Index Rebal Trades & Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Index Rebal Trades & Special Situations

Quiddity Advisors

Pan-Asia Catalysts/Events

Index Rebalance

In this insight, we take a look at the monthly performance of the trading opportunities surrounding TOPIX Index Rebalance events. After a dry spell in March and April, two new Section Transfers were announced in May 2021: <a href="https://www.smartkarma.com/entities/anshin-guarantor-service-co" target="_blank" data-smartkarma-citation="entities:33234:1" rel="noopener">Anshin Guarantor Service (7183 JP)</a> and <a href="https://www.smartkarma.com/entities/nomura-micro-science-co-ltd" target="_blank" data-smartkarma-citation="entities:11317:1" rel="noopener">Nomura Micro Science (6254 JP)</a>. On the other hand, we also witnessed some Inclusion Events resulting from TSE1 Direct Listings: <a href="https://www.smartkarma.com/entities/tess-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:32979:1" rel="noopener">Tess Holdings Co Ltd (5074 JP)</a> and <a href="https://www.smartkarma.com/entities/kibun-foods-inc" target="_blank" data-smartkarma-citation="entities:33019:1" rel="noopener">Kibun Foods Inc (2933 JP)</a>. Below is a discussion of the situations covered by Quiddity in the Pre-event, Live-event, and Post-event categories during the month of May 2021.

In this insight, we take a look at the monthly performance of the trading opportunities surrounding TOPIX Index Rebalance events. After a dry spell in March and April, two new Section Transfers were announced in May 2021: Anshin Guarantor Service (7183 JP) and Nomura Micro Science (6254 JP). On the other hand, we also witnessed some Inclusion Events resulting from TSE1 Direct Listings: Tess Holdings Co Ltd (5074 JP) and Kibun Foods Inc (2933 JP). Below is a discussion of the situations covered by Quiddity in the Pre-event, Live-event, and Post-event categories during the month of May 2021.   

Event-Driven

In January and February 2021 we saw a large wave of TSE1 Section Transfers as many small cap names rushed to get promoted before the new (and more stringent) Section Transfer Requirements were implemented (application deadline November 1, 2020). In contrast, not a single TSE1 Section Transfer was announced in the months of March and April 2021. However, during the month of April, we witnessed TSE's Annual Liquidity Factor Review which caused dozens of stocks to enjoy Index Upweights during the April-end Inclusion Event collectively amount to an estimated upweight size of approximately US$1bn. Below is a look at the performance of the TOPIX-related event trades covered by Quiddity in the Pre-event, Live-event, and Post-event categories during the month of April 2021.

In January and February 2021 we saw a large wave of TSE1 Section Transfers as many small cap names rushed to get promoted before the new (and more stringent) Section Transfer Requirements were implemented (application deadline November 1, 2020). In contrast, not a single TSE1 Section Transfer was announced in the months of March and April 2021. However, during the month of April, we witnessed TSE's Annual Liquidity Factor Review which caused dozens of stocks to enjoy Index Upweights during the April-end Inclusion Event collectively amount to an estimated upweight size of approximately US$1bn. Below is a look at the performance of the TOPIX-related event trades covered by Quiddity in the Pre-event, Live-event, and Post-event categories during the month of April 2021.  

TOPIX Inclusion Trade Summary: April 2021

Japanese Software company <a href="https://www.smartkarma.com/entities/wingarc1st-inc" target="_blank" data-smartkarma-citation="entities:32164:1" rel="noopener">WingArc1st Inc (4432 JP)</a> was listed in the First Section of the Tokyo Stock Exchange (TSE) on 16th March 2021.When a company gets listed in the First Section of TSE, it gets included in the TOPIX Index (after a short delay) and as a result, TOPIX-tracking funds will have to purchase the stock during an Inclusion Event which presents interesting trading opportunities for active investors to generate sharp market-neutral returns in the space of few trading days. Alternatively, this can also be considered as a key point in time where short-term IPO investors could decide if they wanted to exit their positions by utilizing this liquidity event.Below is a look at the timeline and the parameters of the Inclusion Event and the potential trading opportunities surrounding it.

Japanese Software company WingArc1st Inc (4432 JP) was listed in the First Section of the Tokyo Stock Exchange (TSE) on 16th March 2021.When a company gets listed in the First Section of TSE, it gets included in the TOPIX Index (after a short delay) and as a result, TOPIX-tracking funds will have to purchase the stock during an Inclusion Event which presents interesting trading opportunities for active investors to generate sharp market-neutral returns in the space of few trading days. Alternatively, this can also be considered as a key point in time where short-term IPO investors could decide if they wanted to exit their positions by utilizing this liquidity event.Below is a look at the timeline and the parameters of the Inclusion Event and the potential trading opportunities surrounding it. 

TOPIX Inclusion: WingArc1st Inc (4432 JP)

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

This insight is meant to be read in conjunction with <a href="https://www.smartkarma.com/profiles/janaghan-jeyakumar-cfa" target="_blank" data-smartkarma-citation="accounts:3173" rel="noopener">Janaghan Jeyakumar, CFA</a>'s <a href="https://www.smartkarma.com/insights/topix-upweights-big-april-basket-2021-pre-event-is-a-win-now-the-event-leg" target="_blank" data-smartkarma-citation="insights:50084" rel="noopener">TOPIX Upweights: Big April Basket 2021 Pre-Event Is a WIN! Now the Event-Leg!</a> (which is the announced result of the proposed 50-name buy basket introduced in the explanation of an annual but obscure aspect of TOPIX Index calculation rebalancing explained in <a href="https://www.smartkarma.com/insights/topix-index-upweights-the-big-april-basket-2021" target="_blank" data-smartkarma-citation="insights:49660" rel="noopener">TOPIX Index Upweights: The Big April Basket 2021</a>).Suffice it to say, he got 48 out of the 50 names chosen right, and there are a few more trades related to this on the side. That is US$1.1bn to buy. This insight is about all the OTHER names in the TOPIX rebalance for April 2020, including a total of 43 up-weights and 16 down-weights with ~ US$500mm to buy and US$260mm to sell.That means there will be a US$1bn sell on the close of the 28th too. Not huge, but there. The trades to do here are for investors to see if any of these situations warrant use as a liquidity event.

This insight is meant to be read in conjunction with Janaghan Jeyakumar, CFA's TOPIX Upweights: Big April Basket 2021 Pre-Event Is a WIN! Now the Event-Leg! (which is the announced result of the proposed 50-name buy basket introduced in the explanation of an annual but obscure aspect of TOPIX Index calculation rebalancing explained in TOPIX Index Upweights: The Big April Basket 2021).Suffice it to say, he got 48 out of the 50 names chosen right, and there are a few more trades related to this on the side. That is US$1.1bn to buy. This insight is about all the OTHER names in the TOPIX rebalance for April 2020, including a total of 43 up-weights and 16 down-weights with ~ US$500mm to buy and US$260mm to sell.That means there will be a US$1bn sell on the close of the 28th too. Not huge, but there. The trades to do here are for investors to see if any of these situations warrant use as a liquidity event. 

TOPIX April-End Rebalance - The OTHER Trades

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Capital Markets

With Coconala looking like it will open towards the high-end or above our “30-50% pop” guesstimate, we take another look into our crystal ball to check whether this is an issue that is worth hanging onto, or whether your capital might be better deployed elsewhere.

With Coconala looking like it will open towards the high-end or above our “30-50% pop” guesstimate, we take another look into our crystal ball to check whether this is an issue that is worth hanging onto, or whether your capital might be better deployed elsewhere.

Coconala IPO – First Day Trading – I See an Air Pocket in Your Future

Japan

WingArc1st Inc. offers technology services. The Company provides data enpowerment, software development, software sales, and other services. WingArc1st offers its services throughout Japan.

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WingArc1st Inc (4432 JP)

TOPIX Inclusion Trade Summary: May 2021

TOPIX Index Changes Review for May 2021. There are a couple of new names, a list of ongoing pre-event trades, a couple of post-event trades. Things...

Janaghan Jeyakumar, CFA

TOPIX Inclusion Trade Summary: April 2021

April TOPIX Index Events had a great month. Whether it be the single inclusion Rakus (3923), the LF reweight baskets, or the normal TOPIX month-end...

Janaghan Jeyakumar, CFA

TOPIX Inclusion: WingArc1st Inc (4432 JP)

Wing Arc 1st listed on TSE1 in mid-March 2021, meaning an end-April TOPIX inclusion. Going by the historical pattern of straight-to-TSE1 listings,...

Janaghan Jeyakumar, CFA

TOPIX April-End Rebalance - The OTHER Trades

The April TOPIX Rebalance is about $1.5bn one way, with two thirds of that on Liquidity Factor changes, one-third on normal FFW changes. Toshiba,...

Travis Lundy

Coconala IPO – First Day Trading – I See an Air Pocket in Your Future

With Coconala looking to open strong we take a look into our crystal ball to check whether this is an issue that is worth hanging onto, or whether...

Mio Kato

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