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Is This The Dawn Of A New Age For Active Managers?

April 17, 2017

 

He has reduced all the beauty of the world to a small pickled fish. -- Diane Keaton, complaining about her herring merchant husband, to Woody Allen, in Love and Death.

 

Two weeks ago Alere, a point-of-care medical diagnostic company, was trading at $38.00. Abbott Labs was contractually obligated to buy Alere at $56.00 a share unless they could prove that Alere’s business had deteriorated materially since they first made their offer in February of last year. Delaware courts, however, had never before allowed an acquirer to get out of an acquisition agreement based on the material adverse change clause. So how could the spread between where Alere was trading and where it was supposed to be taken over have been this wide?

 

All the beauty of the world of investing can be reduced to risk and reward. I do not argue that the Abbott-Alere deal was a lock to go through at $56.  There are many sound reasons why Abbott thought they had a good chance of getting out of this deal. (Link Here)

 

Nonetheless, the spread should not have been this wide. In an efficient market, a decent chance for a 30 percent return in one month’s time should have attracted more capital, and therefore a lower return.

 

But this is no longer an efficient market. The recent outflow of billions of dollars from hedge funds and other active managers is increasing the potential return for those that remain invested. Before this great financial exodus there was too much money chasing too few opportunities. But now, as the Alere opportunity of two weeks ago would seem to indicate, there are more interesting investment opportunities available for contrarian investors.

 

It's a Wall Street story as old as time. Good returns attract capital. Too much capital destroys the good returns. Capital flees. And then come the good returns.*

 

And that's why I’m a contrarian investor and always will be.

 

*I am sure my lawyers would like me to point out that I am not guaranteeing anyone good returns. I am merely pointing out a common investment cycle. The future is a mystery to us all.

 

 

The discussions and opinions in this post are for general information only, and are not intended to provide investment advice. Opinions expressed herein are subject to change without notice. The security discussed was selected due to the highly unusual market conditions including the wide spread and short duration to the merger.  This information is not intended as a recommendation to buy or sell any specific security. At the time of this posting, Integre does hold shares of the security discussed.  Past performance is not indicative of future returns. Unless otherwise indicated, market analysis and conclusions are based upon opinions or assumptions that Integre considers to be reasonable. Integre closely monitors its positions and may make changes to the portfolio’s investment strategy when warranted by changing market conditions. If a position’s underlying fundamentals or valuation measures change, Integre will reevaluate its position and may sell part or all of its position. There is no guarantee that, should market conditions repeat, these investments will perform in the same way in the future. There is no guarantee that the opinions expressed herein will be valid beyond the date of this presentation. There can be no assurance that the portfolio will continue to hold the same position in funds described herein, and the portfolio may change any portfolio position at any time.

 

 

Integre Asset Management Disclaimer – 4/17/2017

Past performance may not be indicative of future results and every investment program has the potential for loss as well as profits.  This material is presented solely for informational purposes and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security or fund interest or any financial instrument. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All material has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy of, nor liability for, decisions based on such information. All information is current as of the date of this material and is subject to change without notice. The views expressed in this presentation are subject to change based on market and other conditions. Any views or opinions expressed may not reflect those of the firm as a whole. Additional information can be provided upon request.

 

© 2017 Integre Asset Management, LLC. All Rights Reserved. No part of this document may be reproduced, stored, or transmitted by any means without the express written consent of Integre Asset Management. For further information please see www.integreAM.com or contact the firm by electronic mail at info@integreAM.com.

 

 

 

 

 

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