Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>The S&amp;P DJI Index team announced the replacement for <a href="https://www.smartkarma.com/entities/ausnet-services" target="_blank" data-smartkarma-citation="entities:10293:1" rel="noopener">Ausnet Services (AST AU)</a> when it is deleted from the S&amp;P/ASX200 Friday at the close: <a href="https://www.smartkarma.com/entities/arena-reit" target="_blank" data-smartkarma-citation="entities:12209:1" rel="noopener">Arena Reit (ARF AU)</a> </li>
<li>There are other changes to sub-indices which are not publicly announced but which should align with previous analysis</li>
<li>This insight provides estimates for the index events Friday and ways to play them.</li>
</ul>


The S&amp;P DJI Index team announced the replacement for Ausnet Services (AST AU) when it is deleted from the S&amp;P/ASX200 Friday at the close: Arena Reit (ARF AU) 
There are other changes to sub-indices which are not publicly announced but which should align with previous analysis
This insight provides estimates for the index events Friday and ways to play them.


Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Index Rebalance

<ul>
<li>There could be 2 changes to the ASX100 and ASX200 prior to the March rebalance due to the acquisitions of <a href="https://www.smartkarma.com/entities/ausnet-services" target="_blank" data-smartkarma-citation="entities:10293:1" rel="noopener">Ausnet Services (AST AU)</a> and <a href="https://www.smartkarma.com/entities/sydney-airport" target="_blank" data-smartkarma-citation="entities:19063:1" rel="noopener">Sydney Airport (SYD AU)</a>. </li>
<li>There will also be the large <a href="https://www.smartkarma.com/entities/bhp-group-ltd" target="_blank" data-smartkarma-citation="entities:147:1" rel="noopener">BHP Group (BHP AU)</a> upweight and funding trade following unification, and possibly the <a href="https://www.smartkarma.com/entities/afterpay-limited" target="_blank" data-smartkarma-citation="entities:26940:1" rel="noopener">Afterpay Touch (APT AU)</a> acquisition by <a href="https://www.smartkarma.com/entities/square-inc" target="_blank" data-smartkarma-citation="entities:23755:1" rel="noopener">Square Inc (SQ US)</a>. </li>
<li>Then there will be more changes to the ASX200 and ASX300 at the March rebalance. There could be a lot of new listings included in the ASX300.</li>
</ul>


There could be 2 changes to the ASX100 and ASX200 prior to the March rebalance due to the acquisitions of Ausnet Services (AST AU) and Sydney Airport (SYD AU). 
There will also be the large BHP Group (BHP AU) upweight and funding trade following unification, and possibly the Afterpay Touch (APT AU) acquisition by Square Inc (SQ US). 
Then there will be more changes to the ASX200 and ASX300 at the March rebalance. There could be a lot of new listings included in the ASX300.


ASX100/​200/300 Index Rebalance Preview (March 2022): A Lot Happening From Now to March

In mid-late June, the two largest Listed Investment Corporations in Australia - <a href="https://www.smartkarma.com/entities/milton-corp-ltd" target="_blank" data-smartkarma-citation="entities:29090:1" rel="noopener">Milton Corp Ltd (MLT AU)</a> and <a href="https://www.smartkarma.com/entities/washington-h-soul-pattinson-and-co-ltd" target="_blank" data-smartkarma-citation="entities:6054:1" rel="noopener">Washington H. Soul Pattinson and Co. Ltd (SOL AU)</a> - announced plans to merge, with SOL (a.k.a. "WHSP") becoming the surviving entity. 
This was discussed by <a href="https://www.smartkarma.com/profiles/david-blennerhassett" target="_blank" data-smartkarma-citation="accounts:840" rel="noopener">David Blennerhassett</a> in <a href="https://www.smartkarma.com/insights/whsp-s-proposed-merger-with-milton-corp" target="_blank" data-smartkarma-citation="insights:53422" rel="noopener">WHSP's Proposed Merger With Milton Corp</a> and by myself in <a href="https://www.smartkarma.com/insights/milton-merger-is-a-most-marvelous-arb" target="_blank" data-smartkarma-citation="insights:53464" rel="noopener">Milton Merger Is A Most Marvelous Arb</a> and <a href="https://www.smartkarma.com/insights/milton-whsp-merger-index-implications-and-the-marvelous-arb" target="_blank" data-smartkarma-citation="insights:53551" rel="noopener">Milton-WHSP Merger Index Implications and the Marvelous Arb</a>. 
It is a complicated deal. 
Milton had been trading at a discount to NAV, where NAV was 97% or so listed stocks. WHSP had been trading at a premium to NAV. WHSP agreed to pay a premium to NAV for MLT shares, but the construct provided for some really interesting other optionality (some positive, a little negative) for MLT shareholders. 
In early July, Milton announced its NAV at A$5.50/share and assuming it is exactly A$5.5000/share, the Quiddity Milton Model was off by 0.16%. When it released its top 20 stock and weights list which showed about A$50-60mm of adjustments to positions since 31 Dec 2020 within the top 20 names, that lowered the NAV miss to about 0.07% and that is probably a matter of timing and stray dividend income or a mark on its private assets.
Interestingly, as WHSP rose 10% then came back a bit, and Milton rose with it, but the Milton NAV did not rise much, the "spread to terms" has stayed reasonably stable except for some near-market-close shenanigans at times. 
But it still feels like people don't get it. 
There's some really interesting convexity here. Still.
And the supply/demand tilt is remarkable.

In mid-late June, the two largest Listed Investment Corporations in Australia - Milton Corp Ltd (MLT AU) and Washington H. Soul Pattinson and Co. Ltd (SOL AU) - announced plans to merge, with SOL (a.k.a. "WHSP") becoming the surviving entity. 
This was discussed by David Blennerhassett in WHSP's Proposed Merger With Milton Corp and by myself in Milton Merger Is A Most Marvelous Arb and Milton-WHSP Merger Index Implications and the Marvelous Arb. 
It is a complicated deal. 
Milton had been trading at a discount to NAV, where NAV was 97% or so listed stocks. WHSP had been trading at a premium to NAV. WHSP agreed to pay a premium to NAV for MLT shares, but the construct provided for some really interesting other optionality (some positive, a little negative) for MLT shareholders. 
In early July, Milton announced its NAV at A$5.50/share and assuming it is exactly A$5.5000/share, the Quiddity Milton Model was off by 0.16%. When it released its top 20 stock and weights list which showed about A$50-60mm of adjustments to positions since 31 Dec 2020 within the top 20 names, that lowered the NAV miss to about 0.07% and that is probably a matter of timing and stray dividend income or a mark on its private assets.
Interestingly, as WHSP rose 10% then came back a bit, and Milton rose with it, but the Milton NAV did not rise much, the "spread to terms" has stayed reasonably stable except for some near-market-close shenanigans at times. 
But it still feels like people don't get it. 
There's some really interesting convexity here. Still.
And the supply/demand tilt is remarkable.

Milton's Marvelous Arb Meanders Along... Marvelously

Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. We offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. 

Morningstar provides data on more than 500,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 16 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $180 billion in assets under advisement or management as of June 30, 2015. We have operations in 27 countries.

Download the Morningstar Fact Sheet : http://corporate.morningstar.com/US/documents/MarketingFactSheets/AboutMorningstarFactsheet.pdf

Equity Bottom-Up

Following almost 30% share-price appreciation over the past six months, shares in narrow-moat-rated <a href="https://www.smartkarma.com/entities/19228" target="_blank" data-smartkarma-citation="entities:19228:1">ARB Corp Ltd (ARB AU)</a> are significantly overvalued relative to our fair value estimate. The business is extremely high quality, with a dominant market position, strong brand, and pristine balance sheet, all of which can help justify the premium multiples the company has long traded at. Nonetheless, at 33 times fiscal 2018 forecast EPS, we believe the stock is expensive, especially when compared…

Following almost 30% share-price appreciation over the past six months, shares in narrow-moat-rated ARB Corp Ltd (ARB AU) are significantly overvalued relative to our fair value estimate. The business is extremely high quality, with a dominant market position, strong brand, and pristine balance sheet, all of which can help justify the premium multiples the company has long traded at. Nonetheless, at 33 times fiscal 2018 forecast EPS, we believe the stock is expensive, especially when compared…

ARB’s Recent Share Price Rerating Is Unfounded Given Unchanged Earnings Outlook

Founder Evidente. Top rated quantitative analyst, Evidente

Sam Ferraro

Founder Evidente. Top rated quantitative analyst

Evidente

Evidente is an independent financial education firm that delivers innovative financial advice to wholesale investors, including active long only funds, hedge funds, pension funds, and sovereign wealth funds, in Australia and globally.  Drawing on academic research in asset pricing, behavioural finance and portfolio construction, Evidente provides wholesale investors with commercial solutions to stock selection and asset allocation decisions across equities and other asset classes.

<ul><li>In this post, Evidente launches its benchmark aware, long only model portfolio for Australia for the 2017 financial year.  It is designed to be a high conviction, concentrated portfolio with no more than 30 stocks and an active share of no less than 30%.  The stock selection process represents a mix of top down and industry thematics as well as bottom-up factors.  </li><li>The key macro theme that guides portfolio construction is the prospect that interest rates will remain low in Australia and globally for an extended period, thanks to the substantial reduction in the value of human capital.  The model portfolio has a defensive bias despite stretched valuations, notably overweight positions in stocks offering earnings certainty, including: listed infrastructure stocks, utilities, healthcare and REITs.  An overweight bet in discretionary retailers represents the key cyclical exposure, based on the prospect that consumer spending will remain the key driver of growth and help to ameliorate the effects of Australia's capex cliff.</li><li>The key bottom up criterion used in stock selection is a high internal rate of return (IRR), which is backed out using a dividend discount model.  Stocks that have the highest IRRs and make it into the model portfolio include: Wesfarmers, Graincorp, Bluescope Steel, Medibank Private, Caltex and Worley Parsons.   Model performance and updated constituents will be published quarterly on Smartkarma.</li></ul>

In this post, Evidente launches its benchmark aware, long only model portfolio for Australia for the 2017 financial year.  It is designed to be a high conviction, concentrated portfolio with no more than 30 stocks and an active share of no less than 30%.  The stock selection process represents a mix of top down and industry thematics as well as bottom-up factors.  The key macro theme that guides portfolio construction is the prospect that interest rates will remain low in Australia and globally for an extended period, thanks to the substantial reduction in the value of human capital.  The model portfolio has a defensive bias despite stretched valuations, notably overweight positions in stocks offering earnings certainty, including: listed infrastructure stocks, utilities, healthcare and REITs.  An overweight bet in discretionary retailers represents the key cyclical exposure, based on the prospect that consumer spending will remain the key driver of growth and help to ameliorate the effects of Australia's capex cliff.The key bottom up criterion used in stock selection is a high internal rate of return (IRR), which is backed out using a dividend discount model.  Stocks that have the highest IRRs and make it into the model portfolio include: Wesfarmers, Graincorp, Bluescope Steel, Medibank Private, Caltex and Worley Parsons.   Model performance and updated constituents will be published quarterly on Smartkarma.

Launch of Evidente's Long Only Model Portfolio (Australia)

Australia

ARB Corporation Ltd. distributes and sells motor vehicles accessories and light metal engineering works for four wheel drive vehicles.  ARB produces bull bars, rear step tow bars, turbochargers, winches and related recovery equipment. ARB's main export product is the 'Air Locker', a lockable 4-wheel drive pneumatic differential system.

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ARB Corp Ltd (ARB AU)

S&P/ASX200 - Ausnet OUT, Arena REIT IN

The S&P/ASX 200 will see Ausnet replaced by Arena REIT on 4 Feb. This is widely expected/predicted and Arena has outperformed, but it is a lot of...

Travis Lundy

ASX100/200/300 Index Rebalance Preview (March 2022): A Lot Happening From Now to March

There will be many changes to the ASX100/200/300 indices from now to March due to M&A activity & price moves. Plus a large funding trade following...

Brian Freitas

Milton's Marvelous Arb Meanders Along... Marvelously

The Marvelous Milton Merger Arb is still trading slightly wide on a "straight arb" basis. On a "true arb" basis including optionality, it is...

Travis Lundy

Launch of Evidente's Long Only Model Portfolio (Australia)

In this post, Evidente launches its benchmark aware, long only model portfolio for Australia for the 2017 financial year. It is designed to be a...

Sam Ferraro

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

S&P/ASX200 - Ausnet OUT, Arena REIT IN

The S&P/ASX 200 will see Ausnet replaced by Arena REIT on 4 Feb. This is widely expected/predicted and Arena has outperformed, but it is a lot of...

Travis Lundy

ASX100/​200/300 Index Rebalance Preview (March 2022): A Lot Happening From Now to March

There will be many changes to the ASX100/200/300 indices from now to March due to M&A activity & price moves. Plus a large funding trade following...

Brian Freitas

Milton's Marvelous Arb Meanders Along... Marvelously

The Marvelous Milton Merger Arb is still trading slightly wide on a "straight arb" basis. On a "true arb" basis including optionality, it is...

Travis Lundy

ARB’s Recent Share Price Rerating Is Unfounded Given Unchanged Earnings Outlook

Following almost 30% share-price appreciation over the past six months, shares in narrow-moat-rated ARB Corp Ltd (ARB AU) are significantly...

Morningstar, Inc.

Launch of Evidente's Long Only Model Portfolio (Australia)

In this post, Evidente launches its benchmark aware, long only model portfolio for Australia for the 2017 financial year. It is designed to be a...

Sam Ferraro

ASX100/200/300 Index Rebalance Preview (March 2022): A Lot Happening From Now to March