§ 70%: # of mutual funds that charge 12b-1 fees
§ 12b-1 fees: named after the SEC rule that allows them; fees cover marketing and distribution costs (e.g., financial advisor commissions, 401(k) plan administration, mailing prospectuses, etc…)
§ 0.15 To 0.30%: average 12b-1 fee.
§ $140b: Since 1990, investors have paid more than $140 billion in 12b-1s
§ 8.5%: average mutual fund up-front fee (sales load) in 1980s.
Source(s): WSJ
In 2010, technology M&A activity should accelerate as technology firms will look to raise capital, divest noncore assets, wind-down sales increase and acquire rivals to improve competitive positioning.
Interesting Technology M&A data points
§ $1B: this year, only 31 technology transactions valued at $1 billion or more have been consummated. This is less than half the level seen in 2005-2007.
§ 0.9x Revenue: Technology start-up valuation in 1Q09
§ 1.4x Revenue: Technology start-up valuation in 4Q09
Interesting Technology M&A Trends
Footprint extension (i.e., vertical integration; value-chain expansion) continues.
§ Software firms are encroaching in the hardware space (e.g., Oracle purchasing Sun)
§ Computational hardware firms are purchasing technology services assets (e.g., Dell purchasing EDS)
§ Services firms investing in software assets (e.g., Cognizant’s Master Data Management software product)
§ Networking firms investing in computational hardware (e.g., Cisco’s server blade)
Source(s): NYT, 451 Group
Salient data points:
§ 23: # of consecutive years of Pepsi Super Bowl advertising
§ 7.3%: Pepsi’s volume decline in first nine months of 2009
§ 2.3%: Soft-drink industry’s volume decline over same period
§ 6.6%: Coke's volume decline over same period
§ $74.6M: Pepsi brand ad investment in 2008
§ 60%: year-over-year (YOY) increase in Pepsi’ online ads in 2010
§ $3M: Cost of 30-second Super Bowl
§ 98.7M: # of 2009 Super Bowl viewers
Strategic Brilliance or Blunder: Brilliance. The TV ad spot is becoming less relevant as “marketing with meaning” is gaining more traction.
Source(s): WSJ, Beverage Digest, TNS Media Intelligence
§ 5%: 15-year fixed-rate loans share of home purchase applications in December 2009
§ 20%: 15-year fixed-rate loans share of refinance applications in October 2009
§ 9.1%: 15-year fixed-rate loans share of refinance applications in October 2008
§ 7.5%: 15-year fixed-rate loans share of refinance applications in October 2007
§ 4.46%: average rate, 15-year fixed-rate loans in mid-December 2009
§ 5.25%: average rate, 15-year fixed-rate loans in mid-June 2009
§ 4.99%; average rate, 30-year fixed-rate conforming loans in December, 2009
Paying a mortgage down early might not be a wise strategy at this time considering the future economic climate.
Since inflation will most likely rise in the future, interest rates will rise, which implies that over the long term the return on investments will be higher than the after-tax cost of borrowed money. The tax benefit from borrowing has its source in the tax code. Interest on mortgage debt is tax deductible. Thus, the after-tax cost of borrowing is lower than the pre-tax cost of borrowing. For example, a 4.46% interest rate for an individual in the 28% tax bracket will translate into a 1.25% after-tax interest rate.
The Bottom Line: Thus, in most cases, it’s financially advantageous to invest the surplus funds (i.e., the difference in monthly payments between 30 and 15 year monthly mortgage payments) into other investments (e.g., commodities, multinational corporations, etc…).
Source(s): WSJ, NYT, Bankrate.com
Is Google’s phone strategy a good one?
§ Google is launching its own smart phone called Nexus One early in 2010
§ Sales distribution model #1: phone sold directly by Google to consumers, without the standard carrier subsidy that permits a $200 price point
§ Sales distribution model #2: phone sold with carrier subsidy
§ Potential advantages: tighter integration of Android O/S with hardware; more control over mobile search adverting business model; an opportunity to better showcase Google apps; greater influence over users’ mobile Web experience
§ Potential disadvantages: alienating Android licensees and partners (manufacturers, carriers)
Strategic Brilliance or Blunder: Brilliance. The tighter integration with hardware, coupled with Google’s open architecture platform and “simplicity” principle might lead to all of the advantages cited above.
Source(s): WSJ
§ $10 trillion: size of mutual fund industry
§ $20k: kaChing’s minimum requirement re: a user’s liquid net worth
§ $3k: kaChing’s minimum requirement for investment
§ 140: kaChing’s minimum “genius” requirement
§ 425k: kaChing’s registered user base
§ 450: # of kaChing's users who have invested actual cash
§ 1.25%: kaChing’s average annual management fee
§ 0.9375%: amount of kaChing’s annual fee that goes to the geniuses
§ 11: # of kaChing geniuses
§ Covestor: kaChing competitor; minimum investment fee of $10k
Source(s): WSJ, company web site
Natural Gas Industry-related data:
§ $6 & $7.50/MMBtu: consensus estimate long-term natural-gas price range
§ $5.33/MMBtu: 12/15/2009 price
§ $14/MMBtu: record high reached in Summer 2008
§ 5.27%: Natural Gas YTD return (FCG ETF proxy)
§ $2.50: September 2009: 7 year low
§ 3.773 trillion cubic feet: U.S. storage facilities supply (near record)
§ XTO's decision to sell to Exxon: implies that independent producers don't foresee a strong rebound in gas prices
§ 34%: Oil’s share of global energy mix in 2007
§ 0.9%/year: oil annual long-term growth
§ 21%: Natural gas’ share of global energy mix in 2007
§ 1.5%/year: natural gas’ annual long-term growth
§ 45 Trillion cubic feet: about two years of domestic gas demand
§ $81 Billion: 1999 Exxon and Mobil merger
§ 50%: natural gas emits half as much CO2 as coal
§ $1 Trillion: industry investment to develop domestic shale fields
§ Potential takeover targets: Chesapeake Energy, Devon Energy, EnCana, EOG Resources, Range Resources
§ 2.33 Billion cubic feet a day: XTO daily natural gas production output putting it just behind Chesapeake as the top domestic producer.
§ In 2000, price increased from $2.50 to $10 by the end of the year; eight months later, the price slipped to $3.
§ In 2005, prices increased to more than $15 after hurricanes Katrina and Rita and then decreased to below $7 just two months later.
§ In 2008, prices increased to more than $13 but then decreased to $3 this past September and closed Tuesday at $5.523.
§ 46%: % of all power plant capacity additions from 2008 to 2035, according to the The U.S. Energy Information Administration
§ Unconventional Resources: a broad category of fuels (e.g., shale gas, tar sands, etc…) that require complex extraction technology.
The Bottom Line: Investing In Natural Gas (FCG) Might be a Good Long Term Investment
Source(s): WSJ, NYT, International Energy Agency, Google finance
§ 40%: of Walmart’s online orders are delivered through Walmart’s “site to store” shipping program
§ $1.7 Billion: Walmart.com’s estimated annual sales
§ $19.2 Billion: Amazon.com’s last year’s annual sales
§ 5%: total e-commerce share of American retail spending
Source(s): WSJ, NYT
ETF Industry Overview:§ 802 = # of US ETFs as of 11/30/2009§ 30= # of US ETF managers; § 100 = number of ETF liquidated since 2007§ $739 billion = total ETF industry assets (a record)§ 9.8% = number of fixed-income ETFs (79/802)§ $100b = asset value of fixed-income ETFs (100/739 = 13.5%)
2009 Hot Investment: Bond (Fixed Income) ETFs§ $32 billion: 2009 net inflows to taxable-bond ETFs; most of any ETF asset class§ AGG: iShares Barclays Aggregate Bond Fund§ BND: Vanguard Total Bond Market ETFOther 2009 popular ETF categories:
§ Inflation-protected Treasuries§ gold§ Other commodities (oil, grain, livestock, etc…)§ Corporate bonds§ Emerging markets using Vanguard’s VWO and iShares’ EEM§ Bearish funds (leveraged and inverse ETFs) ProShares and DirexionThe Benefits of ETFs benefits relative to Mutual Funds:§ transparency§ liquidity§ low costs§ tax efficiency ETF Management Landscape by assets: 1. BlackRock (Barclays Global Investors)2. State Street3. Vanguard ($90 billion in ETF assets)Investment Thesis:Since higher inflation is ancipated, higher interest rates are anticipated which means that bond prices will fall. A common approach to profiting from falling bond prices is to invest in short bond funds such as TBT.
The Bottom Line:
Investing in a short bond ETF (TBT) might be a profitable contrarian strategy. § TBF [20+ year treasury]; $49.83; Mkt cap 209M; Ave Vol = 169k§ PST [Ultrashort 7-10 year treasury] $52.33; Mkt cap 347M; Ave Vol = 122k§ TBT [Ultrashort 20+ year treasury]; $48.61; Mkt cap 4.5B; Ave Vol = 4.79MSource(s): WSJ, Vanguard, Morgan Stanley, State Street, Google.com, Yahoo.com, Proshares.com
2009 Inflation-Hedging Market Data:
§ $59 billion: the 2009 increase in the “inflation hedging” investment category (i.e., Gold, inflation-protected bonds, commodity funds and commodity exchange-traded fund)§ ($52 billion): the 2009 decrease in U.S. stock funds and ETFsTypical, Inflation-Hedging Investments: § Gold § Commodities§ Energy, Materials and Consumer Staples (food and tobacco) stocks§ Companies with strong pricing power (Coke)§ Some debt (e.g., High-yield debt, lower-rated investment grade bonds)§ Short-term debt (that is less susceptible to the higher interest rates associated with inflation and permits re-investment at higher rates)
Inflation Data:§ (0.2%): CPI (October 2009 year over year change)Will Inflation Pick Up?§ No. Since unemployment will remain high; unused capacity should facilitate economic growth without an increase in prices (i.e., inflation) § No. Stock and bond markets aren't pricing in a rise in inflation; TIPs pricing indicates inflation is expected to be less than 1% in 2010; 1.5% over the next 5 years; 2.1% over the next 10 years§ Yes. There’s a huge amount of liquidity. And, when banks accelerate their lending practices again, inflation will rear its headTIPs or I-Bonds?Read some opinions here
TIPs or the S&P 500 Index:
According the chart below, the November 2009 YOY (11/30/08 – 11/30/09)results:
§ S&P 500: 25.3%
§ TIPs (Vanguard VIPSX): 19.3%
The Bottom Line: over the long-run, inflation increases; TIPs offer inflationary protection and could be a good addition to a well-diversified portfolio.
Source(s): WSJ, Vanguard.com, Morningstar.com
 TIPs vs. S&P 500
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