Topley’s Top Ten – January 28th

Author

Matt Topley
January 28, 2020

1. 5 Companies 17.5% of S&P

The five biggest tech companies now make up 17.5% of the S&P 500 — here’s how to protect yourself

2.Healthcare Sector Earnings Compared to S&P 2020.

SPDR FUNDS

Health Care: Capture stable growth with anattractive valuationHealth Care led earnings sentiment with strong and broadearnings beats and faster growth than the broad market in 2019, as shown in thechart below. As we progress into the new year, analysts have upgraded theirearnings estimates for the sector, while projections for the broad marketcontinue their downward trend.1

3.The IPO-pocalypse didn’t last long-….IPO Market No Hiccup in Failed Unicorns.

The IPO-pocalypse sure didn’t last long.What’s happening: Threemonths after WeWork pulled its offering, we’re expecting an offering above $1billion this week and another next week. It also appears that mattress makerCasper will push forward with its listing, albeit as an “undercorn.”

  • First up will be Reynolds Consumer Products, which is best known for its aluminum foils, plastic wraps and Hefty trash bags. At the top of its range, it would raise around $1.3 billion at a $5.7 billion market cap.

  • Next week we should get PPD, a private equity-owned pharma contract research group that could raise $1.6 billion at a $9.2 billion market cap.

Yes, both of these are profitable, well-established companies. And few pundits seem to care about theunprofitable biotechs that also expect to price this week (sorry biotechs —maybe you should do something more interesting than curing our diseases andsaving our lives… have you considered scooters?).

So that brings us to Casper Sleep, the unprofitable, upstart mattress maker that was inexplicably valued likea tech company by venture capitalists.

  • Casper this morning set IPO terms that seemed to acknowledge how the private markets erred.

  • If it prices at the top of its range, the company would be valued at around $744 million, which is well shy of the unicorn valuation it previously received (no, the fully-diluted value doesn’t get you there either).

  • But, but, but: The very fact it’s launching its road-show, in the face of ongoing skepticism, suggests that the macro IPO chill has thawed. Or at least that bankers are willing to take the reputational risk.

The bottom line: No onecompany’s failings, no matter how massive, can single-handedly derail thebroader equity or capital markets. That’s true whether it’s WeWork, Boeing, orwhatever misery comes next.

IPO ETF NEW HIGHS

4.Commodities Trade Down 8% to October Levels

Novel Coronavirus in China Hits Commodities.—CRB Commodity Index

5.Global Fund Managers Started Year Overweight Commodities at Highest Level in 8 Years.

Accordingto the BofAML FMS monthly survey, global fund managers started the yearoverweight commodities (highest in eight years). Based on the charts above,these positions didn’t work out well. Nonetheless, once the coronavirus scareeases, we may see a rebound in some commodity markets.

6. Muni Funds See Record Inflows in 2019

Municipal-bond funds saw record inflowsin 2019, as investors poured a massive net $105.5 billion into muni open-endmutual funds and exchange-traded funds during the year. That amount dwarfed theannual gains of each of the past 25 years, including the group’s previous boomyear of 2009, which brought in roughly $75 billion. 

Demand remained high throughout the year, as muni funds saw 12straight months of net inflows over $5 billion, and by midyear had gathered 10times the assets that flowed into those strategies in all of 2018. 

Roughly 90% of 2019’s flows went into actively managed mutualfunds, yet a substantial $8.7 billion went to passive strategies, mainly muniETFs, which have continued to gain prominence since they first arrived on thescene in 2000.  

Muni Funds See Record Inflowsin 2019

Investors’ appetite formunicipal bonds soared last year, helping push already low muni yields evenlower.Elizabeth Fooshttps://www.morningstar.com/articles/963165/muni-funds-see-record-inflows-in-2019

Found at Abnormal ReturnsBlog  www.abnormalreturns.com

7.Top HealthIndustry Issued 2020-PWC

Top health industry issues of 2020: Willdigital start to show an ROI?

In 2020, US healthcare, andespecially how it is delivered and how much we pay for it, will be top of mind.Politicians will float many bold plans for transforming the industry. Healthsystem leaders will tout their investments in technology and transformation, asthe US health industry works to catch up to the rest of the digital economy.The question for 2020 will be whether this digital transformation will benefitconsumers — marking a new dawn for the US health industry and for the peoplewhose lives depend on it.

A loomingtsunami of high prices

Facing atsunami of high-priced gene and cell therapies and ever-rising provider pricesin 2020, employers, public and commercial payers, and American consumers willseek — and sometimes find — creative ways to finance care, spread risk andensure that their money is paying for value.

True or false?Medical cost trend is expected to decrease in 2020. Find the answer and learn more.

Regulationtrumps policy

Despitestrong rhetoric on healthcare from campaigning politicians, the outcome of the2020 election is unlikely to bring about profound, industry-shaking change.Instead, the heated political contest likely will determine the fate of Trumpadministration policies on Medicaid, the Affordable Care Act, pricingtransparency and trade.

True or false?Industry should expect the HHS to publish less regulation than usual next year. Find the answer and learn more.

Consumersinch closer to DIY healthcare

In 2020,DIY healthcare takes on new meaning as American consumers will begin to finallyreap benefits from the enormous investments in data collection, storage andanalysis that have been made by the US health industry. Beyond offering themtools to monitor their vitals, at-home devices to test for strep throat or fluor personal health records that consumers themselves must populate, companiesare building business models around giving consumers access to their own data,with insights attached.

True or false?Across all industries, the biggest obstacle to monetizing data is lack ofanalytical talent. Find the answer and learn more.

US health organizations are seekingopportunities overseas and through innovation. Beware of the tax risks.

US-basedhealthcare organizations increasingly are hunting for new ways to grow theirhealthcare mission overseas and through investments in novel technologies andbusiness models. Their objectives can range from extending healthcare servicesto new communities to unearthing rich new sources of funds.

True or false?The OECD wants to profoundly change the way member nations tax digital businessactivity. Find the answer and learn more.

A whole new you: Deals as makeovers

In 2020,organizations will make strategic deals not to just grow larger but instead toexpand into new identities with platforms anchored in value, innovation,customer experience and population health. As they weigh their options, healthcompanies will need to ensure that the deals they pursue pass the sniff test ofemployers and consumers seeking more affordable care.

True or false?Healthcare consumers by and large believe healthcare deals activity benefits them. Find the answer and learn more.

8. James Simons: My Guiding Principles

Thechair of the Simons Foundation describes his five principles for building asuccessful organization.

Guiding Principles

INLATE 2010, just after I stepped down from Renaissance and started full-time atthe foundation, I gave a talk at MIT. Marilyn accompanied me to the talk, andon the way there, she suggested that at the end I discuss my values. I felt ‘values’was not quite the right word, so I used ‘guiding principles’ instead. They arelisted below, and I believe they have been useful in my life and careers. Aftersetting them forth, I will give a number of examples of their effect inbuilding the foundation.

  • 1 DO SOMETHING NEW; DON’T RUN WITH THE PACK. I am not such a fastrunner. If I am one of N people allworking on the same problem, there is very little chance I will win. If I canthink of a new problem in a new area, that will give me a chance.

  • 2 SURROND YOURSELF WITH THE SMARTEST PEOPLE YOU CAN FIND. When yousee such a person, do all you can to get them on board. That extends yourreach, and terrific people are usually fun to work with.

  • 3 BE GUIDED BY BEAUTY. This is obviously true in doing mathematicsor writing poetry, but it is also true in fashioning an organization that isrunning extremely well and accomplishing its mission with excellence.

  • 4 DON’T GIVE UP EASILY. Some things take much longer than oneinitially expects. If the goal is worth achieving, just stick with it.

  • 5 HOPE FOR GOOD LUCK!

After a few years, Yuri Tschinkel succeeded David as head