Weekly Market Update: Markets pause as Brexit and China trade negotiations go into overtime
Equity markets took a breather on fairly low volatility despite another heavy week of corporate earnings to be digested. Potential progress on some global issues hit snags as President Trump cut short his Hanoi summit without reaching any new agreement with North Korea, and as PM May reportedly conceded that the Brexit will have to be delayed from March 29 even if the Parliament supports her plan later this month. Washington was gripped by Congressional testimony from former Trump fixer Michael Cohen, as well as hearings with Fed Chair Powell and US Trade Rep Lighthizer who agreed that the economy looks healthy and would be helped by a resolution to trade tensions.
The dollar index dipped mid-week but basically ended flat, while the British pound was strong through most of the week as fears of a ‘no deal’ Brexit receded. WTI crude futures moved sideways until Friday when they dipped 2.5% following disappointing US manufacturing and consumer confidence indicators, and a tepid first look at Q1 GDP from Atlanta and New York Fed officials. The week was capped off with a risk-on rally sparked by some better than expected data out of China and Europe, and on reports that the White House is seeking to reach an endgame in China trade talks within weeks. For the week, the S&P gained 0.4% and closed above 2,800 for the first time since November 8, while the DJIA was flat, and the Nasdaq rose 0.9%.
In corporate news this week, some key earnings emerged from the retail space. JCPenney shares lifted after posting stronger than anticipated earnings and laying out a plan to shutter some stores. L Brands tumbled after missing on earnings and guiding a disappointing FY19 EPS number. Macy’s Q4 beat on the top and bottom line and the company announced it would trim 100 management positions and cut $100M in annual costs. Gap Inc. notched a profit beat and announced plans to spin off its Old Navy division to separate into two independent publicly traded companies. A spate of M&A deals hit the corporate news space this week. Roche boosted its gene therapy portfolio with its acquisition of Spark Therapeutics for $4.3B. GE sold off its life sciences business to Danaher for $21.4B. eBay initiated a strategic review of its asset portfolio amid pressure from investors. The grocery store sector slumped on Friday after a report that Amazon is reportedly launching a new line of grocery stores with a lower price point than its Whole Foods division. Shares of Tesla sold off sharply after the car company made good on its long-promised $35K price point for a pared down version of the Model 3 sedan.
SUNDAY, FEB 24
(UK) PM May said to be considering plan that would delay Brexit by 2-months; rules out meaningful vote on EU withdrawal in Commons this week - Telegraph
MONDAY, FEB 25
ONCE To be acquired by Roche for $114.50/share in cash valued at $4.8B
GE Danaher to acquire the biopharma business of General Electric Life Sciences for $21.4B
*(US) FEB DALLAS FED MANUFACTURING ACTIVITY INDEX: 13.1 V 4.7E
(US) Atlanta Fed raises Q4 GDP forecast to 1.9% from 1.4%
TSLA SEC said to ask judge to hold Musk in contempt for violating deal, cites Feb 19th Tweet by Musk regarding production - US financial press
TUESDAY, FEB 26
BAS.DE Reports Q4 adj Net €348M v €502Me, Adj EBIT €630M v €552Me, Rev €15.6B v €15.1Be; raises dividend
*(DE) GERMANY MAR GFK CONSUMER CONFIDENCE: 10.8 V 10.8 PRIOR
HD Reports Q4 $2.09 v $2.16e, Rev $26.5B v $26.6Be; Announces $15.0B share buyback; Raises Quarterly dividend 32% to $1.36 from $1.03 (indicated yield 2.86%)
M Reports Q4 $2.73 v $2.51e, Rev $8.46B v $8.46Be; launches restructuring program to fund reinvestment in the business; streamlines management structure
*(US) DEC HOUSING STARTS: 1.078M V 1.256ME (lowest since Sept 2016); BUILDING PERMITS: 1.326M V 1.290ME
*(US) FEB RICHMOND FED MANUFACTURING INDEX: 16 V 5E
*(US) FEB CONSUMER CONFIDENCE: 131.4 V 124.9E
WEDNESDAY, FEB 27
RIO.AU Reports FY18 underlying Net $8.81B v $8.63B y/y; EBITDA $18.1B v $18.6B y/y; Rev $40.5B v $41.9B y/y; declares $4.0B special dividend
TSLA CEO Elon Musk tweets: Thursday 2pm. California. Some Tesla news
*(EU) EURO ZONE FEB BUSINESS CLIMATE INDICATOR: 0.69 V 0.66E; CONSUMER CONFIDENCE (FINAL): -7.4 V -7.4E
LOW Reports Q4 $0.80 v $0.80e, Rev $15.6B v $15.7Be
(US) President Trump and North Korea leader Kim meet in Hanoi; Kim says have "overcome obstacles" since last meeting
BBY Reports Q4 $2.72 v $2.57e, Rev $14.8B v $14.7Be; Raises Quarterly dividend 11.1% to $0.50 from $0.45 (indicated yield 3.32%)
*(US) DEC FINAL DURABLE GOODS ORDERS: 1.2% V 1.2% PRELIM; DURABLES EX TRANSPORTATION: 0.1% V 0.1% PRELIM
(US) Association of American Railroads weekly rail traffic report for week ending Feb 23rd: 522.6K, -1.1% y/y
CELG Wellington Management does not support Bristol-Myers Squibb’s acquisition of Celgene
*(KR) BANK OF KOREA (BOK) LEAVES 7-DAY REPO RATE UNCHANGED AT 1.75%; AS EXPECTED
THURSDAY, FEB 28
ABI.BE Reports Q4 $0.80 v $0.90e, Rev $14.3B v $13.9Be
(KR) White House: Hanoi Summit ends, no agreement reached but talks constructive ; US and North Korea teams to meet in future
*(FR) FRANCE FEB PRELIMINARY CPI M/M: 0.0% V 0.4%E; Y/Y: 1.3% V 1.5%E
*(DE) GERMANY FEB CPI SAXONY M/M: +0.3% V -1.0% PRIOR; Y/Y: 1.4% V 1.4% PRIOR
(DE) GERMANY FEB PRELIMINARY CPI M/M: 0.5% V 0.4%E; Y/Y: 1.6% V 1.5%E
*(US) Q4 ADVANCE GDP PRICE INDEX : 1.8% V 1.7%E; CORE PCE Q/Q: 1.7% V 1.6%E
(US) Q4 ADVANCE GDP ANNUALIZED Q/Q: 2.6% V 2.2%E; PERSONAL CONSUMPTION: 2.8% V 3.0%E
(US) Nevada reports Jan casino gaming Rev $984.5M, -3% y/y; Las Vegas strip Rev $532.2M, -4% y/y
GPS Reports Q4 $0.72 v $0.68e, Rev $4.62B v $4.71Be; to spin off Old Navy; to close 230 stores over next 2 years
TLSA Confirms Model 3 with a 220 mile range will now price as low as $35K
FRIDAY, MARCH 1
(CN) US officials said to be preparing a final trade deal that President Trump and his Chinese counterpart Xi Jinping could sign in weeks - financial press
*(ES) SPAIN FEB MANUFACTURING PMI: 49.9 V 51.7E (first contraction in 64 months; lowest since Nov 2013)
*(DE) GERMANY FEB UNEMPLOYMENT CHANGE: -21K V -5KE; UNEMPLOYMENT CLAIMS RATE: 5.0% V 5.0%E
*(UK) FEB PMI MANUFACTURING: 52.0 V 52.0E (31st month of expansion)
*(EU) EURO ZONE JAN UNEMPLOYMENT RATE: 7.8% V 7.9%E (matches lowest level since Dec 2008)
*(EU) EURO ZONE FEB ADVANCE CPI ESTIMATE Y/Y: 1.5% V 1.5%E; CPI CORE Y/Y: 1.0% V 1.1%E
*(US) JAN PERSONAL INCOME: -0.1% V +0.3%E
*(US) FEB FINAL MARKIT MANUFACTURING PMI: 53.0 V 53.7E (lowest since Aug 2017)
*(UK) FEB PMI MANUFACTURING: 52.0 V 52.0E (31st month of expansion)
*(US) FEB ISM MANUFACTURING: 54.2 V 55.8E; PRICES PAID: 49.4 V 51.8E (lowest manufacturing PMI since Nov 2016)
(US) New York Fed Nowcast: cuts Q1 forecast to 0.9% from 1.2%
(US) Atlanta Fed forecasts initial Q1 GDP growth at 0.3%
AMZN Reportedly readying to launch new grocery store chain at a lower price point than Whole Foods - press
(UK) EU's Barnier: we are ready to give Britain further guarantees that Irish backstop is only temporary - German press
Closing Stock Market SummaryThe S&P 500 increased 0.7% on Friday, led by shares of energy and health care companies; meanwhile investors remained optimistic about a U.S.-China trade deal. Friday's gains lifted the benchmark index into positive territory for the week, advancing 0.4%.
The Nasdaq Composite (+0.8%) extended its weekly gain to 0.9%. The Dow Jones Industrial Average (+0.4%) and the Russell 2000 (+0.9%) finished flat for the week.
The S&P 500 energy (+1.8%), health care (+1.4%), and consumer discretionary (+0.9%) sectors outperformed. Conversely, the consumer staples (-0.2%), materials (-0.2%), and real estate (-0.1%) sectors were the lone groups to finish with losses.
Stocks jumped out of the gate, propelled by a Bloomberg report that the U.S. and China are working on a document that lays out the provisions of a trade deal and that such a document could be ready to be signed by Presidents Trump and Xi as early as mid-March. Some new inflows on the first trading day of the month likely also contributed to the positive bias.
The major averages, however, lost steam and fell to session lows following the release of the ISM Manufacturing and Consumer Sentiment reports for February. The reports weren't "bad," but both came in below expectations and provided an excuse to sell an overbought market.
Selling was short-lived, though, as has been the case all year. The S&P 500 sectors staged a steady rebound during the afternoon, allowing the benchmark index to close near session highs and above the 2800 level.
Positive earnings reports from retailers Gap (GPS 29.51, +4.11, +16.2%) and Foot Locker (FL 63.07, +3.55, +6.0%) helped spur gains in the consumer discretionary sector (+0.9%). GAP also announced it will spin off Old Navy as a separate company.
Conversely, Walgreens Boots Alliance (WBA 66.61, -4.58, -6.4%) underperformed after Robert W. Baird cut its price target to $67 from $70. Baird maintained a 'neutral' rating on the stock.
Tesla (TSLA 294.79, -25.09) was a story stock, losing 7.8%, after CEO Elon Musk conceded that the company will not be profitable during the first quarter. The Tesla team also said it will shift sales worldwide to online only. The transition will reduce costs in order to lower the prices of its vehicles, including the Model 3.
U.S. Treasuries closed out the week on a lower note, sending yields higher across the curve. The 2-yr yield increased five basis points to 2.55%, and the 10-yr yield increased four basis points to 2.76%. The U.S. Dollar Index increased 0.3% to 96.46. WTI crude lost 2.5% to $55.81/bbl.
Reviewing Friday's economic data:
- Personal income increased 1.0% in December (consensus +0.3%) and declined 0.1% in January (consensus +0.3%). Personal spending declined 0.5% in December (Briefing.com consensus -0.2%). The personal savings rate in December surged to 7.6% from 6.1% in November.
- The PCE Price Index for December was up 0.1% while the core PCE Price Index, which excludes food and energy, increased 0.2% (consensus +0.1%). That left the those indexes up 1.7% and 1.9%, respectively, year-over-year and below the Fed's longer-run inflation target.
- The key takeaway from the report is that there is a fair amount of signaling noise that will likely prompt the market to dismiss it and encourage the Fed to stick by a wait-and-see mindset, buying more time for the stock market to exist without fear of a Fed rate hike.
- The ISM Manufacturing Index weakened to 54.2 in February (consensus 56.0) from 56.6 in January.
- The dividing line between expansion and contraction is 50.0, so the key takeaway from the February number is that it should be interpreted as a slowdown, and not a decline, in the pace of manufacturing expansion.
- According to the ISM, the relationship between the index and the overall economy indicates the February reading corresponds to a 3.3% increase in real GDP on an annualized basis.
- The final reading for the University of Michigan's Index of Consumer Sentiment for February was 93.8 (consensus 95.6). That was down from the preliminary reading of 95.5, but up from the final reading of 91.2 for January.
- The key takeaway from the report is that it conveyed the finding that no improvement in real income expectations was observed among households in the bottom two-thirds of the income distribution. That perspective, should it persist, or ultimately come to fruition, would be a drag on consumer spending activity.
Looking ahead, investors will receive Construction Spending for December and auto and truck sales on Monday.
- Russell 2000 +17.9% YTD
- Nasdaq Composite +14.5% YTD
- S&P 500 +11.8% YTD
- Dow Jones Industrial Average +11.6% YTD
Gapping down
In reaction to disappointing earnings/guidance:
- NTNX -24.3%, MAXR -20.7%, XON -15.3%, TCMD -7.9%, ALRM -6.3%, WUBA -6%, PEGI -4.6%, APPF -4.3%, PSTG -3.9%, SRCL -3.8%, KTOS -3.4%, ZIXI -3.2%, CSLT -2.8%, DDD -2.5%, TRHC -2%, CLNY -1.8%, SGMO -1.4%, NKTR -1.3%, GCAP -1.2%
Other news:
- IMGN -49.2% (announces that its Phase 3 FORWARD I trial evaluating the safety and efficacy of mirvetuximab soravtansine did not meet its primary endpoint )
- MRSN -23.8% (prices underwritten public offering of 21,250,000 shares of common stock to the public at $4.00 per share)
- TGTX -5.7% (announces proposed underwritten public offering; enters into $60mln debt financing agreement with Hercules Capital)
- TSLA -4% (Tesla confirms availability of $35,000 Model 3 and shifting sales worldwide to online only; actions will enable company to lower all vehicle prices; Musk said not expecting profitable Q1)
- NOA -3% (ticking lower; announces bought deal offering 5.00% convertible unsecured subordinated debentures)
- BNFT -2.2% (prices 5,704,758 common stock offering at $48.25/share)
Analyst comments:
- GMLP -2.3% (downgraded to Underperform from Neutral at BofA/Merrill)
Gapping up
In reaction to strong earnings/guidance:
- PBYI +28.9%, GPS +20.9% (also announced plans to separate into two publicly traded companies), FNKO +17.6%, ZS +16.1%, FTCH +15.2%, FL +13.1%, XRAY +12.1%, HABT +11.8%, AMC +8.3%, OMER +7.1%, WPP +6.7%, SPLK +5.5%, DCO +3.7%, VMW +3.6%, MBI +3.5%, CBAY +3.2%, ADSK +3%, CARG +3%, SWN +2.8%, SSP +2.8%, MTZ +2.5%, DRYS +2%, MAIN +1.9%, AIMT +1.9%, EDIT +1.8%, JWN +1.5%, RBA +1.5%, DELL +1.4%, UPWK +1.2%, AMBC +1.2%, WDAY +1.1%, TRCO +1.1%, HUM +1%
Other news:
- YGYI +4.8% (Khrysos Industries closed on 45-acre tract of land in Florida; will be home to post processing tolling facility, an R&D facility )
- EBAY +3.6% (announces strategic initiatives to enhance performance -- will add independent directors to Board, conduct strategic review of portfolio, enters cooperation agreement with activists Elliott Management & Starboard)
- ASHR +2.5% (CSI 300 China A-Shares ETF higher on MSCI news - MSCI will increase the weight of China A shares in the MSCI Indexes)
- CZR +2.1% (Announces Agreement with Carl Icahn; Three New Directors Appointed to Board)
- TTM +1.4% (said to be exploring options for Jaguar Land Rover unit -- Bloomberg)
- HLT +1% (authorizes repurchase of an additional $1.5 bln of common stock)
Analyst comments:
- ICPT +3.3% (upgraded to Outperform from Sector Perform at RBC Capital Mkts)
- HTZ +2.7% (upgraded to Equal Weight from Underweight at Barclays)
- EXPE +1.8% (upgraded to Buy from Hold at Argus)
- LB +1.7% (upgraded to Overweight from Equal Weight at Barclays)
Early premarket gappersGapping up:
- GPS +23.9%, PBYI +23%, FNKO +16.9%, ZS +16.7%, HABT +15.3%, FL +13.8%, FL +13.7%, FTCH +8.2%, AMC +7.8%, XRAY +7.8%, BIO +7.1%, YGYI +4.6%, SPLK +4.1%, DDD +4.1%, SWN +4%, DCO +3.7%, MBI +3.5%, CARG +3.3%, CBAY +3.2%, ADSK +2.9%, ASHR +2.6%, MTZ +2.5%, VMW +2.4%, EDIT +2.3%, WDAY +2%, DRYS +2%, AIMT +1.9%, PZZA +1.7%, SGMO +1.7%, MAIN +1.6%, JWN +1.5%, RBA +1.5%, LB +1.2%, UPWK +1.2%, HLT +1%, ACHC +1%, HUM +1%
Gapping down:
- MRSN -28.7%, NTNX -23.6%, MAXR -23.4%, ZIXI -13.5%, XON -12.4%, TCMD -7.9%, PEGI -6.5%, WUBA -6%, TGTX -5.7%, ALRM -5.7%, KTOS -5.2%, SRCL -4.7%, APPF -4.3%, TSLA -3.4%, NOA -3%, CSLT -2.8%, ZGNX -2.6%, PSTG -2.3%, TRHC -2%, CLNY -1.8%, PTCT -1.7%, COLD -1.4%, GCAP -1.2%
Crowdfunding in search of the next Apple or Facebook
How young people are piling their savings into start-ups in search of business ‘unicorns’
Sahil Bahl, a 24-year-old digital consultant from London, has invested £2,500 in four businesses via crowdfunding websites, ranging from tech start-ups to a coffee chain. The prospect of losing all his money does not worry Mr Bahl. He is in search of a business unicorn.
Online equity crowdfunding platforms — able to link new businesses with a “crowd” of multiple small investors — first emerged in the UK in 2011. The desire of young investors to back young and growing businesses with a disruptive streak is perhaps not surprising. It is possible to invest sums as small as £10 in an array of tech-driven and highly Instagram-worthy UK businesses.
The most popular online platforms — Crowdcube, Seedrs and Syndicate Room — enable businesses seeking capital to post videos as part of their investment pitch, allowing founders to speak directly to the generation that has grown up watching YouTube and Dragons’ Den.
Having stumped up cash to become a shareholder, young investors dream of being in at the start of the next big thing. Apple and Facebook, which started life in bedrooms and garages, are among the world’s most valuable businesses today. Although few ever achieve the near-mythical status of a unicorn — a start-up that grows into a $1bn business — the allure of harnessing one is huge.
The number of 18 to 24-year-olds investing through Crowdcube has nearly quadrupled since 2016 — a surge not seen in any other age group.
A cynic would put such youthful enthusiasm down to naivety. The risks of crowdfunding are high, and investors can lose all of their money if a business goes bust.
But this doesn’t put off young investors like Mr Bahl. FT Money meets the new generation of crowdfunding investors and asks what the traditional investment industry could learn from its growing popularity.
Follow the crowd
Crowdfunding is big business, and the success of household names such as craft beer brand BrewDog and challenger bank Monzo has catapulted the investment class into the mainstream.
Since 2011, UK businesses have raised an average of £629,000 per crowdfunding round, according to data from start-up research company Beauhurst.
In 2016, Monzo set a record for the quickest crowdfund in history, raising £1m in just 96 seconds. In December 2018, it raised £20m over two days; giving the company the status of a unicorn company — a privately owned business valued at $1bn or more.
Monzo investors hope it will become another Crowdcube-listed business to make a positive exit — but only nine exist so far.
Since the platform was founded, 60 per cent of its investors have been younger than 44. Seedrs says 80 per cent of its investors are aged under 50, and Syndicate Room says 57 per cent are under 45. The tangibility of investing in businesses such as tech companies, fashion labels and food and drink brands appeals to younger investors for whom the stock market or pensions may seem boring and distant.
The sums that young investors are prepared to stake are also rising. In 2016, the average 18-24-year-old investor staked just over £306 through Crowdcube. By 2018, this had nearly quintupled to £1,577. This stands in contrast with the overall average investment made on Crowdcube, which fell from £1,697 to £1,298 across the same period.
According to Luke Lang, co-founder of Crowdcube, the most successful companies are “creating their own tribe, are purpose driven and community focused”.
These qualities attracted Shubhangi Sharma, a 22-year-old student, to invest in Monzo.
“For me crowdfunding is a more engaging process than stocks and shares Isas,” she says. “With traditional stocks and shares, it’s hard to assess and understand company ethos and what they stand for and what the actual value offering is. The process of looking at firms [which are] crowdfunding and assessing their new and creative ideas and the specific problems they’re solving is far more interesting and easier to understand.”
Saying she finds crowdfunding “exciting”, Ms Sharma’s interest grew from being a Monzo customer herself and understanding its features. Funding a business that investors use themselves is a common theme.
“I’ve invested in companies where I think there’s a bit of a future, where I understand from a service point of view what they’re offering,” explains Mr Bahl. His £2,500 investment across four crowdfunded businesses also stemmed from Monzo, in which he invested £1,000 in 2016. “That led me into the whole idea of crowdfunding and the realms of alternative investments,” he says.
Although Monzo crowdfunders have yet to receive a penny back on their initial investments, the rapid growth of this and other fintech firms strengthens their belief that it will happen one day — or that, at the very least, the potential upside is worth the risk of an investment. Those willing to put money into crowdfunded equity assets may also sometimes qualify for valuable tax breaks (see below), even though these investments cannot currently be held in a tax-friendly Isa.
Devoted to disrupters
Since 2011, technology has been the most popular sector receiving equity crowdfunding investment in the UK, data from Beauhurst shows. Meanwhile, 12 per cent of equity funding recipients are food and drinks companies — comparatively, only 3 per cent of equity finance from the wider funding landscape goes into the food and drink sector.
In 2015, Camden Town Brewery became the first Crowdcube-listed drinks company to make a positive exit. After raising £2.75m, the brewery was bought by AB InBev, the world’s largest drinks company, for £85m.
Fintech company Revolut is another crowdfunding success story. In 2018, the bank’s investors received 19-fold returns on their original investments. Revolut became the second Crowdcube unicorn, after BrewDog achieved unicorn status in April 2017. The fintech app has also raised money on Seedrs.
Inspired by this trend, Victoria Carew, a 25-year-old adviser in financial services, has invested £268 across four businesses on Seedrs. Her largest investment — £150 — is in Wrisk, an app-based insurance company. “They’re introducing technology to what seems like an archaic industry”, she explains. Within the technology sector, 7 per cent of crowdfunded companies are developing an app, according to Beauhurst.
“Industry disruption” is a key trend in Ms Carew’s investment choices; she invested £66 in Hectare, a GPS land surveying app. “My parents are farmers, it’s quite a backwards, archaic industry. I looked at my parents, the manual process and inventory of, for example, how many sheep they have. An app out here that can do the simple book-taking for you is such a good idea.”
Similarly, three of Mr Bahl’s crowdfunding investments are tech companies, while the fourth is Grind, the open-till-late coffee chain. “Tech companies represent the majority of growth companies today because there’s a belief in the market that they will ultimately deliver revenue and profitability, I’m following that trend.”
He could invest in start-ups listed on the Alternative Investment Market (Aim), the London Stock Exchange’s international market for smaller growing companies, but Mr Bahl disparages: “Do I really know what the Aim companies are and what they do?”
Businesses raising money via crowdfunding engage potential shareholders in ways which are often more exciting than traditional investment options. Crowdfunding websites typically list descriptions and videos of UK-registered businesses seeking capital. On the pitch page, investors can see the share price, valuation, capital requirement, how much has been invested so far and whether the shares include voting rights and tax relief.
Mr Bahl appreciates the details provided: “I could understand what the service was and which venture capitalists or private institutions have also put their money behind it.”
Turning customers into investors
Many crowdfunding businesses seek investment from their existing customers.
David Abrahamovitch, founder of café-bar chain Grind, has twice enticed his customers to invest and is this week looking to replicate the past. The coffee and cocktails chain is launching its third Crowdcube campaign next Friday, seeking £3m.
Rather than looking for venture capital, Mr Abrahamovitch emphasises that raising money through Crowdcube’s “tech platform” makes complete cultural sense for a “young, digital, very Instagram-driven business”.
“A very high proportion of our investors were customers,” he says about previous fundraising, explaining that a mixture of direct marketing, social media and Crowdcube’s own marketing has led to overfunding previously.
Aged 33, Mr Abrahamovitch is one of the oldest at Grind and his employees are mostly in their early 30s or younger. The young business has capitalised the power of Instagram to turn coffee lovers into financiers — a strategy that more traditional firms can learn from.
Grind’s Instagram account has 118,000 followers and its photos are a mix of neon signs, latte art and weekly brunch giveaways, directly appealing to a generation who unapologetically spend money based on aesthetics and experiences.
Unsurprisingly, advertising works to entice young investors who may not have originally been looking to invest.
Ms Carew first spotted Wrisk on London Underground ads. “The advert promoted both the business itself and Seedrs,” she says, adding that it “said something about changing the insurance industry, so really caught my attention”.
Ms Sharma explains that she notices businesses with a buzz. “There’s usually some publicity that has been created around the firm or technology or the fact they’re having a new round of funding. Very rarely do I open and scroll through potential investments.”
Her investment approach distinctly contrasts with that of older investors.
James Murdoch, a 63-year-old business adviser from London, uses crowdfunding to spice up his wider investment portfolio and has invested in 380 separate companies listed on Seedrs. He sees crowdfunding as a way of helping entrepreneurs and also “a relatively low-cost way of getting to know a number of businesses quite quickly”.
“I would not bet my financial future in risky investments,” emphasises Mr Murdoch, saying he puts “small amounts of money in a lot of companies”.
Others treat crowdfunding more like an expensive hobby. Gail McLoughlin, a 59-year-old retired landscape architect from Scotland, has invested £15,000 across numerous film and tech companies, but has yet to make any returns, admitting that crowdfunding is “only for when you’re feeling a bit flush”.
If their high-risk bets on crowdfunded businesses do not come good, younger investors could lose out in the future. They could also fail to maximise the benefits of matched company pension contributions or pensions tax relief.
Ms Carew says she has an Isa and a handful of stocks and shares. Her Seedrs investments, which cannot be held in an Isa, represent 26 per cent of her portfolio. Despite the long odds of discovering a unicorn, Mr Bahl says he understands the risks, and has invested more money in his conventional stocks and shares Isa than his crowdfunding investments.
Regardless, the sums that 18- to 24-year-olds invest in crowdfunding are rising. Between 2016 and 2018, the average amount these investors sank into new businesses on Syndicate Room rose by 60 per cent — to £1,646.
Average amounts raised from experienced investors have risen less sharply. Although 55 to 60-year-old investors on Syndicate Room invested an average of £5,360 in 2018, this has only risen 22 per cent in two years.
“Crowdfunding appeals to behavioural biases,” says David Stevenson, the FT’s Adventurous Investor columnist. “When people are presented with something sexy and higher risk, they go for it.”
One person who understands this investor behaviour is Cecily Mills, the 35-year-old founder of Coconuts Naturally, an organic dairy-free ice cream brand. She says that crowdfunding gained her business “loyal fans and loyal customers”.
The entrepreneur braved BBC2’s Dragons’ Den in September 2018 and shook hands with investor Jenny Campbell, securing £75,000 for a 30 per cent share in her business. But after the cameras stopped rolling, Ms Mills turned down the offer and instead took her company to Seedrs, where she raised £413,000 for a 22 per cent equity stake.
Risky business
Few crowdfunded businesses will achieve unicorn status, let alone make any money at all. “The majority of start-up businesses fail,” states Crowdcube’s website.
Of all UK companies which raised money through a crowdfunding website between 2011 and 2018, 16 per cent are now defunct — they have ceased activity, been dissolved or neglected — compared with 12 per cent of non-crowdfunded businesses, according to Beauhurst.
Some 2 per cent of crowdfunded companies have exited since 2011, after completing an initial public offering or being acquired. This compares with an exit rate of 9 per cent for companies that raised equity through non-crowdfunding platforms.
The data does not paint a pretty picture for crowdfunding investors; the risk of losing everything is high. When this happens, investors are not protected by the Financial Services Compensation Scheme and risk losing all of their money.
Within her £15,000 investments, Ms McLoughlin expects to lose £1,000 to Oobedoo, an on-demand video app for pre-schools, from which she has heard nothing since the death of its founder. Nevertheless, she says: “I don’t feel anxious about that. I don’t lose sleep about that.”
Despite making no money so far, Ms McLoughlin emphasises that her investments in films have instead granted her once-in-a-lifetime experiences: “I’ve been to the premieres and met the directors. I’ve had an experience with these things [and] met some lovely people.”
Investors must also consider the issue of liquidity, since they are unlikely to be able to sell their shares at will and are usually locked into a business for several years.
Seedrs’ secondary platform, the only secondary crowdfunding market, enables investors to buy and sell shares of Seedrs listed companies. Since its launch in 2017, more than £2.1m has been traded across 314 companies on the market.
Shareholdings may also be diluted. If a business decides to issue more shares, the proportionate shareholding of an original investor will be squeezed.
Andrew Taylor, a finance director from London, has invested £90,000 through both Crowdcube and Syndicate Room. Four of the businesses that he invested in went bust, losing him approximately £50,000. “Those that go bust go bust early on,” he notes.
Despite the high risks that come with this investment approach, Mr Bahl remains unfazed: “I parted with cash knowing that I don’t need it.” Ms Carew echoes this sentiment. “I only ever invest what I can afford to lose.”
Scores on Doors: commodities 13.5%, global stocks 11.3%, HY bonds 5.7%, IG bonds 2.6%, government bonds 0.5%, cash 0.4%, US dollar 0.0%; commodities off to their best start since 2005, US stocks their best start since 1991.
Flows this week: $6.5bn into bonds, $0.3bn into equities, $0.2bn out of gold; equity flows ($50.3bn redemptions) off to their worst start since 2016; BofAML Bull & Bear Indicator rises to 5.1 from 4.9, highest since May'18 (Chart 2), driven by credit inputs.
Fed ignites credit: inflows to IG/HY/EM debt past 8 weeks = $43bn, major reversal from $69bn of redemptions in these credit products in Nov/Dec (Chart 3).
Growth>value: biggest inflows to US stocks ($9.1bn) since Sept, tech ($1.3bn) since Jun; outflows in Europe ($4.1bn) & banks ($0.5bn); China lagging inflows to EM (Chart 4); equity buying is modest and exclusively in "growth" not "value".
You pause if you want to: rally has not led to Fed tightening as was expected (on the contrary, Fed talking "inflation targeting" to head off MMT); PBoC/ECB/BoJ ready & willing to ease; US (H0A0) & Euro (HE00) HY corporate bond returns back to highs, bond volatility MOVE index at lows (Chart 5); policy makers saying stay long risk.
Green shoots: Japan/EU recessionary but China new orders up 1st time in 9 months, US claims data still low; 5s30s US yield curve steepens 25bps past 3 months, China bond yields inflecting higher (Chart 6); we say position for Q1 global EPS expectations trough.
Markets for traders not investors: "green shoots" most powerful in secular bear markets (Europe & China today); in Japan between 1990 and 2003 there were 13 equity trading rallies that exceeded 20%, and seven trading rallies that exceeded 33%
Bucking the consensus: consensus is long corporate bonds not commodities or stocks; long defensive growth not cyclical value; long US & EM not Europe, China; long deflation not inflation; our favorite contrarian 2019 trade is long China production plays (Asia/EU industrials, banks, commodities), short US consumer play