“No matter how great you are, the next great one is already sitting there waiting to take your place.”
-Joe Theismann
In Edmonton, Alberta yesterday, a record of sorts was set. An NHL player by the name of Connor McDavid signed the highest contract in NHL history at $12.5 million per year. While this contract makes Connor the highest paid hockey player on the planet, he wouldn’t even crack the top 75 in basketball.
(The escalation of player pay in the NHL has certainly made both Keith and I happy to have profitably sold our stake in the NHL’s Arizona Coyotes a few weeks ago.)
There was of course bigger news in Edmonton yesterday as the Connecticut Junior Rangers, coached by Keith and Hedgeye sales guru Kevin Peel, beat Team Minnesota 2 -1 to establish a 3 and 1 record in the preliminary round of the Brick Tournament. This tournament features the top ten year old hockey players in North America, so this is no easy feat. Good luck to the boys the rest of the way through the tournament!
Back to the Global Macro Grind…
Now, I know you didn’t tune in this morning to read about hockey (ok maybe some of you did!). The “Great One” analogy, though, reminds me of another set of Great Ones: active money managers.
If you haven’t heard, active money managers are struggling. Asset flows, as highlighted in the Chart of the Day, have been a headwind for a decade and performance is lagging. In fact earlier this year, the Financial Times had a front page article titled: “The end of active investing?”
But as Mark Twain once wrote:
“Reports of my death are widely exaggerated.”
I’d submit that the same may be said for active managers. While there is a shakeout in the active management industry, and in particular the hedge fund sector, I’d argue there will always be a spot for the Great Ones of active management in your 401Ks. As a firm, we are fortunate to deal with many of these Great Ones on a daily basis. They are constantly evolving their processes, technology and strategy to compete, just as you would expect Great Ones to do.
In perhaps an early sign of the return of the Great Ones, one of our financials team’s Best Ideas, Och-Ziff Capital Management (ticker is OZM), reported better than expected results earlier this week and the stock was up more than 10% yesterday. It is now up close to 20% since we added to our Best Ideas list just under a month ago.
Needless to say, we still think there is more upside in OZM. Please email if you’d like access to our 52-page deck on the name.
Speaking of Great Ones, the great private companies of America appear to be delaying their IPOs. In the year-to-date, IPOs have raised more than $28 billion. This is above the average going back more than twenty years, so at face value a strong number. But as always, the devil is in the detail.
Currently, there are more than 160 private companies that are valued at $1 billion or more. The number of so called “unicorns” is up more than 160% since 2014. Given the short term-ism of public markets, one could hardly blame the managers of these companies for taking time in going public.
But on the other hand, as of the end of Q2, all but four of the world’s major stock market indices were up on the year. This was the best performance since the bear market bounce of 2009. The Nasdaq also followed suit up more than 14% for its best first half increase since 2009.
Given the strength of global equities, it does make one wonder what the “Unicorns” are waiting for. If these companies truly are Great Ones, maybe it’s time to strap on the transparency pants and go public. Regardless of timing, clearly there is a lot of equity issuance in the pipeline. Or, alternatively, there are a lot of private companies with bubbly valuations...
Speaking of great companies, Costco (ticker: COST) reported earnings this morning. And to quote Tony the Tiger, the report wasn’t good it was greatttt. June comps came in at 6% versus consensus of 3.9% and revenue was up 7.4% to $12.2 billion. This name is on our Best Ideas list as well and Howard Penney noted this morning:
“Time to refocus on an amazing company. Since the AMZN/WFM deal COST is down 12.9% versus a flat S&P. We believe COST has a moat around it when it comes to the competitive pressures in the Food retail space. I would be buying COST right here!”
It seems Costco was listening to our macro team’s call of accelerating growth / revenue and lower inflation / costs. The dislocation in the stock price of COST caused by Amazon’s purchase of Whole Foods is, in theory, an ideal opportunity for a great active manager . . .
As for macro data out over the last 24 hours, most of it continues to be supportive of our #Quad1 call for the U.S. economy:
- US MBA mortgage applications up +3.1% in the week ending June 1;
- Oil and natural gas were down -3.8% and -4.20% yesterday and down more than -20% and -30% for the year (Note: if oil can’t rally off this morning’s inventory draw, the bulls are really in trouble;
- And June ADP employment was basically a positive punt at +158K.
As growth in the U.S. accelerates and inflation decelerates, those active managers positioned appropriately, and non-politically, should be able to crush their passive counterparts.
Keep your head up and stick on the ice,
Daryl G. Jones
Director of Research
