Tag Archives: france

Investors Pad The Coffers Of Mutual Funds For The First Week In Three

By Tom Roseen U.S. stocks remained range bound for the fund-flows week ended Wednesday, May 13, 2015. Investors were bombarded by a slew of mixed information that kept them in check. At the beginning of the week investors cheered a better-than-expected first-time jobless claims report that showed layoffs remain at 15-year lows, and they bid the market up further. The Dow Jones Industrial Average posted its strongest one-day point gain in more than three months after nonfarm payrolls data showed a “Goldilocks” scenario that was neither too hot nor too cold. For April the U.S. economy added 223,000 jobs (slightly lower than analysts’ expectations) but far more sanguine than March’s report. The unemployment rate dropped to 5.4% (its lowest level since May 2008), in line with expectations. While the jobs number took some of the funk off the disappointing Q1 2015 GDP number, investors cooled their market enthusiasm for the remainder of the flows week. Despite the positive news of the People’s Bank of China cutting interest rates for the third time in six months, investors appeared weary of the ongoing Greece bailout talks. European stocks fell a bit as investors worried Greece could run out of money in just two weeks. A call by San Francisco Fed President John Williams to start hiking interest rates “a bit earlier” caused a few analysts to postulate a possible June rate hike (although many still believe it might not even happen in September). Then, a weak retail sales report kept the markets in neutral at the end of the flows week, despite some promising reports out of Europe showing France’s and Italy’s economies had entered expansionary territory during Q1 2015. For the first week in three fund investors were net purchasers of fund assets (including those of conventional funds and exchange-traded funds [ETFs]), injecting $1.3 billion for the week ended May 13. Investors were generally purchasers of long-term assets, injecting some $3.7 billion into equity funds and $2.7 billion into taxable fixed income funds. However, for the second consecutive week in a row municipal bond funds suffered net redemptions, handing back some $0.2 billion. Also, for the sixth week in seven money market funds witnessed net redemptions-to the tune of $5.0 billion this past week. For the second week in three equity ETFs witnessed net inflows, taking in some $5.2 billion. As a result of a positive nonfarm payrolls report and a slew of good earnings reports during the week, authorized participants (APs) were net purchasers of domestic equity funds (+$4.5 billion), injecting money into the group for the first week in seven. As result of some nervousness over Greece’s bailout talks and maybe a hint of desperation out of China (after its third rate cut in six months), APs-while still being net purchasers of nondomestic equity funds-injected their smallest amount of new money into the group in 14 weeks, to the tune of just $0.6 billion for this past week. As might be expected with interest turning toward domestic issues, the SPDR S&P 500 ETF (NYSEARCA: SPY ) (+$3.7 billion) attracted the largest net draw of all the individual ETFs. The iShares Russell 2000 ETF (NYSEARCA: IWM ) (+$0.6 billion) and the Health Care Select Sector SPDR ETF (NYSEARCA: XLV ) (+$0.5 billion) took in the next largest amounts of net new money for the week. With APs giving commodity funds and nondomestic equity funds the cold shoulder, it wasn’t surprising to see the SPDR Gold Trust ETF (NYSEARCA: GLD ) suffering the largest net redemptions of the group, handing back $522 million for the week. It was bettered somewhat by the iShares MSCI EMU ETF ‘s (NYSEARCA: EZU ) $464 million and the iShares U.S. Real Estate ETF ‘s (NYSEARCA: IYR ) $199 million of net redemptions. For the third consecutive week conventional fund (ex-ETF) investors were net redeemers of equity funds, withdrawing $1.5 billion from the group. Domestic equity funds, handing back $2.2 billion, witnessed their fifteenth straight week of net outflows, even though they had their first week of plus-side returns (+0.98% this past week) in four. Meanwhile, their nondomestic equity fund counterparts witnessed $0.7 billion of net inflows-attracting new money for the sixth week in a row. On the domestic side investors lightened up on large-cap funds and equity income funds, redeeming a net $1.3 billion and $420 million, respectively, for the week. On the nondomestic side international equity funds witnessed $1.1 billion of net inflows, while the emerging-market equity (+$198 million, taking in the lion’s share), Pacific ex-Japan, Pacific Region, and Japanese fund groups attracted net new money, collectively totaling $237 million. For the eighteenth week in 19 taxable bond funds (ex-ETFs) witnessed net inflows, taking in a little less than $1.8 billion. Flexible income funds attracted the largest sum of new money, taking in a net $0.6 billion (their sixteenth straight week of net inflows), while corporate high-yield debt funds suffered net redemptions, handing back some $115 million-for their fourth week of net outflows in a row. Loan participation funds witnessed net inflows (+$221 million) for the first week in four, while posting their first week of negative returns (-0.06%) in eight. Municipal debt funds (ex-ETFs) witnessed their second straight week of net outflows, to the tune of just $86 million for this past week.

Brave Investors: Long Engie And Short Electricite De France

The French state is looking to broker a deal for EDF to buy Areva’s entire nuclear reactor business. There is risk that EDF pays a high price in many ways. There is a possibility of a deal with Engie for just the installed reactor maintenance business. A deal involving Engie would be better received by the markets and see upside on all names. Anything else means downside on all companies involved – except Engie. A purchase of the bulk of Areva’s ( OTCPK:ARVCF ) nuclear reactor and engineering business by Electricite de France, or EDF ( OTC:ECIFF ), is currently favoured by the state. But a purchase of the maintenance business by Engie ( OTCPK:GDFZY ), would be a more favourable outcome for all parties involved, investors included. On the issues concerning EDF, also see my previous SA article, “Electricite de France SA And A Potential Areva Deal – Nuclear Champion Or Explosion?” The French state is reported to be pushing for Electricite de France to acquire Areva’s nuclear reactor and engineering businesses . The broad outline has been known for a while. Now, EDF is said to be finalizing an offer. Press reports suggest Area is looking for Eur 1bn (USD 11bn) or just the engineering business. A Eur 300m (USD 337m), EDF’s valuation is considerably lower. That compares to market valuations floating between in a Eur 1.5-3bn (USD 1.7-3.4bn) Range for the reactor business. I estimate an implied EV/Sales range of 1.1-2.1x on that basis. But, on those revenues come the risks and liabilities which are highly uncertain. Engie might emerge as a strong competitive bidder. The CFO recently confirmed potential interest. Engie seems to be interested in the reactor maintenance business, which it could be valuing at around Eur 3bn (USD 3.4bn). That would imply just short of 2x sales, which is reasonable for a high margin and stable cash flow business. In my view, a deal with Engie would be in the interest of all parties involved. Even the state could find reassurance, given its holding in Engie. It would be much better received by markets, too. EDF would benefit from vertical integration, a potentially more streamlined and efficient new build operation, and all in all lower future costs of its nuclear fleet. Conversely, the reactor build business its outside of its core business and expertise. Lastly, a deal would not be helpful for EDF’s cash flow as it is already capex strained. An EDF deal might not provide enough funding to Areva. The government might look for a more complex solution with Chinese investors. Engie has existing expertise in large utility engineering through Tractebel and its energy engineering and services business. The nuclear maintenance business could tie in well with that. There would be much less of an issue with providing the service to competitors than in the case of EDF. Engie’s business does that already. The company would also derive synergies with its own large fleet of operational nuclear reactors. Investors are prepared for M&A from Engie, following recent management comments. I gage a deal would, contrary to EDF, be perceived as coming from sound management rationale, and given all indications, free from political pressures. Brave investors might consider a long Engie/short EDF trade as the downside on Engie, irrespective of the outcome, is limited. Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks. Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

The Arbitrage Opportunity In European Real Estate

The huge spread between European government bonds and property yields support higher real estate prices. ECB quantitative easing will keep mortgage rates low. The declining unemployment rate in the Eurozone supports the housing market. Real estate in Europe hasn’t been doing so well last year, with the exception of the U.K. and Germany (see chart below from The Economist ). In this article I will show you that this trend will change in 2015. I believe that the tide started to turn since the ECB decided to do ” whatever it takes ” to defend the euro and proposed their expanded quantitative easing strategy in January 2015 . Since 2012 and especially since that announcement in 2015, government bond yields in Europe have been declining at a supernatural rate, especially in Spain (see chart below from Yardeni ). We are now at a point where some maturities have negative bond yields. What is most interesting to note is that bond and bank deposit rates are very low at this moment, while the commercial real estate yields are very high. This translates into a huge spread compared to the historic average and that is why real estate in Europe is a very good place to invest in right now. This arbitrage opportunity should be chased by every real estate investor. Let’s show this arbitrage with the following example: French real estate. When we look at the yields of office spaces in France (Paris), we have a current yield of 6.6% (See chart below from Real Capital Analytics ). Compare this to the current 10 year French government bond yield of about 0.5% and you will have a spread of 6%. This is enormous and I expect that investors will re-allocate away from European government bonds towards European property markets. This re-allocation will in turn support the housing market in Europe. Another example, Spain has an office yield of 5%, while the 10 year government bond yield is at a mere 1.3%. As a result, we already see that the Spanish real estate is bottoming out. In fact, a recent report from the Official House Price Index published by the National Institute of Statistics (INE) indicated that Spanish real estate prices have increased 1.8% in 2014. (click to enlarge) This key reversal in real estate is supported by an improving unemployment rate picture (see chart below from Eurostat ). The unemployment rate in the U.K., Spain, Greece and the European Union as a whole, has dropped since the ECB announced its policies in 2012 (which coincided with the decrease in government bond yields in Europe). As the employment picture improves, real estate will be more affordable to the middle class. This will benefit housing prices. (click to enlarge) More importantly, with the start of ECB quantitative easing in March 2015 (which will last till end of 2016), mortgage rates will continue to be low, following the suppressed Euribor rates. At this moment short term Euribor rates are in negative territory ( one month Euribor is negative , see chart below from Homefinance.nl ) and I expect that longer term Euribor will go into negative territory as well. Historically, these events are unseen. So how do investors get into European real estate? I recommend the iShares Europe Developed Real Estate ETF (NASDAQ: IFEU ). This ETF seeks to track the investment results of an index composed of real estate equities in developed European markets. It is currently invested in 88 European real estate stocks and real estate investment trusts (REITs). Its top holdings are given below . IFEU’s country weights include U.K. 38.3%, France 22.3%, Germany 9.5%, Sweden 6.5%, Switzerland 5.7%, Netherlands 4.7%, Belgium 3.0%, Luxembourg 2.3%, Austria 1.8%, Guernsey 1.5%, Spain 1.5% and Finland 1.3%. When we look at the performance of the ETF, we see an annual return of around 10%, which is pretty high (see performance chart below from iShares ). Other investment option is the Kennedy Wilson Europe Real Estate PLC ( OTCPK:KWERF ), which is mostly active in the United Kingdom, Ireland and Spain. The performance is similar, but you will have more exposure to these 3 countries. Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.