Full Year 2013 Market Fact Book

Transcription

1 Full Year 2013 Market Fact Book Weeden & Co. Weeden Program Trading Group January, 2013 Highlights from our Full Year 2013 Market Fact Book When most people look back on 2013, they are going to undoubtedly remember the historic 29.6% run for the S&P 500. What will likely be forgotten is the record number of IPOs, secondaries and spin-offs that we believe could mark the beginning of a surge in the equity industry as a whole. With all the capital that was raised this year, don t be surprised to see historic M&A activity in 2014 after what was a surprisingly average year for the space in Despite a poor December, Small Cap stocks led the market higher in 2013 with the Russell 2000 topping the S&P 500 by 7%. We saw other risk on trends emerge when we ran our full year factor decile analysis of the S&P 500. The best performing decile was the 50 stocks with the highest short interest ratio as of December 31 st, 2012, while the decile with the highest dividend yield was the worst performing group in the entire index last year. No year would be complete with-out more changes to the US market structure landscape. In April, the exchanges rolled out Limit Up/Limit Down and new market-wide circuit breakers in response to the Flash Crash of We recap all of this year s changes in our 2013 Market Structure Time Line, and provide some interesting statistics regarding what we ve learned since odd lots began printing to the tape.

2 Corporate Actions Accentuate 2013 Bull Run Though it is well known that 2013 was one of the best years ever for equity performance, it was not the run in the S&P 500 that caught our eye last year but the way in which companies were utilizing the capital markets. We saw a historic level of IPOs and secondaries in 2013, with 217 companies going public in the US more than any year we could find going back to Secondary offerings boomed, with more than double the amount of offerings in 2013 than most years in recent history. 121 Number of Secondaries ( ) We believe that the budding activity in the corporate action space, coupled with undeniable Year Source: Bloomberg performance across almost every sector is one of the more long-term bullish signals the US markets have seen since the collapse of Lehman. Another way in which companies were utilizing the capital markets to grow their businesses last year was via spin-offs. We saw more spin-offs in the US than in any year since 2008, with 27 companies effecting spin-offs in the US. One interesting thing to note is that despite all the chatter around the bizarrely valued Tech IPOs and acquisitions, it was the consumer space that led the surge in corporate actions last year. Consumer IPOs made up 38% of the 2013 calendar, more than any other sector, with seven times as many new issues as there were in the tech space. Likewise, nine of the 27 spin-offs affected this year were in the consumer space, more than Tech, Industrials, Energy, and Materials combined Number of US IPOs (Dot-Com Bubble through 2013) Source: Bloomberg Year A few other bullet points that are worth mentioning with-in the context of our bullish sentiment: Three month Realized Correlation for the S&P 500 according to Bloomberg is.25, one of the lowest readings we ve seen since 2008 Both domestic and international equity funds reported historic inflows in See page 11 for specifics Equity volumes seem to finally be in a trough, after double digit decreases year over year, US volumes were pretty much flat in We are hopeful that active IPO, spin off, secondary and split calendars will propel volumes higher in the near future

3 3 Asset Class & Sector Performance in 2013 Major Asset Class Performance in 2013 Russell 2000 Small Cap Index S&P 500 Large Cap Index Natural Gas Cotton Crude Oil High Yield Debt (JNK) MSCI Reit Investment Grade Corporate Debt (LQD) MSCI Emerging Markets Index (EEM) 10 Year Treasury Coffee Spot Gold Spot Silver -45% -30% -15% 0% 15% 30% 45% Discretionary Tops All Sectors in % 26% 26% 26% 36% 41% 41% 43% 13% -54%

4 4 Volumes & Venue Market Share December Russ Odd Lot Statistics $1,400 $1,200 PCLN GOOG The chart displays Russell 3000 stocks with more than 10% of volume trading in Odd Lots (20% of Index) $1, Share Price $800 MA $600 AAPL CMG Bubble size is total Odd Lot Volume from 12/10 12/20 37 stocks saw a 20% increase in volume due solely to odd lot reporting $400 $200 $0 7.00% -$ % 17.00% 22.00% 27.00% 32.00% 37.00% 42.00% % of Volume Attributable to Odd Lots US Equity Volumes Down only 3.5% Year over Year, Were Down 18% 2011 to ,000 7,000 6,000 5, , ,000 2,000 1,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

5 # of Odd Lot Trades (MMs) 5 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% % of Volume on the Close Reaches New Highs in % Venue Full Year 2013 Break Down 2 BATs BZX 8.43% B/D Internalized & Other ATS 35.98% Boston 2.47% NYSE 11.68% ARCA 10.59% NASDAQ 15.67% BATs BYX 1.97% BIDs 1.14% AMEX 0.29% PSX 0.70% Direct Edge 11.08% 966,086, Average Daily Volume On Major US Exchanges 720,505, ,201, ,962, ,645, ,456, ,671,541 42,993,463 17,950,485 NASDAQ NYSE Direct Edge ARCA BATs BZX Boston BATs BYX PSX AMEX Distribution of S&P 500 Odd Lot Trades by Size

6 Liquidity Seeking Liquidity Seeking Standard Strategies Standard Strategies 6 Self-Traded Strategy Usage 2012 Strategy Breakdown CLOSE 6% POV 7% TWAP 1% VWAP 33% Arrival Price 5% Bullseye 5% Capture 6% Ghost 9% OnePipe 27% 2013 Strategy Breakdown CLOSEIQ 11% POV 11% TWAP 3% VWAP 32% Arrival Price 3% Bullseye 3% Capture 6% Ghost 7% OnePipe 22% Capture, 6% Bullseye, 5% Arrival Price, 5% Close, 6% POV, 7% Ghost, 8% TWAP, 1% VWAP, 33% OnePipe, 27% Bullseye, 3% Capture, 6% POV, 11% TWAP, 3% Ghost, 7% CloseIQ, 11% Arrival, 3% OnePipe, 22% VWAP, 32% In 2013, we introduced a new algorithmic trading strategy called CloseIQ, which optimizes the way in which our customers can interact with the ever increasing amount of volumes into and on the close (See Page 5). In its first year of inception, CloseIQ made up 11% of all shares executed by customers algorithmically. Customers executed 128% more shares via CloseIQ in 2013 than they did purely on the close in 2012 Algorithmic flow as a whole was up 19% in 2013 (Year over Year). Interestingly, OnePipe usage was essentially flat year over year (up 75Bps) making up 22% of 2013 usage vs 27% in 2012, as accounts favored POV and CloseIQ strategies

7 Jan. 11 SEC disapproves Nasdaq s bid for Benchmark Order types (VWAP, TWAP, POV) February March 7 SEC unanimously approves Regulation SCI, which will require exchanges, clearing firms, and large dark pools to adopt policies to prevent failures, and perform regular stress testing Apr. 8 FINRA rolls out Phase I of Limit Up/Limit Down Pilot Program and NYSE decommissions its Liquidity Replenishment Program at the request of the SEC April May 31 NYSE files to reinstitute their Liquidity Replenishment Program (LRP) after several stocks fall to a penny due to lack of LU/LD curbs in first 15 and last 30 minutes of the day May 7 January Jan. 10 BATS admits it allowed a small amount of trades to violate Reg. NMS for four years March Feb. 26 Exchanges officially file Consolidated Audit Trail (CAT) Request for Proposal Apr. 8 Exchanges begin one year pilot program for new market-wide circuit breakers with reduced thresholds June 2013 Market Structure Timeline June 14 Exchanges begin drafting pilot program for wider spreads in illiquid, small-cap stocks as part of the JOBS act July 15 FINRA approves proposal which would require Dark Pools to report trades at the end of each week Aug. 26 BATS and Direct Edge announce proposed merger agreement Aug. 8 SEC amends Large Trader, requiring brokers to maintain only DMA trades as of Nov Final compliance date has been extended to Nov 2015 October Oct % Buyside-owned venue IEX opens trading December Dec. 9 Odd Lots begin printing to the tape with new I modifier July July 23 Exchanges extend Limit Up/Limit Down curbs to the first 15 minutes of trading Aug. 22 Message flood takes down SIP, halting trading on Nasdaq for over three hours Sept. 3 New Front Running Rule 5270 becomes effective, requiring only negative consent Oct. 17 US Debt Ceiling Deadline November Dec. 4 Exchanges delay Limit Up/Limit Down curbs for the last 15 minutes of trading to February 24 th, 2014

8 8 What Worked In 2013 S&P 500 Factor Decile Analysis *See last page for how to read our factor analysis Highlights from our Decile Analysis It may come as little surprised that yield was the big story of No other factor had a wider spread between the top/bottom deciles than yield, with the 50 lowest yielding names in the 500 crushing the 50 highest yielding names by 34%. At the same time, the 50 highest yielding names were the single worst performing decile in the S&P last year. Three other factors that had notable spreads between the top and bottom deciles were Short Interest, Volatility, and Financial Leverage all of which paint a picture of risk being on in 2013 o The 50 stocks that had the highest short interest on 12/31/2012 were the best performing decile in 2013, followed closely by the 50 most levered stocks, which were driven by performance in the big banks. One interesting theme that was different from what we saw in 2012: momentum persisted throughout 2013, with the more over-bought stocks outperforming the more over-sold stocks as measured by 30D RSI on 12/31/2012 o The 50 stocks with the highest RSI on 12/31/2012 were the best performing decile by RSI, up 42.5% in That group was flat to the market in 2012, with strength coming in the middle of the pack for RSI that year

9 9 Equity Fund Flows 4 Annual Net Flows by Product Including Exchange Traded Funds $123.4 $72.7 $60.2 $54.2 US Equity Intl Equity Money Mkt Taxable Bonds Muni Bond $(47.9) $ January Flows a Harbinger for Record Returns $36.5 $(11.7) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

10 10 How to Read the Factor Analysis Our factor analysis breaks down the S&P 500 into 100 groups based on the factors listed on the far left of the chart. Each row takes a factor (e.g. Market Capitalization) and sorts the S&P 500 into 10 groups of 50 based on that factor (called deciles). For example, the first row listed (Market Cap) is sorted from largest to smallest (as indicated) with decile one consisting of the 50 largest stocks in the index and decile 10 consisting of the 50 smallest. It s important to note that a stock in decile one for Market Cap will likely not be in decile one for any other factor. For example, GOOG is in decile one for Market Cap, but decile 10 for Dividend Yield, as it does not pay a dividend. Blue shading means that decile outperformed the S&P, while red shading means the opposite. A simple spread analysis exists on the right which shows the capturable spread between decile one and ten. The growth vs. value decile ranks the S&P 500 names based on their weights in the growth and value 500 indices as described in the figure. Contacts Matthew Ciccone Director of Quantitative Strategy Weeden Program Trading Group mciccone@weedenco.com 1 Excludes Third Friday of Each Quarter and Russell Reconstitution 2 Venue market share reported by BATs, Direct Edge, BIDs, and Level Daily Trading summary 3 Calculated for the S&P 500 over the period of 12/10 1/3 4 All fund flows reported by Thomas Reuters Lipper Funds, formerly AMG All Market Data is from Bloomberg or NYSE TAQ Disclosure: This publication is prepared by Weeden & Co.'s trading department, and not its research department. This publication is for information purposes only and is based on information and data from sources considered to be reliable, but it is not guaranteed as to accuracy and does not purport to be complete and are subject to change without notice. This publication is neither intended nor should be considered as an offer or the solicitation of an offer to sell or buy any security or other financial product. Nothing contained herein is intended to be, nor shall it be construed as, investment advice. Information contained herein provides insufficient information upon which to base an investment decision. Any comments or statements made herein do not necessarily reflect those of Weeden & Co. LP or its affiliates Weeden & Co. LP.