‘Fractional investment’ app backed by actor Will Smith and NFL star J.J. Watt surges in popularity as coronavirus fears roil financial markets

One way to navigate turbulent financial markets? Follow Will Smith and his crowd of fractional investors.

The social-investing app Public, whose backers include the Hollywood actor as well as the NFL defensive end J.J. Watt, says it has seen a 70% increase in interaction among its members as they turn to the startup to guide them through the worst rout in equity markets since the financial crisis.

Speaking with MarketWatch from his apartment in New York, Jannick Malling, co-CEO of Public, said members have been opening the app three times more frequently since the coronavirus crisis escalated in the U.S. two weeks ago.

“When the market dropped, we saw novice investors looking to see what more experienced investors were doing, instead of just following human intuition to immediately start panic selling,” Malling said.

Public allows anyone to buy a slice of a share in any publicly traded U.S. company for as little as $5, commission-free. Members can follow a social feed allowing them to exchange ideas among friends and see which stocks more experienced investors are putting there money in, which Malling said is part of the Public mission to build “financial literacy for the next generation.”

“Some people are intimated by investing in the stock market and might not have the money to buy into highly valued stocks like Amazon

AMZN, -2.16%,

which on Wednesday closed at $1,907.70 a share, or Google parent Alphabet

GOOG, -4.92%

GOOGL, -5.15%,

whose Class A shares ended the day at $1,102.10.

“Public opens that process up to more people by letting them invest alongside a community,” Malling said. “It’s a bit like a cross between a social network and a stock brokerage.” Typical users are in their early 20s, but Malling said the social-investing app has attracted a diverse community.

In March, the app saw a 50% increase in new members. “In moments like this, when the market falls, some people might want to invest more,” Malling added.

The current market volatility

VIX, +6.57%

has seen a big move by Public’s members into ETFs. They are also viewing the app’s “themes section” more, which, much like a Spotify

SPOT, +0.14%

 playlist, allows them a venue to learn about new sectors and industries. “Fighting disease,” for instance, includes companies involved in efforts to cure cancer and other diseases, while the theme “the future is female” comprises a collection of all S&P 500–listed companies run by women CEOs.

The social-investing app earns revenue from lending stock to short sellers, as well as from interest on the cash balances in accounts.

In January, Public raised $15 million in a Series B financing round, which was led by venture-capital funds Accel and Greycroft. YouTube creator and entrepreneur Casey Neistat, Girlboss founder Sophia Amoruso and Japanese soccer star Keisuke Honda were among those who participated in the funding round.

Malling said Public plans to use the cash to grow its community and will be adding new features that allow members to find more ways to connect.

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U.S. pension funds may pour $400 billion into stocks, lifting virus-hit markets: JP Morgan By Reuters

© Reuters. A man wears a protective mask as he walks on Wall Street during the coronavirus outbreak in New York

By Lewis Krauskopf

NEW YORK (Reuters) – U.S. pension funds that delayed rebalancing their portfolios are likely to pump about $400 billion into stocks over the next two quarters, analysts at JP Morgan said, providing a potential boost to equity markets battered by the coronavirus pandemic.

Weeks of asset price volatility may have pushed some fund managers to postpone rebalancing portfolios where equity allocations have been knocked out of whack by a sharp decline in stocks, the bank said in a note to investors. The S&P 500 fell 20% since the start of the year, marking its worst quarter since 2008.

“We still expect that US pension funds will eventually rebalance within 1-2 quarters,” wrote strategist Nikolaos Panigirtzoglou.

The bank said its estimate of $400 billion in equity buying by the funds over the next two quarters could prove conservative. U.S. pension funds bought $200 billion in stocks by the first quarter of 2009, in the aftermath of the global financial crisis — equivalent to $600 billion today, the bank said.

Wild market swings have presented a challenge to asset managers looking to square their portfolios against a benchmark or return to their long-maintained allocation of stocks versus bonds. While the S&P is down about 24% from its February highs, unprecedented support from the Federal Reserve and a $2.2 trillion relief package from U.S. lawmakers helped stocks rally 15.5% since March 23.

At least one fund — the Los Angeles City Employees’ Retirement System, which oversees some $15 billion — is allowing its rebalancing to be deferred, according to a report in Pensions & Investments. The fund did not immediately respond turn a request for comment.

Brian Reynolds, chief market strategist with Reynolds Strategy, said in a note this week a rebalancing that leads pensions to sell bonds and buy stocks “makes no sense for pensions given the capital calls they are facing from credit and related products.”

Some index providers, such as S&P Jones Indices, have delayed their quarterly rebalancing due to the market volatility, potentially complicating the picture for funds that look to track index performance.

Last week’s rally in stocks may have helped boost some funds’ equity allocations, making the need to increase exposure less acute, said Mike Schumacher, head of macro strategy at Wells Fargo (NYSE:) Securities.

The bank last week had estimated that U.S. corporate pensions will need to shift about $40 billion from fixed income into equities to maintain allocation targets. Its estimate now stands at $20 billion following last week’s rally, Schumacher said.

At the same time, mutual funds, pensions and other asset managers rebalancing their portfolio may have stoked some of last week’s gains.

Steven DeSanctis, an equity strategist at Jefferies, said moves from fixed income into equities “most likely” happened last week, adding that “the rebalancings don’t have to take place on the 31st.”

Jack Janasiewicz, portfolio strategist at Natixis Investment Managers Solutions, said some of the market’s recent gains have come from quarter-end and month-end rebalancing.

“Once we get through the next couple of days, it’s going to be a little bit more interesting because the question then becomes, ‘Do we return really back to fundamentals and technicals?’.”

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KFC owner Yum Brands breaks junk debt market’s fast By Reuters

© Reuters. A vehicle waits at the drive-thru window of Kentucky Fried Chicken after a state mandated carry-out only policy went into effect in order to slow the spread of the novel coronavirus (COVID-19) in Louisville

By Joshua Franklin

(Reuters) – Yum Brands Inc (N:), owner of Pizza Hut, KFC and Taco Bell restaurant chains, sold $600 million in bonds on Monday, reopening the U.S. market for junk-rated debt issues after its longest lull since the 2008 financial crisis.

Yum’s bond offering represented a glimmer of investor demand in one the riskiest corners of the corporate credit market, which seized up for much of March after the coronavirus outbreak morphed into an economically devastating pandemic.

While U.S. companies last week issued new investment-grade debt at a record clip, there had been no new issuance in the so-called high-yield market for junk-rated debt issuers since March 4.

Yum boosted its debt offering by 20%, after planning to raise $500 million. However, Yum was forced to accept a considerably higher borrowing cost than in its prior debt deals.

The company sold bonds maturing in 2025 at a 7.75% yield. By comparison, Yum raised $800 million in September through 10-year debt with a yield of 4.75%. The higher the yield, the more expensive the bond is for the company.

The debt proceeds will go towards “general corporate purposes,” Yum said in a statement.

The Federal Reserve said last week it will backstop the investment-grade market but has made no such pledge for high-yield debt.

Yum, which has over 48,000 Pizza Hut, Taco Bell and KFC restaurants across the globe, said last week it expects the coronavirus pandemic to impact its second-quarter same-store sales more significantly than in the first quarter, as the fast-spreading virus hits customer traffic at its stores globally.

Yum was among several restaurant companies that this month the White House for aid to help weather the coronavirus crisis.

Earlier on Monday, Moody’s amended Yum’s ratings outlook to “negative” from “stable.”

“The negative outlook reflects the risk that there may be a sustained weakening in Yum’s credit metrics as they are increasing debt levels at a time when the company is facing significant uncertainty surrounding the potential length and severity of restaurant closures and the ultimate impact that these closures will have on Yum’s revenues, earnings and liquidity,” Moody’s Senior Credit Officer Bill Fahy said in a statement.

Yum shares, which are down 29.8% in 2020, closed up 3.1% at $70.67, giving it a market value of $21 billion.

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Bear Markets Create New Market Laggards And New Market Leaders

Bear markets and recessions are the metaphorical “restart button” which, in classical economic theory, flush away the excesses and misallocations of capital created during the previous economic expansion. In capital markets, a similar restart button is often pushed, usually creating a rotation in leadership. We all know that one of the key facets of value investing is that the most overpriced stocks, sectors, and countries, will tend to underperform similarly undervalued stocks, sectors, and countries over a long enough period of time. Thus, it makes sense that bear markets have historically provided turning points in leadership between value and growth investing. See the chart below for an illustration of a relative strength chart of the MSCI World Value Index versus the MSCI World Growth Index (click the image to enlarge).

Source: MSCI

Similarly, bear markets have often provided the impetus for changes in leadership between stocks domiciled in the United States versus those of other countries.

USA Vs. EAFE Relative StrengthSource: MSCI

Therefore, simply observing these patterns leads to a conclusion that the time to begin investing in value and international stocks is nigh, or at least soon. However, these are only historical patterns – we need some fundamental data to confirm our story.

Capital Market Assumptions Suggest Higher Returns For Both Value Stocks & International Markets

We will go through this exercise to confirm that there is a fundamental story to confirm that international stocks and value investing are both primed to outperform going forward. Most major companies release their own forecasts of expected returns for various asset classes using fundamental data, and most of them suggest international stocks will outperform over the next decade.

Here you can see Research Affiliates’ expected returns. As of the end of February, EAFE equities had an expected annual return 2% higher than US large cap equities. That’s a roughly 22% return differential over 10 years.

Blackrock similarly expects European and emerging market equities to deliver longer term outperformance on the basis of undervaluation

With regard to value stocks, GuruFocus.com creates a convenient table of the S&P 500 sectors and their respective P/E ratios. The annotations are my own.

Value & Growth Sector P/E Ratios

Source: GuruFocus.com

One can see that in the chart above, sectors like technology (XLK) and healthcare (XLV), are significantly undervalued relative to financials (XLF), energy (XLE), and industrials (XLI).

I’ve Heard These Plays for Years. Tell Me About Timing

The running joke is that international markets and value stocks have been undervalued for the last several years, and they have continued to underperform for the last several years anyway. The current bear market, if historical patterns repeat, suggests that the potential for a leadership change now is higher versus during in the middle of a bull market.

Even so, I can appreciate anyone who would prefer to fine tune their asset allocation changes. One method I use for fine-tuning my valuation-based investment adjustments is to use some sort of trend following signal. In the example below, I create a weekly ratio chart of the S&P 500 ETF (SPY) and the MSCI EAFE (EFA) ETF and then plot Bollinger Bands around it. In this case, if the ratio touches the bottom band, it would be an indication that international stocks are catching a bid and that I would overweight them relative to domestic stocks. You can see one of my chart settings below.

S&P 500 Versus EAFE Relative Strength Bollinger Bands

Source: StockCharts.com

As expected, this trend following strategy has had one overweight US equities for most of the last five years. Once could use other trend-following systems such as moving averages, price channels, or linear regression slopes to accomplish a similar goal.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Markets May Be Supercharging Cirrus Logic – Cirrus Logic, Inc. (NASDAQ:CRUS)

Financially conservative Cirrus Logic (CRUS) could experience significant stock price increases coming with the next major up-leg of the stock market. We explain why. With several growth vectors aligned with coming growth markets and its long-term commitment to uninterrupted development, historically Cirrus has produced, and continues to produce, timely superior products. Although the development and implementation process often takes years, it seems that Cirrus’ latest crop of technology is posed for adding immediate and longer-term revenue.

The Company

Cirrus Logic, a semiconductor company, maintains a fabless model. Its wide variety of differing products and relative market size mandate this approach. Financially, its risks remain limited to its employment and building costs. The company is debtless, only borrowing when needed for major capital needs. Its debtless culture developed some decades in the past, when during the late 1990s it almost experienced bankruptcy. The balance sheet shows approximately $600 million in cash, with yearly revenue near $1.5 billion. At 50%+ gross margins, Cirrus could lose half of its revenue before it would begin burning cash.

Cirrus’ produces uniquely custom and semi-custom products for interfacing the digital and analog worlds. Its technology optimizes low power usage, small size, lower cost and low latency. Cirrus provides Apple (AAPL) with its audio and sound technology. Coming later this year, Cirrus will likely be included in Apple’s iPhone with a new lucrative technology outside of audio. The company also provides audio technology for Samsung (OTC:SSNLF) and most of the top ten Android OEMs around the world. Its footprint inside of Android products is expected to grow significantly over the next few years, primarily with amplifiers and haptic devices.

Employment Openings

Cirrus continues to add employment openings. Most of the newly placed openings are targeted specifically. Many include responsibilities for rolling out new products in growth vectors. These include foundry operations management, physical design, haptics product development, amplifier development and codec design. The new openings advanced to the 70s range, a range that historically signals slight employment growth. In the past few years, Cirrus slowly decreased its employment without compromising product development. With expected growth, that changed in the past few months. We view this as bullish.

The Growth Vectors

We have written in the past about several major growth vectors. The company expects Android growth from amplifiers and haptics (touch-feeling simulation) devices across a broad spectrum of OEMs. Within tablets and laptops, Cirrus expects increased content over CY-2020. A new closed-controller outside of audio remains on track for ramping this calendar year. Other non-audio products are in line to begin shipping in CY-21. With these added to a super-cycle fueled though a 5G sector transition, Cirrus is targeted for growth.

China Back On-line

While the world is abuzz in a virus crisis, products Cirrus Logic manufactures will experience reduced demand. But China, a key manufacturing location, is coming back on-line. Recent headlines such as: “Foxconn claims it has secured enough workers for seasonal demand,” After nearly 2 months, Wuhan (the epicenter of the pandemic in China) announced today that it would be loosening the lockdown,” and “Apple’s 5G iPhones currently on schedule – Bloomberg” strongly point that life, including manufacturing, is returning to some normal. In time, the rest of the world will follow.

The Chart

We include the following self-made chart using TradeStation.

This long-term chart shows clear resistance and support levels at $85-$90 and $50 respectively. Classical long-term pattern moves might suggest Cirrus could trade at $120-140. Remember, this is long term. Short term, we expect volatility in both directions. We sold some shares in the $60-70 range and repurchased many of the shares. Waiting for significant upside, we sold June calls ranging in strike price from $55 to $75. This was designed as a hedge through what we believe will be the worst of the volatility period of time.

The Jet Fuel And Nitro

The United States Government Fed and government actions include economic support worth $6 trillion – yes, $6 trillion. Of the $6 trillion, $4 trillion is from the Federal Reserve Bank. $2 trillion is stimulus which will be charged against the national debt. This article summarized the plan.

  • Longer-term 0% interest rates
  • Open-ended Quantitative Easing
  • Lending to securities firms
  • Backstopping money market mutual funds
  • Repo purchasing
  • Direct bank lending
  • Direct lending to major corporate employers
  • Main Street Business Lending Program
  • Fed-supported lending to households, consumers and small businesses

The $2 trillion Congressional package contains:

  • Loans and guarantees to businesses, state and local governments: $500 billion.
  • $50 billion for passenger airlines
  • $8 billion for cargo carriers
  • $17 billion for “businesses critical to maintaining national security.”
  • Small businesses, including $350 billion in loans for companies with 500 employees or fewer
  • Emergency unemployment insurance up to $600 per week
  • Transportation, education, medical research
  • Tax postponements

Did we miss anyone or anything? Truly, there are many unknowns, but this is huge. Many claim it isn’t enough, but for airplanes, it looks like jet fuel; to a funny car, it’s nitro. We wonder if, on the other side of this uncertainty, the stimulus becomes fuel. Our experience with markets certainly suggests this. We remember well the October crash of the ’80s. Please take a look at the market reaction after 2008.

Some Investment Thoughts

We recently have written several articles about several of our investment’s ability to survive through this uncertainty. We included the discussion about stimulus with one of our favorite growth stocks, Cirrus Logic. Is it possible that the company’s growth vectors, coupled with a major super-cyclical now followed by general market economic stimulus, create a super-charged result? We don’t know, but the three will line up at some future time. Powers of three such as found in this lineup usually do super-charge the catapult.

We suspect that there is still a strong amount of uncertainty left to wade through and expect a reasonably sharp drop in the market before it makes any real move upward. But in time, is it possible that Cirrus acts more like a rocket soaring skyward than a glider drifting lower? On the backside of the year, we suspect an upward trajectory and are planning for such. Always remember, Cirrus Logic isn’t for the faint of heart.

Disclosure: I am/we are long CRUS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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