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Views from the Hill  
An off-the-cuff forum to comment on the trends
and happenings we see affecting markets.

Views from the Hill

Apr

21

2015

U.S. Equities - Breakout to the Upside?

Posted by Jeffrey Burchell


We think so, and are adding more equity market exposure to the funds.

Over the past several months we have spoken about the S&P 500’s grind sideways since the second half of last year. Since the spike higher in September through to last Friday, the S&P 500 is up only…
… 3.1% from the peak in October (Oct. 31);
… 0.3% from the early December peak (Dec. 5); and,
… 1.1% YTD.

Based on the theory – and our analysis below going back to 1990 – that consolidation is a normal part of any uptrend, this horizontal range we've been stuck in should be somewhat expected after the strong performance we witnessed in the S&P 500 since 2011. In fact, it has been our view that given the run in large cap U.S. equities over the last four years – the index is up over 55% on a total return basis since March 2011 – this period of consolidation is necessary in order to foster the conditions that will allow for a more sustainable uptrend over the longer term.

We are 7 months into this consolidation and look forward to strong returns out of the U.S. equity markets going forward.

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Apr

14

2015

How to get exposure to the global M&A cycle

Posted by Andrew Hamlin


It is always nice to have unexpected wins in a portfolio, like owning a company for fundamental reasons and then out of the blue it gets acquired for a huge multiple. Some recent examples include: Kraft being acquired by Heinz and 3G; FedEx acquiring TNT Express; Mylan acquiring Perrigo; Lexmark acquiring Kofax Ltd.; and, Verisk Analytics acquiring Wood Mackenzie Ltd.

Global M&A activity is picking up and is expected to be strong through to 2017. This was a theme we discussed in our 2015 Market Outlook Report. This year alone, total deal announcements in Q1/15 were up 25% year over year to $854 billion. Completed deals were up 12% in Q1/15 alone, the strongest deal closings since 2008.

If investors want to play the M&A theme, one approach is to buy companies that have the potential to be acquired. This is a tough game and one that we don’t tend to recommend – investors should be buying stocks for fundamental reasons not because there might be a chance to be taken out. We think a better way to get exposure to global M&A is to own companies that collect fees and provide advisory services to buyers and sellers. Large global investment banks are one way to go but these firms have other lines of business such as trading, fixed income, foreign exchange, etc. A more interesting approach is to own independent advisors – this is a ‘pure play’ approach as the majority (if not sole business) is advisory to which hefty fees are collected.

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Apr

10

2015

Pharma on Fire - Update on Mylan and Perrigo

Posted by Jeff Burchell & Helen Liu


Pharma is on fire… But the risks are mounting as the deals get hotter and the space continues to melt upwards.

Mylan (MYL) has made an unsolicited bid for Perrigo (PRGO) – we owned both stocks in the funds and have subsequently sold both positions given the quick spike in the stocks and our view of what is next to come.  Keeping track of the M&A in pharma is a full time job, and we have made money for investors doing just that.  We do see further opportunity on specific names in the space – but the egos are building as the prices being paid climb ever higher.

AN EXPENSIVE GAME OF CHESS?

Part of our thesis on Mylan was M&A, either they acquire or they would get acquired.  We owned Perrigo for the underlying growth and our belief that the consumer business would return to higher growth rates after a few slower growth quarters.  There is a decent chance, in our view, that Mylan has put a >$30B (that is “B” for billion) acquisition of Perrigo on the table to stir the pot in terms of their own shares (either to block a lower takeout bid for THEIR shares or to encourage a much higher bid price for THEIR shares). $30B is a big chunk of change to put on the table to play chess (!).

In our view, management teams in the space have shifted their focus from the shareholder discipline of buying back one’s own stock and paying dividends in favour of empire building – this will end badly at some point and reminds us of the late 1990s in the space.

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Apr

9

2015

Getting closer to peak production?... this is good!

Posted by Jeffrey Burchell & Claire Thornhill

Amid stories of surging Saudi production and record crude inventory builds in the U.S., it was easy to miss yesterday’s EIA report calling for U.S. crude production to flat line for the next two months before falling from June onwards. This forecasted peak in production is a month earlier than the agency had forecast back in January, and reflects the faster than expected supply response from North American onshore producers as illustrated by the 50% drop in the Baker Hughes rig count we have seen since last October. An industry rule of thumb is that there is typically a 6 month lag between changes in rig count and actual output, suggesting that a decline in U.S. output is on the horizon. This gives us some confidence that, despite an obvious near term oversupply situation, it makes sense to start positioning the portfolio now, ahead of the move in equities we will likely see when the market begins to contemplate the potential positive implications for oil companies that the impending drop in output could bring. Accordingly, we have been selectively adding to our energy weighting within the portfolios. 

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Mar

30

2015

Catamaran & UnitedHealth Demonstrate Increasing Healthcare M&A Activity

Posted by Jeff Burchell & Helen Liu

Catamaran Corp. (a pharmacy benefit manager) is being acquired by UnitedHealth Group for $61.50 per share, a 27% premium to Friday’s close. The combination of Catamaran and OptumRx (a subsidiary of UnitedHealth) will have the capacity to process 1 billion prescriptions per year. This significant scale allows the new entity, which will still be called OptumRx, to compete head-to-head with industry giants Express Scripts and CVS. Additionally, Catamaran’s industry-leading technology platform and OptumRx’s analytics capabilities adds to the new entity’s competitive advantage.

We initiated a position in Catamaran in January at the pullback. We liked Catamaran because of both its ability to act as a consolidator and being a potential take-out target. The deal supports our view of a heightened level of M&A activity in the healthcare space. We have positioned our portfolio to overweight the sector through names such as Aetna, Perrigo Company and Actavis. 

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Disclaimer:
This commentary is published by Aston Hill Financial Inc. (“Aston Hill”). The information contained herein does not constitute a recommendation by the authors or Aston Hill to buy or sell any of the securities, commodities, currencies or other financial instruments or assets discussed herein. This commentary has been prepared using information from sources that the authors and Aston Hill believe to be reliable, however neither the authors nor Aston Hill guarantees the accuracy of such information. This report does not constitute and may not be used for the purposes of effecting an offer or solicitation of units of any Aston Hill investment products. Commissions, trailing commissions, management fees and expenses all may be associated with investment funds. Please read the prospectus and other publicly filed documents available at www.sedar.com before investing. The indicated rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated.

Please correct the following errors:

Minimum Investment Requirements

The AHF Credit Opportunities Fund is generally available to investors that can meet a certain minimum amount of money to invest. The minimum initial investment for residents in any province or territory in accordance with applicable securities laws is set out below:

All provinces and territories $125,000 or $25,000(1)
BC, NB, NS and NL Only: $5,000(2)

Notes:

(1) A minimum purchase of $25,000 is available to residents who meet certain requirements.
(2) A minimum purchase of $5,000 is available to residents who meet certain requirements and reside in BC, NB, NS and NL by way of the prescribed OM.
Investors should contact their investment dealer or Financial Advisor for more information.

If you can comfortably invest the minimum dollar amount required in your province or territory, please accept the disclaimer below to learn more about the AHF Credit Opportunities Fund.


Disclaimer: Information pertaining to AHF Credit Opportunities Fund is not to be construed as a public offering of securities in any jurisdiction of Canada. The offering of units in the AHF Credit Opportunities Fund is made pursuant to its offering memorandum only to those investors in jurisdictions of Canada who meet certain eligibility requirements. Please read the offering memorandum carefully before investing.

Minimum Investment Requirements

The Aston Hill Opportunities Fund is generally available to investors that can meet a certain minimum amount of money to invest. The minimum initial investment for residents in any province or territory in accordance with applicable securities laws is set out below:

All provinces and territories $150,000 or $5,000(1)

Notes:

(1) A minimum purchase of $5,000 is available to residents who meet certain requirements. Investors should contact their investment dealer or Financial Advisor for more information.

If you can comfortably invest the minimum dollar amount required in your province or territory, please accept the disclaimer below to learn more about the Aston Hill Opportunities Fund.


Disclaimer: Information pertaining to Aston Hill Opportunities Fund is not to be construed as a public offering of securities in any jurisdiction of Canada. The offering of units in the Aston Hill Opportunities Fund is made pursuant to its offering memorandum only to those investors in jurisdictions of Canada who meet certain eligibility requirements. Please read the offering memorandum carefully before investing.

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Markets

Apr 24, 2015 18:46 EDT

AHF-T 0.00 0.73
S&P/TSX 15.98 icon-arrow-up-green-small-dark.png 15,408.33
S&P 500 4.76 icon-arrow-up-green-small-dark.png 2,117.69
Dow Jones 21.45 icon-arrow-up-green-small-dark.png 18,080.14
NASDAQ 36.02 icon-arrow-up-green-small-dark.png 5,092.08
CAD/USD -0.00 icon-arrow-down-red-small.png 0.82
Oil (NY) -0.32 icon-arrow-down-red-small.png 57.42
Gold -14.40 icon-arrow-down-red-small.png 1,179.90
Natural Gas 0.00 2.53
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