This week's interesting finds

December 21, 2019

Season's greetings from the EdgePoint team! 

Wishing you all the joys of the season and happiness throughout the coming year.

Same ETF’s, different name
The below table illustrates the impact of index ETFs on valuations of three slow-growth/no-growth companies. The three companies comprise a significant portion of many ETFs marketed under a range of ETF categories.  The companies in charge of structuring the ETFs simultaneously defined the three companies as value, growth, high-dividend, and low-volatility stocks. It is inconceivable that anyone of these stocks can be included in all four categories, suggesting that there is a fundamental flaw underlying these ETF methodologies.

Stats from the bond desk
BB bonds yielded just 3.51% on Monday, the lowest on record and just 164 basis points more than U.S. Treasuries. To put those figures further in perspective the safe AA index yielded 3.58% just over 13 months ago. Source: Bloomberg LP. 

From Almost Daily Grant - Wednesday, December 18, 2019
Newly issued leveraged loans have come to market with an average debt load of 5.5 times EBITDA this year, compared to just under 5 times in 2007. But after accounting for issuer-friendly adjustments such as add-backs (i.e. applying for credit today from hypothetical future cost savings), debt from new issues rises to near 7 times EBITDA, up from just over 5 times in 2007.

What does a junk bond even mean anymore?
The difference between BBB-rated and BB-rated U.S. corporate bond spreads has collapsed as investors chase yield in the highest-rated junk bonds. The differential between the best junk and worst investment-grade debt hit 38 basis points on Monday, the lowest since Bloomberg records began in 1994.

The global search for yield continues to draw investors to the U.S. corporate bond market, particularly the safest slice of high-yield, which has outperformed lower-rated bonds this year.

The millennial urban lifestyle is about to get more expensive
If you wake up on a Casper mattress, work out with a Peloton before breakfast, Uber to your desk at a WeWork, order DoorDash for lunch, take a Lyft home, and get dinner through Postmates, you’ve interacted with seven companies that will collectively lose nearly $14 billion this year. If you use Lime scooters to bop around the city, download Wag to walk your dog, and sign up for Blue Apron to make a meal, that’s three more brands that have never recorded a dime in earnings and have seen their valuations fall by more than 50%.

The idea that companies like these don’t make a profit might come as a shock to the many people who spend a fair amount of their take-home pay each month on ride-hailing, shared office space, or meal delivery. 

There is a simple explanation for why they’re not making money. The answer, for finance people, has to do with something called “unit economics.” Normal people should think of it like this: Am I getting ripped off by these companies, or am I ripping them off? In many cases, the answer is the latter.

This week's interesting finds

December 14, 2019

Conflicting ESG methodologies
Competition in the ESG ratings market is heating up. At least a dozen major third-party companies do such ratings. These different providers vary in their methodology and this is creating confusion for investors and making it harder to compare ESG data and ratings. 

ESG analysis, by its very definition, is subjective different providers will inevitably have different ways of classifying whether they think social concerns are more important or whether they are driven by carbon footprint. ESG data and ratings providers aren’t regulated, unlike counterparts focused purely on financial information. Nevertheless, efforts are being made to bring more transparency and standardization to the industry.

Tough for household formation
At age 35, baby boomers had seven times the wealth that millennials will have at the same age.

Alberta men facing a 20% unemployment rate
Alberta's unemployment rate among young men has nearly doubled over the past seven months, in an unprecedented spike that has pushed their joblessness rate to a level not since the early 1980s. In April, roughly one in 10 young men in Alberta was unemployed. By November, it had surged to one in five.

Only 10% of the volume is in fundamental single stock trading.

EdgePoint Swag orders

Five books Bill Gates recommends this winter

This week's interesting finds

The inconvenient truth about responsible investing
An analysis of  122 active responsible investing funds listed found that 45% still had exposure to at least one stock that is primarily engaged in the production, processing or direct transport of fossil fuels. That number is likely conservative because more than 50 of the funds on the list, which includes ETFs, mutual funds, pooled funds, GICs, segregated funds and private funds, only disclosed their top holdings, which made up as little as 7% of a portfolio. An additional 18 do not disclose any information about their funds at all.

More Than Half Of Canada’s GDP Gain Was From Real Estate Transactions

Real estate transaction revenues is growing much faster than in other industries. RERL represented $252.28 billion in Q3 2019, up $2.30 billion or 0.92% from the quarter before. This works out to $6.62 billion or 2.70% higher than the same quarter last year. Quarterly growth is 4x higher than all industries, and annual growth is over 80% higher. As you can probably guess here, it’s a really big percent of total growth. Like, an unreal amount of the growth.

Government, Corporate and Household Debt now at 3x Global Economic Output
A decade of easy money has left the world with a record $250 trillion of government, corporate and household debt. That’s almost three times global economic output and equates to about $32,500 for every man, woman and child on earth. 

How Amazon Wove Itself Into the Life of an American City
A look at Baltimore shows how Amazon may now reach into Americans’ daily existence in more ways than any corporation in history.

To the city’s southeast stand two mammoth Amazon warehouses, built with heavy government subsidies, operating on the sites of shuttered General Motors and Bethlehem Steel plants.