Photo: Taxiarchos228. Google, EY and Goldman Sachs, the World's Most Attractive Employers 2013
Universum Global reveals the list of organizations that have a competitive edge in employer reputation. Close to 200,000 business and engineering students from top universities weighed in on what companies and employer characteristics they find most attractive. As in the last four years, the 2013 rankings are compiled from student surveys in the world’s 12 largest economies: Australia, Brazil, Canada, China, France, Germany, India, Italy, Japan, Russia, UK and USA.
The 2013 business ranking shows fierce competition between the professional services, investment banking and fast moving consumer goods industries. KPMG, last year’s second place contender, has dropped six places to be replaced by EY (Ernst & Young), which climbed four slots.
“The reason why these employers are seen as being attractive is due to their strong association to attributes that students consider important, such as market success, professional training and development and providing secure employment. This might come as a surprise as there is a view of Gen Y valuing more corporate social responsibility, a friendly work environment and flexible working conditions,” said Petter Nylander, Universum’s CEO.
The organizations in the top ten on the engineering list have remained fairly stable compared to last year. Employers in the computer & software space are vying for the top spot, which has been Google’s home for five years, while Microsoft (no. 2) replaces IBM (no. 3) in second place. Employers in this sector are highly associated with innovation and exciting products and services – two attributes that are very important to engineers. Below is the top ten of the world’s fifty most attractive employers
¿Qué esperar tras la decisión de la SEC de levantar las trabas a la publicidad de los hedge funds?. ¿Qué esperar tras la decisión de la SEC de levantar las trabas a la publicidad de los hedge funds?
Hedge and private equity funds have traditionally been low-profile investment vehicles catering to sophisticated investors. The posture has not been out of choice, but attributable to an 80 year SEC rule prohibiting the general solicitation and general advertising of funds, particularly offerings conducted under Rule 506 of Regulation D. However, the SEC’s recent decision to lift the marketing ban as part of the 2012 Jumpstart Our Business Startups (JOBS) Act is reverberating throughout the industry as firms unaccustomed to promoting their products now face the prospect of competing for investment capital in a new, marketing driven frontier.
The SEC lifted that rule in an attempt to offer more consumers with more investment choices and better information. Hedge and private equity funds can now broadly solicit and promote their products in a manner similar to mutual funds, creating the need for sophisticated marketing and communication strategies.
But that isn’t as easy as it sounds.
Traditionally, funds have been conditioned to maintain a very low profile and more recently, a defensive and reactive posture in the face of negative publicity. Facing these restrictions, funds have limited marketing departments and are ill prepared to compete in a new promotion driven marketplace.
The change couldn’t come at a more challenging and promising time to reach out to the global US$25 Trillion UHNW market. High quality funds can gain a competitive advantage by leveraging their performance with effective financial marketing and promotion to build credibility, trust and relationships with highly targeted audiences. This opportunity is juxtaposed with the post-2008 credit crisis investor mindset that is increasingly reluctant to invest capital into “black box” vehicles that do not communicate their strategies, methodologies and track records in a transparent manner.
The best marketing and communication professionals expertly harness their clients’ expertise, philosophy and track record to develop compelling content that informs and educates their audiences using a mix of thought leadership, marketing collateral, media positioning and events to build awareness of the product, trust in the firm and credibility for its value proposition.
At the end of the day, the most important ingredients for a successful fund will remain a winning strategy and track record. However, what has changed is how funds will increasingly compete to attract investors in what will become a much noisier marketplace where the loudest voices may not necessarily be the best investments.
In this new marketing environment, hedge and private equity funds, even highly successful ones, will need to effectively communicate their value proposition to attract investment capital. Moving forward, the positioning and promotion of an investment product in the right way with the right audiences will become an increasingly important component of its success.
Opinion column by Ray Ruga, Co-Founder of CVOX Group
. Twitter, la siguiente OPV tecnológica, cambia las reglas del juego
Headlines over the past weeks have been buzzing with talk of Twitter- as it is set to be the largest tech IPO since Facebook. Twitter is shaping new ways for users, content providers and advertisers to interact. It’s became a “global town square” – a forum where Presidents, NBA superstars, economists, and journalists can be found sharing their thoughts, research or updates in real-time format. It provides a filter through the endless amounts of content, showing users only the main message. This pure social media play has established itself in our culture with its very own verb, “tweeting.” This is not an opinion on whether to participate in the IPO of Twitter or not- instead we aim to examine how Twitter has positioned itself to become a game changer in media.
A “global town square”
Throughout history there has been a town square where everyone from politicians, musicians, and story tellers went to share their views and talents. Lively discussions, sharing of information, trading of ideas- all of this happened in a live format. Twitter is trying to promote this same exchange by providing a digital platform for users to get real-time content on any topic they desire. Users can follow sports commentators, key thought leaders, and media outlets – and have a custom feed of information tailored to follow these content providers or also trends/topics they are interested in.
“Second screen”: providing a filter for endless content
In today’s digital information age, we are facing a constant barrage of information. Users are constantly scanning through lengthy articles just to find the bottom line- which is exactly what Twitter looks to provide. Tweets are limited to 140 characters- a purposefully chosen number, keeping messages brief and to the point. In a society where our attention span is short and time is limited, this strategy keeps users engaged. Think of Twitter as a filter, providing a “second screen” of longer form information.
“Pure” social media play
Twitter is the only company solely focused on social media and promotes the most interaction and engagement with its users, given the focus on it’s real-time format. This benefits Twitter in their potential to create powerful advertising relationships, as demonstrated in a recent partnership with Nielson TV ratings. Nielson will utilize Twitter to track real-time emotional reactions of users to TV content, giving advertisers and producers powerful information of what engages audiences.
Twitter has been able to brand “tweeting” as a verb
In the 1960s as Xerox made the first office copy makers, to make a copy become known as “xeroxing,” and in the early 2000s as Google become popular, performing a web search became known as “googling.” Twitter has branded “tweeting”- the verb for creating messages on Twitter. This is significant as it shows that the company is a pioneer; a new word is needed to describe its use. Secondly, it shows the company has been well established in our culture, as the verb is well recognized. Both of these factors indicate that the company is creating an important place in its industry, and from the success in Xerox’s early days and the continued success of Google, bodes well for Twitter’s potential future.
The Dreyfus Corporation, a BNY Mellon company, announced that it has introduced the Dreyfus Floating Rate Income Fund, an actively managed mutual fund designed to seek high current income by investing in floating rate loans and other floating rate securities. The fund is sub-advised by Alcentra NY, LLC, a BNY Mellon global investment firm specializing in sub-investment grade credit. Dreyfus is the fund’s investment advisor.
“Floating rate loans could be attractive to investors seeking an asset class with lower interest rate sensitivity, seniority in a company’s capital structure and diversification potential as floating rate loans generally exhibit low correlation to other asset classes,” said Dreyfus President Charles Cardona. “The loan market has traditionally catered to large, institutional investors. The new fund provides access to a broad range of investments not generally available to individual investors. We’re pleased to provide U.S. investors access to the investment expertise of Alcentra, one of the top global loan managers.”
William Lemberg and Chris Barris are the fund’s primary portfolio managers. Lemberg is the fund’s portfolio manager principally responsible for floating rate loans and other floating rate securities. He is a managing director, senior portfolio manager and head of Alcentra’s U.S. loan platform. Lemberg has been employed by Alcentra since 2008. Barris is also the fund’s portfolio manager principally responsible for high yield, fixed-rate securities. He is a managing director, senior portfolio manager and head of global high yield at Alcentra. Barris has also been a senior portfolio manager for the Dreyfus High Yield Fund since 2007.
Alcentra employs a value-oriented, bottom up research process that incorporates a macroeconomic overlay to analyze investment opportunities. This includes evaluating default trends, performance drivers and capital market liquidity. Alcentra’s fundamental credit analysis identifies favorable and unfavorable risk/reward opportunities across sectors, industries and structures while seeking to mitigate credit risk.
“We seek to reduce credit risk through a disciplined approach to the credit investment selection and evaluation process,” said David Forbes-Nixon, Alcentra’s Chairman and CEO. “Long term investors, who are looking for consistent returns and anticipating a rising rate environment, may want to consider the Dreyfus Floating Rate Income Fund. The fund seeks to deliver current income, enhanced principal protection and capital appreciation potential.”
To pursue its goal, the fund normally invests at least 80% of its net assets, plus any borrowings for investment purposes, in floating rate loans and other floating rate securities. These investments, may include: (1) senior secured loans, (2) second lien loans, senior unsecured loans and subordinated loans, (3) senior and subordinated corporate debt obligations (such as bonds, debentures, notes and commercial paper), (4) debt obligations issued by U.S and foreign governments, their agencies and instrumentalities, and debt obligations issued by central banks, and (5) fixed-rate loans or debt obligations with respect to which the fund has entered into derivative instruments to effectively convert the fixed-rate interest payments into floating rate interest payments. The fund may also invest up to 20% of its net assets in the securities of foreign issuers and up to 20% of its net assets in high yield instruments.
Manuel García-Durán, presidente y consejero delegado de Ezentis.. "An Investment is Like a Movie and Ezentis is a Great, Well-Told Story”
When talking with Manuel García-Durán, president and CEO of Ezentis, the pride of a manager who in just two years has managed to lead the company to become one of the most talked about turnaround stories in the Spanish market, is evident. Since taking over the firm’s reins on September 22 nd, 2011, the company’s figures have taken a 180 degree turn, and have revealed a story of courage coupled with experience. After bringing forth an Ezentis focused on the business of water, electricity, energy and telecommunications infrastructure, very oriented to Latin America, with a healthy balance sheet, a committed management team, and the ability to maintain a growth plan, both organic and inorganic, he is confident that investors around the world may find his story interesting.
“There are great opportunities for investors from all over the world, both Latin and North American or European, and both retail and institutional,” he explains. And with different risk profiles also: “For the first time, Ezentis may have a niche in portfolios with a varied risk profile, from the least to the mostconservative.” He specifically stresses the case of Premaat, one of his last institutional investors, a benefit society of surveyors and architects in Spain which has a very conservative profile and remembers their milestone of the capital increase undertaken in January this year, which netted them nearly 14 million Euros.
And all, despite the volatility which those securities have suffered in the past. For now, the president believes that this year will consolidate those securities and faces 2014 with confidence, with the ultimate goal of building a stable medium-term shareholder base. Something which he believes he will achieve to the extent that the company gains visibility: Ezentis ended the semester with a record portfolio of 288 million Euros, a level similar to that contracted throughout 2012, and has a year and a half of guaranteed returns, something which is valued highly by the more conservative investors.
With this conviction of their ability to deliver value, the company will start the last quarter with a roadshow to try to attract potential investors in Latin America, where he plans to meet with about 40 investors, from local family offices to venture capital funds and which work with mid-cap technology companies.
Duplicate their Price
García-Durán does not rule out that this turnaround story may double the price of their shares from their current levels, as indicated by some analyst reports: “It would be reasonable. We have been meeting the milestones and giving evidence which lays the foundations of trust, but perception is what will drive up the share price now. There is still a fragile market but the value will tend to grow based on the good results. There’s no hurry and we understand that investors have reservations about the past, but it is more difficult to change reality than perception and we have already achieved that first part,” he says. For Garcia-Duran, an investment is like a good movie: you need a good story but you also need good direction and actors, because a good story told wrong can be bad. “We are a well-told good story and that is what the investor is looking for: companies with credible stories, which are true, executable, easy to explain and which honor their commitments,” he adds.
A Commitment to Growth
Duran’s commitment is precisely to “strictly” comply with all the steps contemplated in his strategic plan ending in 2015, and which involves inorganic growth in markets such as Mexico, Colombia and in the Brazilian city of Sao Paulo before the end of 2013. Ezentis, already present in Chile, Peru, Argentina, Panama and Jamaica, recently expanded its presence in Chile (after buying 45% of the Chilean company RDTC-of which it already owned 50% of the capital) and entered into the Brazilian marketby acquiring 60% of the Brazilian company SUL. And, the president does not rule out going into more markets in the future.
In terms of organic growth, the plan includes the renewal of their contracts in Chile (after doing the same in other markets such as Argentina) and growth in the electrical segment in Brazil, a country which he defines as “a continent within a continent”, and in which the development of infrastructure in the electricity and telecommunications sectors will be key for the future. “You can’t be a leading player in the region without being in Brazil. Its economy has uncertainties but the history of infrastructures is not negotiable. There are no politicians who do not question the failure to grow in basic infrastructure,” he says. This is a sector in which Ezentis seeks to position itself as a partner of the large telecommunications or energy companies in a highly fragmented market.
Firmly committed to Latin America
In fact, the company is firmly committed to Latin America: if in the first half of the year, 92% of its turnover came from that region, the company forecasts that over 90% of the estimated turnover in late 2015 (around 400 million Euros ) will also come from that region. “Latin America is in its best historical moment for growth and for generating wealth transversally,” says Garcia-Duran, noting that at the level of economic growth there is currently more uncertainty in Europe and pointing out the “unstoppable race to generate basic infrastructure,” a story which involves Ezentis.
The obverse and the reverse
But when Garcia-Duran took over the management of the company, it was not the only story in which he participated. His legacy was that of a company involved in shareholdings’ wars, in a complicated situation, and an amalgam of unrelated businesses which the president defines as a real “chaos”. Duran could see the “real value” of several companies which Ezentis had in Latin America, and which he considered “crown jewels”, and the possibility of good management of its assets and liabilities. Thus, after paying several debts and dealing with creditors, he conducted a process for the sale of non-core businesses to focus on their core business, which also helped to stabilize the company and reduce the ratio of debt to EBITDA, from 15 times, down to their current rate which stands at around 2.
A restructuring process which ended last August with the completion of the debt restructuring, and also with the total sale of Amper and after changing their participation in Vertex to non-strategic. Another milestone achieved was the creation of a team in which the first shareholders are company executives, which works in favor of consolidating their confidence in both their project and reputation.
Foto: Ruhrfisch. El impacto geopolítico y económico de la revolución del gas de esquisto
You have to go back to the early 1970s to find the last time that oil production increased in the US. However, at that time demand was also increasing at a much faster rate than production and thus the positive impact of rising oil output was more than offset by growing imports. By contrast, and as a result of changing demographics and improving efficiency, demand is currently declining and this trend is likely to continue.
The technological advances that enable oil and gas to be extracted from shale, and Washington’s support for the exploration and production industry are the key factors behind the significant growth in energy output, a trend that will continue for several years. As a consequence, the US is now materially less dependent on oil imports from outside of North America – it imported 40% of its oil requirements in 2012, down from 60% in 2005. This decline in dependence on foreign oil has major implications for the global economy and geopolitics.
The production of natural gas from shale formations has rejuvenated the natural gas industry in the US. The US is singlehandedly relieving the pressure on OPEC and helping oil prices to recede from levels that have rationed demand for over two years. Consequently, one of the essential preconditions to improved global growth, namely adequate and preferably abundant supplies of reasonably-priced, oil-based energy, is now in place.
North America will add a further 0.8 – 1.0 million barrels per day (mbd) of production by the end of 2013 (to put this in context, the US consumes around 18 mbd), and at current crude oil prices this trend will continue. Meanwhile, tougher fuel standards, driving the development of more efficient trucks and cars, will likely keep oil imports on a downward trend.
The inclusion of ethanol highlights the fact that as a result of the implementation of the Renewable Fuels Standard in 2005, the US effectively linked grains and oilseeds to crude oil. As the world’s largest exporter of agricultural products, it has been able to command much higher prices for farm products, boosting another industry and the entire Midwest economy. This augments the economic advantage accruing from the shale energy revolution and reinforces North America as the engine of improving global economic growth.
The changing relationship between the dollar and commodity prices will be the most disruptive feature, because this relationship has prevailed for 40 years. Essentially, fewer dollars will be spent outside of North America to support the US’s 18mbpd (and declining) level of oil consumption. Combined with the flow of investment money into the US, which is supporting increasing energy production, as well as related industries such as chemicals and engineering, and the general recovering economy, the dollar will likely enjoy a period of sustained strength. Given that this development will take place amid strengthening global growth, which will tighten commodity markets, we anticipate that this will result in a period of strong commodity prices together with a robust dollar.
In addition to the macroeconomic impact described above, it is reasonable to extrapolate that US foreign policy, especially as it applies to the Middle East, may be influenced by the rapidly declining dependence of America on OPEC production. A study by Germany’s foreign intelligence agency, the BND, for example, concluded that Washington’s discretionary power in foreign and security policy will increase substantially as a result of the country’s new energy wealth, and that the potential threat from oil producers such as Iran will decline. Moreover, the development of energy resources in the US is taking place at a time when several Middle East countries are undergoing seismic political changes. This background only reinforces the US as the preferred target for investment and increases the likelihood that oil prices will remain elevated into the foreseeable future.
Opinion column by David Donora, Head of Commodities at Threadneedle
. A Turn Towards Domestic Consumption and National Players
The UK and Europe have been late in joining the party to celebrate economic recovery, but signs of this happening are now getting stronger. In the UK, we still see pretty strong headwinds, but the loose monetary policy appears to be working, and the government’s initiatives to boost the housing market are also taking effect. Initially, the recovery appeared to be very consumption-biased, but now appears more broadly based. Recent manufacturing surveys have been strong, and the upward revision to second- quarter GDP was due to better-than-estimated exports and business investment. Meanwhile, PPI claims of around £10bn have certainly helped encourage consumers to spend. Additional support should come from the likely return of around £50bn in cash and shares to Vodafone shareholders, as a result of the sale of the company’s stake in Verizon Wireless. Similarly, the Eurozone remains burdened by a very weak trajectory for government debt and continued bank deleveraging. Manufacturing surveys have strengthened, however, pointing to useful growth, and news from the periphery has improved, assisted by some pushback against austerity.
In the US, where growth has been established for longer, the news has been a little more mixed. The healthy recovery in the housing market may now find the going heavier because of rising mortgage rates, following the rise in government bond yields. In addition, the expected pick-up in capital expenditure by companies is proving more elusive than expected, despite strong balance sheets and aged equipment.
In Japan, Abenomics has certainly had an effect in kick-starting activity. Shinzo Abe has promised a “three arrow” policy, the first two being monetary and fiscal injections. Arrow three consists of a number of specific policies to support growth. This is the part of the package that has yet to materialize in a meaningful way. Markets are looking for activity in this respect, in order to avoid disappointment.
In emerging economies, regions have been moving in different directions. Outflows of capital, following talk of tapering in quantitative easing by the US Federal Reserve, have led to currency weakness, particularly in regions with weak trade and budget positions. This has prompted the authorities to tighten monetary policy to defend currencies, which is impeding growth. In contrast, reports from the all- important Chinese economy have improved a little, with retail sales, trade and manufacturing data above the levels anticipated.
In light of the generally improved outlook for growth in developed economies, we have looked favorably towards companies with domestic exposure in economically-sensitive areas. In Europe, in particular, we have had pretty defensively-positioned portfolios, but have recently added to domestic players, largely through banks, autos and cable companies. In the UK, we had substantial positions in housing-related areas. These stocks have enjoyed strong performance, however, and are already discounting a good recovery. We have therefore looked at adding to defensive growth stocks, which have been overlooked in recent months. In the US, we also favor stocks driven by domestic consumption; again, though, housing-related stocks appear to be reasonably fully valued.
We have long been cautious of core government bonds. We retain that position, but are starting to see better value after a significant rise in yields. The short end of curves appears to offer the best value, discounting official rates rising at a faster pace than we anticipate. The 30-year end of the US treasury market also offers reasonable value. Around the 10-year level, however, we see some further upside in yields against the background of a tapering of quantitative easing and strengthening global growth.
Equities remain our preferred asset class. Valuations are no longer cheap but are still reasonable. Tapering is clearly a potential headwind, but economic recovery is a useful support. Furthermore, the M&A market has recently come to life with some very substantial deals in the telecom, IT and media sectors.
Opinion column by Mark Burgess, Chief Investment Officer at Threadneedle
Photo: N.V. Deremer. Goldman Sachs AM to Acquire Stable Value Business from Deutsche Asset & Wealth Management
Goldman Sachs Asset Management (GSAM) has entered into an agreement with Deutsche Asset & Wealth Management (DeAWM) to acquire DeAWM’s stable value* business, with total assets under supervision of $21.6 billion as of June 30, 2013. The transaction represents the latest step by GSAM to grow its defined contribution (DC) franchise following last year’s acquisition of Dwight Asset Management, a premier stable value asset manager based in Burlington, VT.
This transaction follows GSAM’s July 2013 announcement of its intent to establish a new stable value collective trust. As part of this transaction, John Axtell, DeAWM’s Head of Stable Value, and other key members of the DeAWM stable value management team will join GSAM.
Prior to the closing, DeAWM will be working with clients to ensure a seamless transition to GSAM or other stable value managers. GSAM currently manages over $55 billion in defined contribution mandates, including more than $34 billion in stable value assets under supervision.
Subject to certain conditions, the transaction is expected to close during the first quarter of 2014.
Wikimedia Commons. Invesco y SSV Properties compran parte del complejo de oficinas Park Place en California
Invesco Real Estate and SSV Properties (formerly known as Second Street Ventures) announced the acquisition of the Park Place office complex, located within prestigious Continental Park in El Segundo, CA. The four-building campus consists of 2120/2121/2175 Park Place and 800 Apollo, totaling 540,000 square feet of office space. The 2120 Park Place building is fully leased to tenants including Wells Fargo and Pardee Homes. The other three buildings will undergo an extensive renovation program to provide new, state-of-the-art creative office space. Ample parking for tenants will be provided in the 2145 Park Place garage, also included in the acquisition. The purchase price was not disclosed.
The renovation program, estimated at more than $75 million, will showcase two outstanding architecture firms, providing different design ethos while utilizing similar materials, landscape and signage to create a unified feel across the campus. Shubin+Donaldson will design the 2121 building with construction commencing in two weeks, and Steven Erhlich Architects will design the 800 building with construction commencing this fall. 2175 Park Place will follow with construction commencing in 2014.
Murad Inc. will be the lead tenant at 2121 Park Place, committing to 45,000 square feet on a new long term lease. “The tenant wants its corporate headquarters to reflect a more open, collaborative working environment, which these buildings are ideally suited to provide given their large flexible floor plates and high ceilings,” stated Jack Spound, a principal of SSV.
Continental Park, owned by Continental Development Corporation, is a 3 million square foot mixed-use park with a premier location in the South Bay market of Southern California. The park combines the best of premium office space with adjacent first class retail, entertainment, recreation and residential amenities surrounded by Manhattan Beach and El Segundo communities.
“We are excited about the partnership with Invesco, and the unique opportunity to create a dynamic campus environment for this segment of the office market along the highly-amenitized Rosecrans Corridor,” said President David Jordon of Second Street Ventures. “We are also very appreciative of Continental Development Corporation and the trust they have invested in us to execute this renovation, to further enhance the overall vibrant Rosecrans Corridor market that Continental Development has created over the decades.”
“Invesco is thrilled about teaming up with SSV on this exciting opportunity to create the type of collaborative workspace sought by the most progressive tenants in the market, both creative and more traditional,” said Peter Cassiano, Director of Acquisitions , Invesco Real Estate.
John Bertram of Studley represented the buyer and CBRE represented the seller in the transaction.
As the global recession and financial crisis move further back in the rearview mirror, companies have been more proactive about using their balance sheets in ways that enhance shareholder value. But we think they can do a lot more.
As the market tumbled and liquidity dried up post-2008, companies became very conservative in weathering the storm, hunkering down and building up massive cash reserves on their balance sheets. By mid-2013, US companies were sitting on cash that was equivalent to about 11% of their total assets (see Display), a more than three-decade high, earning almost nothing. What’s more, a long decline in interest rates has made borrowing much cheaper.
When corporations don’t put their healthy balance sheets to work in productive ways, shareholders get restless.
Thankfully, that trend has changed. With borrowing costs still very low and business conditions stable to improved, management teams have been more receptive to using debt to buy back shares, increase dividends and make acquisitions.
Each of these actions can boost shareholder value. Share buybacks shrink the total number of shares outstanding, providing a shot in the arm for earnings per share by helping them grow more rapidly in the years ahead, all things being equal. Dividend payments provide attractive income to investors, and acquisitions—if done thoughtfully—can create new avenues for business growth.
But there’s more to do. It’s getting somewhat harder to find companies that seem content to ignore low interest rates and high cash balances, but we still see some firms doing exactly that—even good companies that already represent attractive investments.
They can do better for their shareholders.
Let’s use QUALCOMM as an example. The telecom giant is a well-run business, but the company management’s strategy for returning capital to shareholders has been pretty underwhelming. The firm sits quietly in San Diego with a net cash balance equivalent to about $18 per share, and $6 of that isn’t held offshore—making it more accessible. Without borrowing a cent or repatriating any offshore cash, QUALCOMM could buy back 9% of its shares outstanding. By issuing relatively cheap debt, it could leave more cash on hand and accomplish the same goal.
We believe that buying back shares would benefit both the stock and shareholder value. The company did report $1.5 billion in share repurchases for the second quarter. But since these purchases were used to offset the exercise of company stock options, the average number of shares outstanding actually rose compared with the same quarter in 2012 and, for that matter, the first quarter of 2013.
So, from the perspective of outside shareholders, no shares were repurchased. Even as Qualcomm’s corporate earnings have exploded in recent years, its stock price has languished. In fact, it’s trading at a discount to the S&P 500 Index in terms of P/E ratio—despite strong growth forecasts relative to the S&P 500.
Apple took a different route—but only after a lot of convincing. It was a longtime holdout from buybacks, offering similar justifications to those we’ve heard from Qualcomm and other companies. These include the need for sufficient cash reserves to make operational investments and acquisitions in a rapidly evolving industry. We acknowledge the need for some liquidity, but it’s telling to us that Apple eventually relented and borrowed against its cash reserve to buy back a substantial number of shares.
Other companies still resist share repurchasing, even when their stocks are undervalued and they have more than enough cash on hand to shrink bloated share bases. Qualcomm’s management has raised its dividend in recent years, a modest positive. But it doesn’t shrink the share base—and it certainly doesn’t help the company take advantage of its stock’s low P/E ratio.
In our view, truly shrinking a company’s share base by buying back outstanding shares is likely to lead to higher earnings per share later on. And since corporate cash is earning less than the dividend yield on the stock, it could actually save money. Whether a company uses cash, relatively cheap debt issuance or a combination of both to increase shareholder value, we think investors would welcome the news.
Kurt Feuerman is Chief Investment Officer of Select US Equity Portfolios at AllianceBernstein.
