Alpha-Centric ESG Research

Kyle Rudden

Joe Biden winning the 2020 U.S. Presidential Election is looking more likely by the day, but "more" is the operative word, because as the saying goes, "it ain't over 'till it's over."But Biden is leading "bigly," to use a Trumpism. The kind of bigly that goes beyond polling error, a bigly bigger than anyone has seen since Lincoln, as Trump might say. Or something like that.As another saying goes, "the devil is in the details," and things could change… if a lot goes wrong for Biden, at the same time that a lot goes very right for Trump, and all within the next few days.Nothing is certain, but the writing is on the wall at this point – legibly enough, at least, to go into greater detail regarding what a Biden-Harris administration might mean for investing.This Insight analyses the state of the election, making the case that Trump is too far behind with too little time, but also considering a few "what-if" wildcards in critical swing states.It sets the stage for Insights into more specific implications, the first of which (imminent) is how a Biden win would advance ESG investing and sustainable finance, beyond obvious policy issues.

Joe Biden winning the 2020 U.S. Presidential Election is looking more likely by the day, but "more" is the operative word, because as the saying goes, "it ain't over 'till it's over."But Biden is leading "bigly," to use a Trumpism. The kind of bigly that goes beyond polling error, a bigly bigger than anyone has seen since Lincoln, as Trump might say. Or something like that.As another saying goes, "the devil is in the details," and things could change… if a lot goes wrong for Biden, at the same time that a lot goes very right for Trump, and all within the next few days.Nothing is certain, but the writing is on the wall at this point – legibly enough, at least, to go into greater detail regarding what a Biden-Harris administration might mean for investing.This Insight analyses the state of the election, making the case that Trump is too far behind with too little time, but also considering a few "what-if" wildcards in critical swing states.It sets the stage for Insights into more specific implications, the first of which (imminent) is how a Biden win would advance ESG investing and sustainable finance, beyond obvious policy issues.

U.S. Elections: A Biden Win Is Looking More Likely

TMT & Consumer Independent Equity Research Analyst, Obex Capital Research

Aaron Gabin

TMT & Consumer Independent Equity Research Analyst

TMT & Consumer Independent Equity Research

Obex Capital Research

“Obex” is Latin for Barriers to Entry. Obex Capital Management’s investment philosophy is driven by an intense focus on which business model’s Barriers to Entry are able to withstand the ever increasing competitive disruption in the TMT and Consumer Sectors.

Equity Bottom-Up

We have been longtime fans of Netflix the product and Netflix’s management team can rightfully be described as visionary. They had the vision to have the public markets fund an experiment in business models that may eventually breakeven on FCF at some point in the future. We have said for the past two quarters that Netflix is a good relative short given Deceleration in Subscriber Growth, Rising Churn, and Rising FCF burn. As we detail below, the stock tends to not work when subscriber growth decelerates. Admittedly, the rising FCF burn hasn’t played out….yet. Once production opens up post virus, we expect Netflix to resume its cash burning ways.<div class="content-highlight">Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.</div>

We have been longtime fans of Netflix the product and Netflix’s management team can rightfully be described as visionary. They had the vision to have the public markets fund an experiment in business models that may eventually breakeven on FCF at some point in the future. We have said for the past two quarters that Netflix is a good relative short given Deceleration in Subscriber Growth, Rising Churn, and Rising FCF burn. As we detail below, the stock tends to not work when subscriber growth decelerates. Admittedly, the rising FCF burn hasn’t played out….yet. Once production opens up post virus, we expect Netflix to resume its cash burning ways.Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.

This week, Third Point's Dan Loeb wrote a letter to Disney urging it to spend more on content. We agree. Disney's stock has languished this year due to the havoc COVID has unleashed on its business model. Longer term, we think Disney's streaming service could be worth more then the stock today. <div class="content-highlight">Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.</div>

This week, Third Point's Dan Loeb wrote a letter to Disney urging it to spend more on content. We agree. Disney's stock has languished this year due to the havoc COVID has unleashed on its business model. Longer term, we think Disney's streaming service could be worth more then the stock today. Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.

Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Cross Asset Strategy

<ul>
<li>Performance between US Value funds and Aggressive Growth funds has diverged over the last decade, with 2020 seeing an acceleration of the trend.</li>
<li>The difference in performance is down to their vastly different portfolios, with Value funds heavily reliant on Financials and Health Care stocks and Aggressive Growth funds heavily exposed to Tech and Communication Services. </li>
<li>However, there is some overlap.  There are a number of stocks that appear to offer something for both Value and Growth investors, including <a href="https://www.smartkarma.com/entities/visa-inc-class-a-shares" target="_blank" data-smartkarma-citation="entities:8707:1" rel="noopener">Visa Inc Class A Shares (V US)</a>, <a href="https://www.smartkarma.com/entities/lowe-s-companies-inc" target="_blank" data-smartkarma-citation="entities:4156:1" rel="noopener">Lowe's Companies Inc (LOW US)</a> and <a href="https://www.smartkarma.com/entities/schwab-charles-corp" target="_blank" data-smartkarma-citation="entities:13610:1" rel="noopener">Schwab (Charles) (SCHW US)</a> </li>
<li>In this analysis, we explore a portfolio that combines stocks that are owned by more than 10% of both the Value funds and Aggressive Growth funds in our analysis.  </li>
</ul>


Performance between US Value funds and Aggressive Growth funds has diverged over the last decade, with 2020 seeing an acceleration of the trend.
The difference in performance is down to their vastly different portfolios, with Value funds heavily reliant on Financials and Health Care stocks and Aggressive Growth funds heavily exposed to Tech and Communication Services. 
However, there is some overlap.  There are a number of stocks that appear to offer something for both Value and Growth investors, including Visa Inc Class A Shares (V US), Lowe's Companies Inc (LOW US) and Schwab (Charles) (SCHW US) 
In this analysis, we explore a portfolio that combines stocks that are owned by more than 10% of both the Value funds and Aggressive Growth funds in our analysis.  


US Value Vs Growth:  The Goldilocks Portfolio

We have been longtime fans of Netflix the product and Netflix’s management team can rightfully be described as visionary. They had the vision to have the public markets fund an experiment in business models that may eventually breakeven on FCF at some point in the future. We said last quarter was Peak Netflix, and think this quarter confirmed our medium term short case on Netflix: Deceleration in Subscriber Growth, Rising Churn, and Rising FCF burn. <div class="content-highlight">Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis.  Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.</div>

We have been longtime fans of Netflix the product and Netflix’s management team can rightfully be described as visionary. They had the vision to have the public markets fund an experiment in business models that may eventually breakeven on FCF at some point in the future. We said last quarter was Peak Netflix, and think this quarter confirmed our medium term short case on Netflix: Deceleration in Subscriber Growth, Rising Churn, and Rising FCF burn. Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis.  Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.

United States

Comcast Corporation provides media and television broadcasting services. The Company offers video streaming, television programming, high-speed internet, cable television, and communication services. Comcast serves customers worldwide.

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Comcast Corp Class A (CMCSA US)

U.S. Elections: A Biden Win Is Looking More Likely

A Biden election win and presidency is looking more likely by the day. This Insight explains why, and what could change in the next week to alter...

Kyle Rudden

Netflix 3Q20: Still Chill?

We reiterate our view that Netflix will have a hard time making subscriber #s for the next few quarters due to the massive pull-in from 1H20. When...

Aaron Gabin

Disney: Listen to Loeb

Disney's stock has languished this year due to the havoc COVID has unleashed on its business model. It should use the opportunity to spend more on...

Aaron Gabin

US Value Vs Growth: The Goldilocks Portfolio

Performance between US Value funds andtwo groups has diverged over the last decade, with 2020 seeing an acceleration of the trend.

Steven Holden

Netflix 2Q20 Caution: Deceleration Ahead

We have been longtime fans of Netflix the product and Netflix’s management team can rightfully be described as visionary. They had the vision to...

Aaron Gabin

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