive to investors who are looking for growth potential, but it can also make them more risky. If they have lower trade volume, there are fewer buyers and sellers, making it more likely for prices to move up or down.

Larger companies tend to be international in their business dealings, compared to domestic small-cap companies which more commonly transact within their home-base country. For the US, an increase in interest rates relative to other nations, is likely to lead to a stronger $US dollar. A stronger US dollar makes the cost of goods sold overseas more expensive to buyers. This could lower sales expectations as overseas buyers find other suppliers. Small companies operating domestically do not have to worry about foreign exchange rates and how they are impacted by interest rate movements.

It is important to note that interest rate changes can impact all stocks, regardless of their size. The impact of interest rate changes on a particular stock will depend on a number of factors, including the company’s debt load, its industry, and its overall financial health. Overall, small-cap stocks are less sensitive to interest rate changes than large-cap stocks, but investors can expect more volatility.

Market-cap Sector Rotation

Sector rotation is the process of money moving from one stock market sector to another, based on expectations of which sectors will perform better in the future. This could be industry, types of securities (ie: bonds, real estate), or market cap.

As it relates to market cap, an investor might sell large-cap stocks and buy small-cap stocks if they believe that small-cap stocks are undervalued and are poised to outperform large-cap stocks in the future.

It can help you to stay ahead of the market. By monitoring sector performance and making changes to your portfolio accordingly, you can stay ahead of the market and make sure that your money is invested in the sectors that are most likely to perform well.

Take Away

There are many different groupings of stocks (market-cap, industry, international, region, etc.) and factors that can impact the group. One factor that has historically played a part in price discovery of small versus large-cap stocks is interest rate movements. Interest rates impact the cost of doing business and also sales. Investors add this into the myriad of other factors they try to be aware of when selecting stocks.

Paul Hoffman

Managing Editor, Channelchek

Will 2023 Be the Summer of Small-Cap Stocks?

Posted on June 13, 2023June 13, 2023 by phoffman@channelchek.com

The Mid-Year Sector Rotation is Benefitting Small-Cap Investors

“This time is different” is a saying often used in investing, usually just before the investor does something that they will soon regret. I say “regret” because, although the timing of patterns that have repeated themselves time and time again may change, well-entrenched investment rules very rarely change.

Over the past year, what I have perceived as undervalued stocks – coincidentally, all companies with a small market cap – have been prominently placed on my stocks watchlist. While last year was a bad year for most of the market, these underperformed during that down market. So, they became even cheaper. I fully expected the stocks to eventually get investor attention and begin to move upwaard – in fact, I have had reason to believe this for a while of the small-cap sector in general.

While these watchlist stocks, in my mind, became even better values, I never told myself the market may have fundamentally changed, which would mean small caps will no longer be the relied-upon outperformers over time, as they have been historically. I did not think that “this time it might be different.”

Based on the two major small-cap indexes stellar performance so far this June, and a couple of my watchlist stock’s movements, my long wait may have been worthwhile and may soon be replaced by action.

S&P 600 & Russell 2000 Indexes

Small-cap stocks have certainly turned up the heat so far in June. What’s more, is the larger indexes would seem to be losing steam as they have run so far for so long that, unless this time is different, they may be due for a retrenchment.

The renewed enthusiasm for the smaller and perhaps riskier stocks, over large caps, with businesses that tend to be more diversified, have deeper pockets, and more overall resources, is likely based on a number of normal factors. Smaller companies tend to operate leaner, so a higher percentage of revenue can flow to the bottom line in a growing economy. The two-week-old rally comes as many cyclical stocks, and industries that do best in a growing economy are springing to life, especially since the debt ceiling negotiations have been resolved, the banking system is seen as out of trouble, and the Fed has broken records in its tightening pace yet still unemployment is low.

The reduced clouds on the horizon and higher multiples of large-cap stocks seem to have given investors motivation to move to small cap stocks with lower multiples, and with less fear of the economy falling apart any time soon.

Investors are rotating into companies with lower market caps. Looking above at the two small-cap indexes, the S&P 600 (IJS as a proxy) is low in tech stocks that are heavily weighted in the worse-performing indexes. Financials and industrials make up 34% (tech is just 14%) of the S&P 600 Small-caps. The S&P 600 is up 8.87% so far in June compared to the large cap S&P 500 which only gained half as much. The Russell 2000 Small-cap Index is up 8.55% so far in June. This is also the month when investors watch the Russell Reconstitution, which is the rebalancing of the Russell 3000, Russell 1000, and Russell 2000 index based on remeasuring market-caps on the top 3000 stocks. There will be a great deal of attention to the reshuffling come the last Friday of the month.

Take Away

Is it different this time? Are small cap stocks going to play catch up as investors, hungry for value, and growing concerned that larger companies may be overvalued, and an overall increased comfort level that fewer dangers loom on the economic horizon, rotate some assets there? They have whetted their appetite, if the outperformance continues, I suspect they may go back for seconds, then others might join.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.economist.com/media/pdf/this-time-is-different-reinhart-e.pdf

https://www.barrons.com/articles/small-cap-stocks-apple-big-tech-9d3b5669

Why a Recent Housing Survey Returned Such Extreme Results

Posted on June 12, 2023June 12, 2023 by phoffman@channelchek.com

Home Buying Versus Home Selling Conditions

The underlying dynamics of the housing market are not what one might expect. Especially with home prices still near its peak after mortgage rates more than doubled over the past year and a half. One of the unique nuances of today’s housing market is what some are calling the “golden handcuffs” that may apply to anyone who has a home with a mortgage of 3.5% or lower. These owners are slow to sell; this is keeping a supply of homes off the market. The lack of homes for sale is keeping prices up despite the higher cost of borrowing. As witnessed in a monthly survey conducted by Fannie Mae, the attitudes of adults in the U.S., as it relates to buying, or selling, are fairly extreme, with many of the survey responses hit all-time highs and lows in terms of expectations.

Fannie Mae’s National Housing Survey

The National Housing Survey (NHS) is a monthly temperature check of attitudes among the general population related to home-owning, renting, household finances, and confidence in the economy. Each respondent is asked more than 100 questions; this makes the survey far more detailed than other measures of housing attitudes or expectations. Six of the questions are used to derive the Home Purchasing Sentiment Index (HPSI).

The overall economy typically benefits from housing turnover, as new buyers decorate and make a house, or condo, a home.

Below is the noteworthy response data from the six questions Fannie Mae uses for its index.

Home Purchase Sentiment Index (HPSI)

Fannie Mae’s Home Purchase Sentiment Index (HPSI) decreased in May by 1.2 points to 65.6. The HPSI is down 2.6 points compared to the same time last year.

Below are the May statistics on some of the most relevant questions.

Good/Bad Time to Buy:

The percentage of respondents who say it is a good time to buy a home decreased from 23% to 19%, while the percentage who say it is a bad time to buy increased from 77% to 80%. As a result, the net share of those who say it is a good time to buy decreased by 7 percentage points month over month.

Good/Bad Time to Sell:

The percentage of respondents who say it is a good time to sell a home increased from 62% to 65%, while the percentage who say it’s a bad time to sell decreased from 38% to 34%. As a result, the net share of those who say it is a good time to sell increased 8 percentage points month over month.

Home Price Expectations:

The percentage of respondents who say home prices will go up in the next 12 months increased from 37% to 39%, while the percentage who say home prices will go down decreased from 32% to 28%. The share who think home prices will stay the same increased from 31% to 33%. As a result, the net share of those who say home prices will go up increased 6 percentage points month over month.

Mortgage Rate Expectations:

The percentage of respondents who say mortgage rates will go down in the next 12 months decreased from 22% to 19%, while the percentage who expect mortgage rates to go up increased from 47% to 50%. The share who think mortgage rates will stay the same remained unchanged at 31%. As a result, the net share of those who say mortgage rates will go down over the next 12 months decreased five percentage points month over month.

Job Loss Concern:

The percentage of respondents who say they are not concerned about losing their job in the next 12 months decreased from 79% to 77%, while the percentage who say they are concerned increased from 21% to 22%. As a result, the net share of those who say they are not concerned about losing their job decreased three percentage points month over month.

Household Income:

The percentage of respondents who say their household income is significantly higher than it was 12 months ago decreased from 24% to 20%, while the percentage who say their household income is significantly lower increased from 11% to 12%. The percentage who say their household income is about the same increased from 64% to 67%. As a result, the net share of those who say their household income is significantly higher than it was 12 months ago decreased five percentage points month over month.

Spring is typically a time when people look to buy homes. With summer less than two weeks away, many who might have purchased a new home opted to wait, or could not find what they were looking for. “As we near the end of the spring homebuying season, the latest HPSI results indicate that affordability hurdles, including high home prices and mortgage rates, remain top of mind for consumers, most of whom continue to tell us that it’s a bad time to buy a home but a good time to sell one,” said Mark Palim, Fannie Mae Vice President and Deputy Chief Economist.

“Consumers also indicated that they don’t expect these affordability constraints to improve in the near future, with significant majorities thinking that both home prices and mortgage rates will either increase or remain the same over the next year. Notably, the same factors impacting affordability may also be affecting the perceived ease of getting a mortgage. This was particularly true among renters: 81% believe it would be difficult to get a mortgage today, matching a survey high,” according to Palim.

Take Away

Consumers don’t expect housing affordability to improve anytime soon. At the same time, and for related reasons, rents have increased. As with most markets, one would expect if the buyers step back, prices might come down in response. An odd dynamic at play now, though, is that many people that are in a home, are staying put because moving might mean saying goodbye to a mortgage rate near 3% and then having to secure one that is nearly five percentage points higher.

Paul Hoffman

Managing Editor, Channelchek

Shell Oil to Announce Scrapping Targets on Oil and Gas Output

Posted on June 9, 2023June 9, 2023 by phoffman@channelchek.com

Oil and Gas Will Remain Central to Shell

Shell has looked at its unimpressive returns on renewable energy and the booming profits in its oil and gas divisions and has decided to pivot from its previous course. In an effort to regain investor confidence, Shell’s (SHEL.L) CEO, Wael Sawan, is expected to make a formal announcement of the revised strategic direction of the oil company on June 14, according to an exclusive report in Reuters.

Shifting Gears

Shell’s CEO Sawan, who previously headed the company’s oil, gas, and renewables divisions, is expected in New York next week to formalize the details of his vision, it will include updates on capital allocation, shareholder payouts and “strategic choices we’re making,” according to Sawan.

What is known before the full announcement is that Shell expects it will keep company oil output steady or slightly higher into 2030. This would represent a change from an ongoing deemphasis on oil and gas production that Shell (and other large oil companies) had previously committed themselves to. Shell has been struggling with poor returns and is looking to regain investor confidence.

On June 14^th, Sawan will reportedly make the announcement at an investor conference that they are scrapping a target to reduce oil output by 1% to 2% per year. The company is already near its goal for production cuts, which it attained through selling oil assets, including its U.S. shale business.

Returns from oil and gas typically range between 10% to %20, while those for solar and wind projects tend to be between 5% to 8%.

About Shell’s New CEO

Sawan rose to the level of CEO in January. As the new head, with solid experience in both oil and gas, and the renewable division, vowed to improve Shell’s stock performance as it lagged other energy companies. He now plans to improve company performance by keeping oil and gas central to the company’s business at least through the end of the decade – Sawan says that efforts to shift to low-carbon businesses cannot come at the expense of profits.

Shell’s former CEO, Ben van Beurden introduced the carbon reduction targets and the energy transition strategy. Sawan’s more cautious approach to the energy transition is a reversal of his predecessor’s direction.

Sustainability and Profits

In recent months the company intentionally stalled several sustainability and renewable projects, including those involving offshore wind, hydrogen and biofuels, it pointed to weak returns. Shell is also exiting its European power retail businesses, which had been thought, only a few years ago, as key to its energy transition.

Oil Company Profitability

As with many of its competitors, Shell reported record profits last year, driven mainly by strong oil and gas prices. However, the company produced 20% fewer barrels-per-day over 2019 production. Output is now expected to be flat to up slightly into 2030. New projects would have to meet internal profitability thresholds, and also depend on the success of exploration.

The shift away from further cuts in oil and gas production at Shell is similar to a move by rival BP (BP.L) made earlier in 2023. At BP, CEO Bernard Looney exited further plans to cut oil and gas output by 40% (by 2030).

A true global company, Shell Oil, headquartered in Hague, Netherlands, is a leading supplier of refined petroleum products and remains one of the world’s largest producers of oil and natural gas.

Investor Focused

According to Reuters, “a key concern for Sawan has been the significantly weaker performance of Shell’s shares since late 2021 compared with its U.S. rivals Exxon Mobil (XOM.N) and Chevron (CVX.N), which both plan to grow fossil fuel output.” Shell’s formal announcement next week is expected to include no change in Shell’s target of becoming a net zero emitter by mid-century as part of the Powering Progress energy transition strategy it announced in 2021, which he has described as “still the right strategy.”

Paul Hoffman

Managing Editor, Channelchek

Sources

Reuters – hell Pivots Back to Oil

Shell Oil – Who We Are

FAU, Home of NobleCon19 Equity Conference, Hits New Highs

Posted on June 9, 2023June 9, 2023 by cpatches

On the heels of the announcement that NobleCon19, Noble Capital Markets 19^th Annual Emerging Growth Equity Conference, will be held at FAU, and the achievement of the Owls basketball team making it to the Final Four, Florida Atlantic University College of Business’ Executive Education program earned a prestigious global endorsement in the 2023 Financial Times rankings for open enrollment professional education programs.

FAU ranked No. 2 in the United States and was the only university in Florida and one of only seven in the U.S. to be honored. The rankings are considered the gold standard for executive education coursework across the globe.

“It’s clear that we are making a difference in the professional advancement of all our students,” said Daniel Gropper, Ph.D., dean of FAU’s College of Business. “I am very proud of our students, faculty and staff for making this possible.”

FAU also ranked No. 1 in the U.S. and No. 4 in the world for female participation and No. 17 globally for overall satisfaction. Financial Times establishes the rankings using student feedback, course design, faculty, teaching methods and facilities.

FAU’s high-quality offerings include the most diversified selection of more than 60 national and international certification and professional development programs, said Vegar Wiik, executive director of FAU Executive Education. He added that a new state-of-the-art building, the Schmidt Family Complex for Academic and Athletic Excellence, is equipped with the latest technology that allows FAU to offer top-notch programs and corporate training. “We are thrilled that this December the facility will transform into NobleCon19, with 100+ public company executive teams and the large audience expected to learn more about them,” Wiik said. “And with the early announcement that the 43^rd President of the United States, George W. Bush will headline, the excitement continues to build.”

In addition to hosting NobleCon19, FAU’s Edu-Vantage Partner Program, which works with businesses, corporations and organizations to provide a high-quality educational strategy for fulfilling their employee education packages, established partnerships with JM Family Enterprises and NextEra Energy, parent company of Florida Power & Light, to offer full-time associates full tuition for both undergraduate and graduate degrees and certifications.

NobleCon19 is scheduled for December 3-5, 2023, at FAU College of Business, Executive Education in Boca Raton, Florida. Although institutional investors, licensed brokers and accredited investors will be in attendance, NobleCon19 is open to all individuals and organizations interested in learning more about these companies.

To receive NobleCon agenda updates and registration opportunities, join Channelchek.com, Companies with market capitalization of $3 billion or less wishing to learn more about presenting at NobleCon19 can Inquire Here.

About Noble Capital Markets

Noble Capital Markets, Inc. was incorporated in 1984 as a full-service SEC / FINRA registered broker-dealer, dedicated exclusively to serving underfollowed emerging growth companies through investment banking, wealth management, trading & execution, and equity research activities. Over the past 39 years, Noble has raised billions of dollars for companies and published more than 45,000 equity research reports. For more information, visit www.noblecapitalmarkets.com or email contact@noblecapitalmarkets.com.

About Florida Atlantic University Florida Atlantic University, established in 1961, officially opened its doors in 1964 as the fifth public university in Florida. Today, the University serves more than 30,000 undergraduate and graduate students across six campuses located along the southeast Florida coast. In recent years, the University has doubled its research expenditures and outpaced its peers in student achievement rates. Through the coexistence of access and excellence, FAU embodies an innovative model where traditional achievement gaps vanish. FAU is designated a Hispanic-serving institution, ranked as a top public university by U.S. News & World Report and a High Research Activity institution by the Carnegie Foundation for the Advancement of Teaching. For more information, visit www.fau.edu.

43rd President of the United States, George W. Bush, will headline NobleCon19 at FAU this December. Alumni, this is your Opportunity to Attend.

Posted on June 4, 2023November 28, 2023 by cpatches

And President Bush is only one of the events at your Alma Mater! NobleCon19 will feature 100+ executive team presentations and breakouts, provocative panels and keynotes, world-class networking events, and the exclusive conversation with President George W. Bush, moderated by Noble’s Director of Research. By registering below, we will keep you updated on all the happenings at and around Noble Capital Markets’ 19^th Annual Emerging Growth Equity Conference – NobleCon19… for the first time hosted by Florida Atlantic University.

The objective of NobleCon19 is to build awareness for lesser-known companies that may shape the future of technology, medicine, manufacturing, retail, transportation, distribution, and natural resources. Most of the companies presenting will be public, thereby offering investment opportunities. Although institutional investors, licensed brokers and accredited investors will be in attendance, NobleCon19 is open to all individuals and organizations interested in learning more about these companies. And that, of course, includes you as an FAU Alumni!

Space is limited and demand is high. Noble is offering a special consideration for FAU Alumni to attend the entire conference and/or an exclusive invitation to attend the President George W. Bush fireside chat at little or no cost. To be considered for this extremely rare opportunity, and to receive NobleCon19 agenda updates, register below. All the companies that will attend NobleCon19 are featured on this site as well as thousands of other small-cap companies. Attendance is prioritized by the date you register. BTW Channelchek is an open-access secure site with no cost to join, and no pitches to purchase anything, ever.

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NobleCon19 will Feature an Exclusive Conversation with President George W. Bush, Moderated Live by Noble Capital Markets’ Director of Research

Posted on June 2, 2023November 28, 2023 by cpatches

Noble Capital Markets (“Noble”) announced today that the 43^rd President of the United States and Founder of the George W. Bush Presidential Center will be featured at NobleCon19, Noble’s 19^th Annual Emerging Growth Conference to be held at Florida Atlantic University, College of Business, Executive Education, December 3-5, 2023, in Boca Raton, Florida. Noble’s Director of Research, Michael Kupinski will moderate the hour-long fireside chat with President Bush.

George W. Bush served as 43rd President of the United States of America from 2001 to 2009. As Commander in Chief, President Bush worked to expand freedom, opportunity, and security at home and abroad. His Administration reformed America’s education system, restored robust private-sector economic growth and job creation, protected our environment, and pursued a comprehensive strategy to keep America safe after the terrorist attacks on September 11, 2001.

In this more casual and personable format, President Bush will discuss his time in the Oval Office and the challenges facing our nation today.

In addition to admittance to the President Bush fireside chat, attendees of NobleCon19 will be exposed to 100+ executive teams from all across North America, through formal presentations, Q&A sessions, organized breakouts and selected one-on-one meeting. Topical panel presentations, to-be-announced keynotes and networking events, and “The After” first-day evening event featuring world-class entertainment rounds out the agenda.

The objective of NobleCon19 is to build awareness for emerging growth companies that may shape the future of technology, media, telecom, medicine, manufacturing, retail, transportation and distribution, and natural resources. Most of the companies presenting will be public, thereby offering investment opportunities. Although institutional investors, licensed brokers and accredited investors will be in attendance, NobleCon19 is open to all individuals and organizations interested in learning more about these companies.

To receive NobleCon agenda updates and registration opportunities, join Channelchek.com, Noble’s online investment community, listing more than 6,000 public emerging growth companies. This is an open-access site with no cost (ever) to join. Companies with market capitalization of $3 billion or less wishing to learn more about presenting at NobleCon19 can Inquire Here.

Please note: Some sessions of this conference are closed to the media with no personal recording, photography, or note-taking permitted.

About Noble Capital Markets

Noble Capital Markets, Inc. was incorporated in 1984 as a full-service SEC / FINRA registered broker-dealer, dedicated exclusively to serving underfollowed emerging growth companies through investment banking, wealth management, trading & execution, and equity research activities. Over the past 39 years, Noble has raised billions of dollars for companies and published more than 45,000 equity research reports. www.noblecapitalmarkets.com contact@noblecapitalmarkets.com

About Florida Atlantic University

Florida Atlantic University, established in 1961, officially opened its doors in 1964 as the fifth public university in Florida. Today, the University serves more than 30,000 undergraduate and graduate students across six campuses located along the southeast Florida coast. In recent years, the University has doubled its research expenditures and outpaced its peers in student achievement rates. Through the coexistence of access and excellence, FAU embodies an innovative model where traditional achievement gaps vanish. FAU is designated a Hispanic-serving institution, ranked as a top public university by U.S. News & World Report and a High Research Activity institution by the Carnegie Foundation for the Advancement of Teaching. For more information, visit www.fau.edu.

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What Happens to Your Stock Holding When it is Added to a Major Index?

Posted on June 2, 2023June 5, 2023 by phoffman@channelchek.com

Index Inclusion or Deletion Can Send Shockwaves Through Stocks

With the massive amount of assets in mutual funds and exchange-traded funds (ETFs) that are geared to return the same performance as a major index, there’s been a lot of investor focus on the addition and subtraction of stocks from indexes, especially the widely followed, S&P 500, Nasdaq, Russell, and Dow Industrials. This is because many institutional investors attempt to mirror the performance of these indexes by buying the same stocks. Some funds are even required by their charter or offering prospectus to hold the same stocks. This produces “unnatural” price movements in companies as they are moved in or out of an index. Self-directed investors, not beholden to a set of investing rules, may find opportunities by recognizing, then positioning themselves before institutions are required to buy or sell a company name.

Rebalancing of the most followed indices is a reality for individual investors, so it’s good to understand the timing and dynamics, and valuing a stock based on what stock index it may be in.

Dynamics

When a stock is added to a broad index, millions or billions of investment dollars flow into that stock, typically driving its price higher. And the reverse is also true; when a stock is removed from an index, it’s often sold by fund managers, which decreases demand and causes its price to weaken. There are conflicting studies that in some cases, indicate the added strength by inclusion is short-lived, and others that indicate that the stock begins to trade with an emphasis on whether or not money is flowing into the index it is included in, or out. All studies agree that there is typically an initial change in the stock’s valuation.

Timing

When a stock is added to a major index, as will happen with the Russell 3000, Russell 2000, and Russell 1000 on June 27, it has historically had positive effects on its trading demand, this has impacted its price. As the Russell will reshuffle, or in their jargon “reconstitute” its indexes this month (June) let’s use the Russell 2000, which captures the performance of approximately 2,000 small-cap stocks in the United States. Here are the potential impacts of a stock being added to the index:

Price impact is what concerns investors most. The announcement of a stocks addition to an index can lead to a price impact. This is because investors who track the index may need to purchase the stock to align their portfolios with the index composition. The increased demand can push the stock’s price higher.

It could also lead to investor recognition or Increased Visibility. Inclusion in a major index can come with increased visibility and recognition for a company. This can attract the attention of investors, including index funds, mutual funds, and other institutional investors who track or invest in the index. As a result, the stock may experience increased trading volume and better liquidity.

Institutional buying may increase. Index funds and other institutional investors that track the Russell 2000 (or other indices) may need to purchase the stock to replicate the index’s performance. This can lead to increased buying pressure from these large investors, potentially driving the stock’s price higher.

A nod by an index can bring overall positive sentiment. Being added to a major index can create a positive sentiment around a stock, signaling that the company is growing and gaining prominence. This positive sentiment may attract additional investors who believe the stock’s inclusion in the index validates its prospects, potentially leading to further price appreciation.

Trading Activity usually escalates with inclusion. Inclusion in the Russell 2000 can result in increased trading activity as the stock becomes part of a widely tracked benchmark. More market participants are likely to trade the stock, increasing its overall trading volume.

When Are the Other (Non-Russell) Indexes Rebalanced?

While the FTSE Russell has a strict and easily understood set of rules and guidelines that make it easy to understand, the S&P, Dow, and Nasdaq also rebalance under their own timeline.

The S&P 500 is reviewed and rebalanced on a quarterly basis. During these reviews, S&P Dow Jones Indices assess the constituents of the index and consider changes based on the selection criteria and market developments. They don’t follow hard and strict rules.

The Nasdaq 100 is a market-capitalization-weighted index that includes 100 of the largest non-financial companies listed on the Nasdaq stock market. The index is maintained by Nasdaq, and its rebalancing process involves an annual evaluation to determne eligibility, and potential rebalancing.

The annual evaluation involves Nasdaq reviewing the composition of the Nasdaq 100, this typically occurs in December. During this evaluation, companies are assessed based on their market capitalization, liquidity, and other factors. The top 100 eligible companies by market capitalization become or remain constituents of the index. They must be traded n the Nasdaq exchange.

Eligibility for companies is determined by their meeting certain criteria to allow inclusion in the Nasdaq 100. These include being listed on the Nasdaq Global Select Market, having a minimum average daily trading volume, and meeting liquidity requirements.

If rebalancing is necessary, Nasdaq conducts this during an annual rebalancing in December. Companies that no longer meet the eligibility criteria may be removed, and new companies that meet the criteria may be added. The weightings of the index constituents may also be adjusted based on their market caps.

The Dow 30, also known as the Dow Jones Industrial Average (DJIA), is a price-weighted index that represents the performance of 30 large, publicly traded companies in the United States. The index is maintained by S&P Dow Jones Indices, and its rebalancing process is different from market-capitalization-weighted indices like the S&P 500 or Nasdaq 100. It includes price weighting and selective changes.

Price-weighted for the Dow 30 index is based on the stock prices of its constituents rather than their market capitalizations. The impact investors should be aware of is that higher-priced stocks have a larger impact on the index’s movements.

Selective changes is best defined knowing the Dow 30 does not undergo regular rebalancing like other indices. Instead, changes in the index composition are infrequent and typically occur when a constituent company experiences a significant corporate action, such as a merger, acquisition, or bankruptcy. When such changes occur, the index committee at S&P Dow Jones Indices makes a decision to replace the affected company with another suitable candidate.

It’s important to note that the impact of being added to an index can vary depending on factors such as the stock’s size, liquidity, and investor sentiment. Additionally, market conditions and investor behavior can influence the stock’s performance. Therefore, while inclusion in a major index can have positive effects, it doesn’t guarantee a specific outcome for the stock’s price. And being removed from an index may only create potential.

Take Away

There is activity surrounding stocks as they are added or deleted from a major market index. Investors should be aware of when the index is being reconstituted or altered, so they may either benefit, stand clear, or be sure that they are not in harms way. The Russell indexes will be reconstituted at the close of the last Friday of this month (June).

Paul Hoffman

Managing Editor, Channelchek

https://www.ftserussell.com/

NobleCon20 – Noble Capital Markets 20th Annual Emerging Growth Equity Conference

Posted on June 1, 2023December 7, 2024 by cpatches

Watch the Replays

Hundreds of public company executive guest speakers. Headliners like three of the most recognizable celebrity investors on the planet. AI-Focused keynote panel featuring Zack Kass. One-on-one meetings. The After Hangar Party. NobleCon20. The premier in-person multi-sector emerging growth equity conference of the year. – December 3-4, Boca Raton, Florida

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Highlights:

December 3-4, 2024 @ Florida Atlantic University, College of Business Executive Education, Boca Raton, FL
Featured Event – a 95 minute fireside chat and pitch competition (featuring hopeful entrepreneurs selected by Noble from the Florida Atlantic student and alumni communities) featuring 3 of the original Sharks from ABC’s Shark Tank
Artificial Intelligence keynote panel featuring Zack Kass, former Head of Go-to-Market OpenAI / ChatGPT
Hundreds of emerging growth public company senior executives
Topical panel presentations
Expanded one-on-one meeting schedule
Disco-themed edition of ‘The After” – held in conjunction with Money Channel NYC / Moneyball Networking and Goliath Resources – at the Privaira Private Aviation Hangar, Boca Raton Airport
The ultimate forum for investment ideas

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What Are Hedge Funds, and Why Are They Popular Among Investors?

Posted on May 31, 2023May 31, 2023 by phoffman@channelchek.com

How Well Do You Know Hedge Funds?

There are many investment vehicles beyond just stock market investing. We hear the names of some of these enough to think we know exactly what they are, but we often realize when asked that we have a hard time defining them. I experienced this recently with a financial adviser I know that was asked what a hedge fund is. She knew that it was a pooled fund (more than one investor) and that it may involve complex strategies that require people to be an accredited investors in most cases, but the Series-7 licensed advisor doesn’t spend much time with alternative investments, so her answer was left incomplete.

There are many hedge fund types all with different strategies; in fact it is a wide-open field. Michael Burry proved this as he created his own way to sell short the subprime mortgage market for his hedge fund before the mortgage meltdown in 2008. So there is no shame in not knowing what a hedge fund is, the strategies are limitless. I referred to the SEC website and spoke with several hedge fund managers I interact with regularly to ensure there were no important gaps missing while writing a hedge fund refresher.

What is a Hedge Fund?

Hedge funds are investment vehicles that pool money from investors with the goal of generating positive returns. They differ from mutual funds in that they typically employ more flexible investment strategies. Many hedge funds aim to profit in various market conditions by engaging in practices such as leverage (borrowing to increase investment exposure), short-selling, and other speculative investment techniques that are less commonly used by mutual funds.

There are a number of different types of hedge funds, each with its own unique strategy. Some of the most common include:

• Long-Short Equity Funds: These are funds that invest in both long and short positions, meaning they buy stocks they believe will go up in value and sell stocks they believe will go down in value. The balance of the long and short, in theory, moderates risk in the management of many long-short equity funds.

• Market Neutral Funds: These are funds that look to generate returns for investors that are not correlated to the overall market. They do this by investing in a variety of assets, including stocks, bonds, and derivatives. A market-neutral fund that adapts to any market condition by selecting positions for what is expected in the various markets allows the manager much more leeway than most mutual funds available.

• Volatility Arbitrage Funds: These funds take advantage of volatility arbitrage which is a trading strategy that attempts to profit from the difference between the forecasted future price volatility of an asset, like a stock, and the implied volatility of options based on that asset. Success at calling the disconnect between the two that yields a profit (arbitrage) is the goal of these fund managers.

• Merger Arbitrage Funds: These funds trade to benefit from the common price movement experienced when a company announces a merger or acquisition of another public company. Usually, the acquiring company’s price will weaken while the company to be acquired rises. Benefiting from both sides while offsetting overall market risk being both long and short in equities, is how these funds aim to outperform the overall market.

• Global Macro Funds: are what many investors think of when it comes to hedge funds. The manager can take a view on economic or political events and use derivatives on equities, bonds, currencies and commodities to try to profit from that view. Global macro hedge fund managers may be taking positions on the likely direction of interest rates, the outcome of a significant event, such as a vote to raise the U.S. debt ceiling or anything where they consider the market as not pricing an outcome correctly.

Depending on the size of the assets managed by a hedge fund manager, they may not be required to register or file public reports with the SEC (Securities and Exchange Commission). However, hedge funds are still subject to anti-fraud regulations, and fund managers have a fiduciary duty to the funds they manage.

Who Can Invest?

Hedge funds are generally only accessible to accredited investors, meaning investors who have a net worth of at least $1 million or an annual income of at least $200,000. (there are other criteria that may allow access). This is because hedge funds are considered by the SEC to be high-risk investments.

If you are considering investing in a hedge fund, it is important to do your research and understand the risks involved. You should also make sure that you are comfortable with the investment strategy of the fund.

Downsides Commonly Associated With Hedge Funds

While every fund is unique, there is much overlap in the different types when it comes to the downside associated with many of the varieties. Remember the goal for most of these funds is to make above-market returns – greater returns usually come with a cost.

• High Fees: Hedge funds typically charge high fees, which can eat into your returns.

• High Risk: Hedge funds are considered to be high-risk investments. They can lose money, even in rising markets.

• Lack of Liquidity: Hedge funds are typically illiquid, meaning it can be difficult to sell your shares if you need to.

If you are considering investing in a hedge fund, it is important to weigh the risks and rewards carefully. Hedge funds can be a good investment for investors who are looking for high returns and diversification. However, they are also high-risk investments and should only be considered by investors who can’t afford to lose their investment.

Evaluating Various Funds

If you’re considering investing in a hedge fund, there are several key areas of information you should seek:

Read the fund’s offering memorandum and related materials: These documents provide essential information about the fund’s investment strategies, its location (U.S. or abroad), risks associated with the investment, fees charged by the manager, expenses borne by the fund, and potential conflicts of interest. It is crucial to thoroughly review these materials before making an investment decision and consider consulting an independent financial advisor.

Understand the fund’s investment strategy. Hedge funds employ a wide range of investment strategies. Some may diversify across multiple strategies, managers, and investments, while others may focus on concentrated positions or a single strategy. It’s important to grasp the level of risk involved in the fund’s strategies and ensure they align with your investment goals, time horizon, and risk tolerance. Remember that higher potential returns usually come with higher risks.

Determine if the fund uses leverage or speculative investment techniques: Leverage involves borrowing money to amplify investment potential, but it also increases the risk of losses. Hedge funds may also use derivatives (such as options and futures) and engage in short-selling, which further impact potential gains or losses. Understanding these practices is crucial in evaluating the fund’s risk profile.

Evaluate potential conflicts of interest disclosed by hedge fund managers: It’s important to assess any conflicts of interest that may arise. For instance, if your investment advisor recommends a fund they manage, there may be a conflict since the advisor may earn higher fees from your investment in the hedge fund compared to other potential investments.

Understand how the fund’s assets are valued. Hedge funds may invest in illiquid securities that can be challenging to value. Some funds exercise significant discretion in valuing such securities. It’s essential to understand the fund’s valuation process and the extent to which independent sources validate the valuation. Valuation practices can affect the fees charged by the manager.

Understand that hedge funds do not follow a standardized methodology for calculating performance, and their investments may involve relatively illiquid and hard-to-value securities. In contrast, mutual funds have specific guidelines for calculating and disclosing performance data. When presented with performance data for a hedge fund, inquire about its accuracy, including whether it reflects cash or actual assets received by the fund, and whether it accounts for deductions for fees.

There are ordinarily limitations on taking money out of the fund. Unlike mutual funds, hedge funds typically impose restrictions on redeeming (cashing in) shares. These are usually monthly, quarterly, or annual redemption windows. They may also impose lock-up periods, during which you cannot redeem your shares for a year or more. These limitations mean that the value of your shares can decrease during the redemption process, and redemption fees may apply.

Why Hedge Funds are Popular

The lure of possibly finding a hedge fund manager with a crystal ball is a nice fantasy, but dreaming aside, hedge funds are popular among investors for a number of other reasons.

First, hedge funds have the potential to generate higher returns than traditional investments, such as mutual funds. Second, hedge funds offer investors the opportunity to diversify their portfolios and reduce risk. Third, hedge funds, although not as liquid as SEC-registered mutual funds, are typically more liquid than other alternative investments, such as private equity.

Take Away

Hedge funds offer accredited investors a unique opportunity to potentially earn returns through diverse investment strategies not found in traditional mutual funds. With their focus on generating profits regardless of market direction, hedge funds have become popular due to the potential for higher returns, diversification benefits, customization, and access to unique investment opportunities. However, it is important for investors to thoroughly understand the risks involved, carefully evaluate fund managers, and consider their own investment objectives before considering hedge fund participation.

Paul Hoffman

Managing Editor, Channelchek

Source

SEC Investor Bulletin

The Fed – Hedge Funds