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Setting the investment agenda

28.09.2020

Monthly Agenda September 2020 - Alternatives

Sales of new homes rose to their highest levels since September 2006 in the US reaching an annualised figure of just over 1 million ahead of economist expectations of 890,000 for the month of August. 30-year mortgage rates in the US have been flagged as the main driver of the move. They are sitting at record lows of 2.91%, 195bps below the recent high of 4.86% set in October 2018. US based home builders have seen share prices surge in recent months. The S&P Supercomposite Homebuilding Index, which is a capitalisation-weighted index of US listed home builders, is up a staggering 147% since the March lows earlier this year and up 26% on a year to date basis.

Chart 14: US home builders surge on new home sales 

Enlarge Source: Bloomberg

 

The recent activity in SPACs has garnered many headlines as of late, activity has tripled this year in the niche space which allows a publicly traded vehicle setup with the sole purpose of raising cash to acquire a private firm and take that firm public through the acquisition, offering a faster route to a public listing for the underlying company. The activity in SPACs however pales in comparison to the amount of cash sitting on the sidelines of large private equity firms, the $40bn raised year to date in SPACs is just 4% of the $851bn currently available to buyout funds globally. The track record of SPACs also raises concerns; of the 223 SPAC listings since the start of 2015, just 89 had taken a company public, with an average return of -18.8% and a median return of -36.1%. Five-year horizon equivalent returns on buyout funds was 16.2% as at Dec 2019.

Chart 15: No big SPAC to private equity just yet   

Enlarge Source: Preqin

 

The most recent Baker Hughes US oil and gas rig index showed the number of operational rigs in the US continues to remain at multi-year lows – providing some structural support for oil prices. Consistent with this, a recent US Energy Information Administration (EIA) report showed U.S. distillate stockpiles declined the most since March 2020, pushing oil prices slightly higher. Gains were limited, however, by concerns around the pace of the economic recovery.

Chart 16: Baker Hughes US oil and gas rig count 

Enlarge Source: Bloomberg

 

Darragh Kennelly
Investment Analyst

 

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