Big technology brands are proving irresistible to today’s investors, data from award-winning investment game app Invstr has shown.

Experts from the innovative fintech company extracted investment game data from their users in more than 170 countries, and found that, in the six months up to July 31^st, outside of silver and gold, familiar consumer-facing brands such as Amazon, Apple, Facebook and Samsung were the most traded instruments.

Looking further into the data, Invstr found that keeping hold of those big brands could prove a lucrative exercise; the top 10 instruments from the last six months have gone up in value by almost 15% on average.

Plus, the tech companies have been core to that group success. Facebook (27.04% increase), Samsung (23.21%), Amazon (18.67%) and Apple (15.52%) have all experienced hefty growth since February 1, 2017.

Invstr also looked at statistics for the last month (July 3-31) and three months (May 1-July 31), and found that Invstr users were still going strong on the markets with group growth of 8.72% and 4.17% across the top 10 instruments respectively. Tech stocks continued to feature strongly.

Kerim Derhalli, founder and CEO of Invstr, said: “It’s evident from the Invstr data that investors find comfort with the big brands they know and love. Whether it’s the last month, three months or six months, they’ve tended to dominate our top 10 most traded instruments – and it seems to be paying off over longer periods.

“However, everything can change and investors should make sure they are up to speed on the latest price changes and news. Even with growth over the last six months going well, the likes of Apple and Facebook dropped heavily in June before bouncing back in July.

“What we know for sure is that, by gaining more knowledge and understanding of the financial markets, investors can make much more informed decisions which will see their chances of investment success increase.”

Invstr’s top traded instruments

(Source: Investr)

Private equity firms have slowly started to push loans that have restrictions on which investors the debt can be sold to, limiting the amount of bargaining that can take place. Stephen Hazelton, Founder and CEO of Street Diligence, explores with Finance Monthly the long-term impact eroding this protection for investors will have.

Despite the rapidly moving trend toward covenant-lite leveraged finance transactions, which are expected to continue well into 2017-18, many investors are concerned about the ongoing impact of the lack of maintenance covenants, historically demanded by lenders to riskier companies.

With private equity firms starting to push loans with aggressive covenant language that essentially restricts lenders’ bargaining power in times of distress, Stephen Hazelton, Founder and CEO of Street Diligence, a leading provider of fixed income analytics on bonds and bank loans, explores the long-term impact of these eroding lender protections.

The landscape for loan issuance and direct lending of late has shifted in significant and impactful ways for, both, corporate debt issuers and lenders. The implications are not only material but long term, in that covenant terms and conditions negotiated today will have an impact in good times and in bad.

How Did We Get Here? Let’s first explore the market shift and the reasons behind it. The financial crisis of nearly a decade ago resulted in a fundamental shift in the regulatory environment. Credit investing and bank lending at the bulge bracket, global banks became challenging, resulting in a capital flow into less regulated investment vehicles, including business development corporations (BDCs) and private direct lending investment vehicles. With so much capital shifting to these vehicles, and the subsequent blurring of lines between large-cap syndicated loans and traditional middle market direct lending, the increased competition has led to new entrants and a flood of capital chasing deals. The result meant more leverage for corporate issuers and their private equity sponsors to negotiate and drive better terms.

Deal Term Implications. The resulting landscape has meant a deterioration in negative covenant protections and the loosening of other key terms and conditions. This has led to more flexibility for financial engineering at the CFO’s office of these loan issuers, better “base case” return scenarios for private equity sponsors and, conversely, declining return expectations for bank loan investors, direct lenders and their own investors.

Loosening Covenant Protections. Broadly speaking, the changing covenant terms in this market boost issuers and their sponsors by eroding lender returns in the event an issuer executes on its plan and doesn’t come close to an event of default. Additionally, in the event all doesn’t go to plan and the issuer struggles, deteriorating recovery rates for lenders can be expected under these looser conditions. Let’s have a look at a few key trends.

Mandatory Prepayments: Lenders typically recover a small portion of the loan annually in the form of a prepayment, which depending on various factors can mean up to 10-15% of the face value is repaid prior to maturity. This repayment hedge in favor of the lender has been declining of late, meaning a smaller cumulative prepayment amount. This hurts lenders, as it removes one of their monitoring tools to force struggling issuers to the negotiating table and benefits issuers in the form of more advantageous cash flows.

Excess Cash Flow (ECF) Sweep: The ECF Sweep provision mandates that excess cash flow, as defined by the deal documents, must be apportioned, in part, to early repayment of the loan obligation. Typically, the ECF sweep requires 50% of excess cash flow be repaid to lenders in advance of maturity. Additionally, in most cases, as an issuer deleverages its balance sheet, the ECF sweep requirements also decline from 50% to 25% and, in some cases to zero. This market is pushing ECF sweep requirements down on a percentage basis in addition to softening the requirements for the stepdown over time. Consequently, with relatively minor improvements in credit profiles, issuers are retaining more cash if they so choose.

Equity Cure: When issuers are operating under stress or distress, the equity cure provision provides private equity sponsors with a “get out of jail” card to use in an effort to avoid an event of default. When used, the equity cure allows a sponsor to provide a cash infusion to the issuer. Critically, this infusion can be treated as EBITDA for the purposes of calculating the issuer’s maintenance covenants, namely their financial covenants. The violation, or threat, of a violation of a financial covenant is a common impetus for a lender renegotiation, so a solid equity cure provision can be valuable in times of stress. Equity cures typically provide for an annual limit and a lifetime limit, the latter of which is increasing from the standard 3 to 4 times, which can be an acute advantage to an issuer in trouble.

EBITDA Definition: Not all EBITDA definitions are created equal. In fact, each issuer generally customizes their definition for the purposes of calculating covenant thresholds and maintenance tests. Herein lies an opportunity for the issuer to insert soft add-backs to their EBITDA equation and soften the depending covenant restrictions. We are seeing increasingly aggressive add-backs, particularly as they relate to future costs savings, business optimization expenses and other pro-forma line items. The add-back caps (as a percent of total EBITDA) that lenders use as levers to combat this are trending in favor of the issuer.

Deal terms are ever-changing, sometimes in subtle ways, but the trend in this market is clearly in favor of the issuer and their sponsor-led private equity deals. As an issuer, the climate is ripe for new issuance and refinancings through a competitive underwriting process.

Damon Walford, Chief Development Officer at alternative lending industry pioneers, ThinCats, shares his thoughts with Finance Monthly on how SMEs can get the right mix when it comes to funding.

Alternative funding offers access to finance that ticks many boxes; from faster turnaround times, to flexible rates and a more in depth probing of the story behind the application. It also provides an ideal avenue to supplement private equity, venture capital, Angel investors and crowdfunders.

Alternative loans for business are more accessible when equity is part of the mix, especially in cases of business acquisition, refinancing and property development. Lenders like to see an element of entrepreneur equity as “skin in the game”, but there is an important place for 3^rd party equity which may be on a different scale to that of the entrepreneur, providing meaningful impact on the risk profile of any loan.

Where appropriate an equity and term loan mix will:

• Reduce risk of the debt provider as any security available is against a smaller loan;
• Reduce funds required to service debt;
• Provide all financers with additional comfort regarding the proposition;
• Generally reduce costs of both debt and equity finance due to decreased risk.

ThinCats has huge experience in this area, and has successfully financed a range of projects where a mix of funding has provided the ideal solution. In one case, an MBO team wishing to acquire a business with justifiably high goodwill had their own equity but there was still a funding gap. This is often covered by a deferral of part of the purchase price, but in this case 3^rd party equity was the best solution.

Where a sound business may have suffered a financial shock, e.g. bad debt, an equity mix can be the saviour. ThinCats has funded just such a company, where the balance sheet value needed reinstating with equity, but a cashflow-based term loan was also appropriate given underlying trade. In this case, it was impossible to finance wholly on debt, too expensive purely through equity, but very viable to provide the mix.

A property developer had a project ambition that they couldn’t fully fund through their own resources or with the highest Loan to Value debt commercially available. 3^rd party equity was used to bridge the gap providing a structured debt & equity solution.

Most deals of any size will have an element of equity and debt in them, often provided by the entrepreneur, but 3^rd party equity is key to getting certain deals financed.

Following the shock Genereal election result from this morning, Finance Monthly reached out to Mark Dampier, Head of Investment Research at Hargreaves Lansdown, who discusses the impact that the election result will have on the UK investment market.

The current siuation is very different to the Brexit vote of last year. While the result is a surprise and may lead to another election later this year – market reaction has generally been subdued so far because the Tory government will remain in power, but a hard Brexit now looks less likely.

There will be no dramatic changes in domestic policy immediately, as there would have been under Labour, had they got in. Therefore, I see no need to make any rash investment decisions, given the range of possible outcomes over the next few weeks. Investors should sit tight or even buy, if the opportunity arises.

Overseas investment is unaltered by the election apart from changes to sterling, which should act positively as we have seen over the last 12 months. That said - remember a softer Brexit could see sterling recover.

We have always advocated a level-headed, long-term approach to investing, and I would urge investors to resist the temptation to make short-term, knee-jerk reactions. We could see some volatility over the coming days as more details emerge about the new government.

Once a government is in place, I expect the dust to settle fairly quickly. There will be a dawning realisation that everything has changed and nothing has changed. For the vast majority of UK companies, it will be a case of “business as usual” on Monday. Many companies have been around for decades and seen governments of both colours come and go.

In our view, investors should continue to pursue their long-term strategy. The international nature of the UK market means that in reality, the election result matters little for many UK-listed companies.

Chris Saint, Currency Analyst added: “Uncertainty over the formation of the next government means sterling exchange rates will inevitably remain volatile in the days ahead, as markets try to fathom how this could impact upcoming Brexit negotiations. However, the pound’s initial declines may have been tempered by hopes that any eventual deal which requires cross-party support might actually imply a ‘softer Brexit’ approach which could see the UK keep trade access to the EU single market for trade.”

To hear about Bermuda-based Markel CATCo Investment Management, Finance Monthly reached out to the company’s founder and CEO – Tony Belisle. Markel CATCo builds and manages concentrated, diversified and fully collateralised portfolios designed to deliver meaningful market outperformance for their clients and investors. The company was launched in 2011 and today manages over $4 billion in assets under management (AuM), which are deployed into catastrophic risk protections written to reinsurers around the globe. The protections cover properties exposed to hurricanes, earthquakes and other natural and man-made disasters.

As a professional with over 30 years of insurance and investment experience – how has the sector evolved in the past few decades?

My career includes work in the fields of pensions, life insurance and investments, but the last 17 years have been focused on the property catastrophe reinsurance space. Back in 2001, following the World Trade Centre attacks, I began offering cash collateralized protections to reinsurers, as I saw the need for certainty of claims payment after large catastrophes. There simply was not enough capital residing in traditional (rated-paper) reinsurers to ensure payment following one or more super catastrophes. Today, in addition to the vital role played by traditional reinsurers, there are more than 50 reinsurance funds with over $75 billion in capital. This makes it far more likely that a region struck by disaster will be able to rebuild, which is, obviously, good for society. Of course, pension funds around the globe are the largest source of this new capital base.

You founded (Markel) CATCo Investment Management in 2011 – what were the key challenges that you were faced with? How did you overcome them?

The biggest challenge was not only in raising the capital, but, also, in finding enough reinsurance buyers to purchase our unique global protections. We launched in January 2011 and, in the first quarter of that year, there were large earthquakes in New Zealand and Japan. This was followed by the largest recorded insured flooding loss in Thailand. We were then flooded by interest from reinsurance buyers who did not want to be exposed to these events to the same extent going forward. As our pricing increased as a result of these events, this attracted significantly more investor capital. The toughest challenge was then to travel the globe incessantly to educate potential investors, so that we could meet the dramatic increase in client demand for our unique product.

What were the goals that you arrived with when founding the company. 6 years later, would you say that you have managed to accomplish them?

 Our goal has always been to offer unique protections that are capital-efficient for the buyer, but that also represent efficient use of our investors’ capital. This is a delicate balancing act, but one which we have been able to manage over the years through continued product innovation. We also hoped to become a meaningful provider of capital within the industry and reach $1 billion of AuM by our 5^th year. Unbelievable to us, we grew to over $1 billion in our first year and are now well over $4 billion of AuM. However, we only raise capital just to meet buyer demand, as opposed to raising capital and then hoping to deploy it. We also make a commitment to investors that their capital will always be 100% deployed. If it is not, we will return the excess capital.

What further goals are you currently working towards with the company?

In the past few years, we have launched several new funds to address different appetites for risk amongst our investors and different product demand from certain buyers. As these funds have continued to grow beyond our expectations, we are quite busy managing the current funds. However, we continually consider potential new fund offerings.

What would you say are the company’s top three priorities towards its clients? How has this evolved over the years?

Our priorities, with respect to our clients, have never and will never change. Our focus continues to be to provide the most capital-efficient product offerings, to operate as strategic partners with our clients (we are truly in this together) and to provide responsiveness that is second to none. We have heard repeatedly from our clients and brokers that we are the most responsive reinsurer in the world. We take great pride in this.

What do you anticipate for the company in 2017 and beyond?

Number one is to continue to work closely with our clients as strategic partners. Our fortunes and misfortunes should be aligned. At the same time, we must ensure that we are providing adequate returns to our investors and, most importantly, that we are managing our exposures carefully. We have also grown from a staff of three at launch in 2011 to over 20 employees today. Ensuring that all staff are properly trained is an on-going effort and one that we take very seriously.

What was the rationale for the sale to Markel Corporation in late 2015?

 One chief concern to some of our largest clients was that they wanted to know that CATCo would survive beyond my working career. And, one of my biggest concerns was that this company should survive, for the benefit of all of my employees, beyond my working career. The best way to address both of these concerns was to find a strategic partner who could acquire the business. This really meant that this partner should not be from the capital markets space, but, actually, an organisation that was very active in insurance and/or reinsurance, a partner who truly understood the business and could provide financial and resource support. With the help of Willis Capital Markets, we identified Markel Corporation as the most suitable partner. Both parties recognized early on that our cultures were very similar, so the integration into Markel has been rather seamless.

Fluctuations in the real estate market caused by the UK’s vote to leave the European Union are likely to be shorter-lived and less severe than many investors fear, according to LaSalle Investment Management’s mid-year Investment Strategy Annual (‘ISA’) 2016.

The correction in real estate pricing is expected to be largely restricted to the next 18 months, and medium-term capital inflows into real estate will only be interrupted, not reversed, the ISA finds. It also suggests that, given the ultra-low interest rate and bond yield environment, UK real estate yields are only expected to increase by 40-50 basis points by the end of 2017, even if the country’s political landscape remains unclear. Meanwhile in Continental European, investors will continue to edge up the risk curve as long as the economic recovery continues largely unaffected, but will have one eye on risk contagion from the UK.

Overall, the ISA suggests that some of the fears currently surrounding the real estate market in the country may be overdone. Other findings include:

-The overall impact of Brexit on the Private Rented Sector (PRS) should be limited given the ongoing undersupply.

-Real estate assets with long, index-linked leases are likely to outperform over the next few years.

-The predicted capital market re-pricing will lead to an opportune time to enter the UK market – particularly for US dollar-denominated and Japanese yen-denominated investors.

Elsewhere in Europe, the headwinds facing London’s financial markets should help support the real estate market in cities such as Frankfurt, Paris, Dublin, and to a lesser extent Amsterdam and Madrid. Even before the impact of Brexit, office demand across Europe was undergoing a strong renaissance in cities with strong trends in Demographics, Technology and Urbanisation.

Globally, the ISA says the lower for longer situation actually boosts core real estate returns in the short-run, even as it dampens the long-run outlook for rental income growth.  As a result, real estate values for stabilized assets in major markets outside the UK may continue to increase or hold steady, but the cyclical recovery in fundamentals will be moving much more slowly now.  At the same time, cross-border and domestic capital sources in many countries could narrow their range of target investments to focus on these traditional, core themes.

Jacques Gordon, Global Head of Research and Strategy at LaSalle, said: “Across the globe, the fundamentals of supply and demand appear to be well-balanced going into the second half of the year in most of LaSalle’s major markets. Furthermore, turmoil in capital markets might also open higher-yielding buying opportunities from distressed sellers as the implications of the Brexit vote in the UK ripple around the world.  Although the UK has been the epi-centre for political and financial tremors since June 24^th, the law of unintended consequences suggests that investors should also closely watch for ripple effects in the EU, North America and even all the way to Asia-Pacific.”

Mahdi Mokrane, Head of Research and Strategy for Europe at LaSalle, said: “The UK, and in particular a dynamic London, home to one of the world’s most liquid, transparent, and investor-friendly real estate markets, is likely to reinvent itself outside of the EU, and the overall prospects for the UK outside the EU could well be broadly more positive than what is implied by current market commentators.

“We expect the forecast correction in real estate pricing to be largely restricted to 2016-17 and medium-term capital inflows into real estate will only be interrupted rather than reversed”.

(Source: LaSalle)

Private investors are seeing this morning’s market falls as a buying opportunity. 80% of the trades placed through Hargreaves Lansdown’s share dealing service this morning were purchases. This compares to around 60% on an average day.

Senior Analyst at Hargreaves Lansdown, Laith Khalaf commented: ‘Private investors are clearly seeing today’s market fall as a buying opportunity, and are out in force bargain-hunting. The most popular stocks are also those which have seen their prices hit hardest this morning, namely the banks and house builders.

We know that private investors have been sitting on the sidelines until after the referendum, and early indications are there may be some buying activity now the market has dropped.’

The UK stock market fell sharply this morning, but has since staged a bit of a recovery, though it is still down around 4.5%. The FTSE 100 has been bailed out by a falling pound, but the FTSE 250 mid cap index has not been so lucky- it has fallen by over 8% by lunchtime, because it is more domestically focussed and has fewer overseas earnings. Just to give some context to the fall, the FTSE 100 is still currently trading at above 6,000, around 10% higher than the low of 5,537 it fell to in February of this year.

The FTSE 100 has fallen further in the past. On Black Monday, in 1987, it fell by 11%. On 10^th October 2008, it fell by 9%. On 11th September 2001, it fell by 6%.Nonetheless, today’s fall so far makes it one of the worst days the Footsie has witnessed.

Laith Khalaf says: ‘The Footsie has been bailed out by the Sterling collapse, because all its international revenues streams are now worth that much more in pounds and pence.

Financials and house builders are bearing the brunt of the pain, with Lloyds bank being one of the biggest fallers. It’s probably safe to say the public sale of the bank is now firmly in the long grass, and the return to full private ownership of both Lloyds and RBS has been knocked off course.

It’s also been a bad day to be a mid-cap company - the FTSE 250 is suffering to a much greater extent than the blue chip index. Mid-cap companies have sold off harder because they are perceived to be more risky, and tend to be more domestically-focused with fewer overseas earnings.’The 10 most popular shares bought by private investors this morning, ordered by the number of trades placed are:

Below are the top ten funds purchased, ordered alphabetically. Tracker funds have proved very popular today as investors have simply sought blanket market exposure. However the tried and trusted names of the industry are proving popular too.

(Source: Hargreaves Lansdown)