TheChek News Flow

Some OPEC Members Seek to Broaden Effort to Cut Oil Output

Cartel members are working to bring in new non-OPEC participants including Turkmenistan and Egypt into the deal to curb output

LONDON—Six months after restricting their oil output in an effort to raise global crude prices, some members of OPEC are pushing for a broader effort to reduce petroleum production, say people familiar with the matter.

Cartel members in recent weeks have suggested either making deeper production cuts or bringing new participants into the effort to cut oil exports, these people said.

Members of the Organization of the Petroleum Exporting Countries are widely expected to agree later this month to extend the deal they reached late last year to cut production, along with 11 other states including Russia, by a total of 1.8 million barrels a day. Taking that oil off the world market helped to stabilize oil prices, but was offset by rising U.S. production. Oil traded at $50.80 a barrel Friday, down 12% since the start of the year.

Now, to add credibility to its efforts to rebalance the market, OPEC is seeking cooperation from less significant producers, including Turkmenistan and Egypt, say people familiar with the matter.

The effort includes lobbying by Saudi Arabia, OPEC’s biggest producer and most powerful member. During a visit to Turkmenistan’s capital two weeks ago, Saudi energy minister Khalid al-Falih asked Turkmen President Gurbanguly Berdimuhamedov to send a representative to the May 25 meeting in Vienna where OPEC will discuss extending production limits, OPEC officials said. The Turkmen president agreed, they said.

- Q1 weakness was likely temporary; sees FY GDP growth at 2.3% this year 

Snap’s 25% Plunge Isn’t an Invitation to Buy

Two months ago, we said Snap’s market value could be cut in half. The plunge could continue.

Snap is no bargain after its shares fell 17% last week, as the disappearing messaging company’s eagerly awaited first-quarter results disappointed Wall Street. Shares plunged 23% to $17.59, finishing the week at $19.14. The stock peaked at $29.44 soon after Snap’s March 1 initial public offering.

Snap (ticker: SNAP) now is valued at about $27 billion, or 30 times projected 2017 revenues of $900 million. Rival Facebook (FB) trades for about 11 times estimated 2017 sales and is highly profitable, with $14 billion of projected net income this year. Its popular Instagram Stories, a Snap look-alike feature, appears to be sapping Snap’s growth.

Right after the IPO, Barron’s wrote skeptically on Snap when it traded around $27 (“Snap’s Stock Price Could Be Cut in Half,” March 4). We concluded that the stock was “priced for perfection.”

Snap didn’t deliver perfection in its initial earnings report as a public company. First-quarter revenues of $150 million fell short of the consensus estimate of $158 million and were below the fourth quarter’s $166 million. Daily active users rose by eight million from the fourth quarter, to 166 million, roughly half the gain in the first quarter of 2016. Quarterly average revenue per user declined relative to the fourth quarter.

Absent profitability, which may never materialize, investors and analysts focused on revenues and users. Adjusted Ebitda (earnings before interest, taxes, depreciation, and amortization), which many tech companies highlight, was a negative $188 million in the first quarter—double the year-earlier loss, despite a nearly fourfold rise in sales.

And that cash-flow figure overstates Snap’s financial health because it excludes its hefty stock-based compensation, which is properly treated as an expense by generally accepted accounting principles.

Even assuming a tripling in revenues by 2020 to $3 billion, Snap might not be profitable on a GAAP basis. The bull case at the time of the IPO was that Snap would top $1 billion in sales this year, up from $400 million in 2016, and exceed $2 billion in 2018.

Analysts generally were cautious on Snap before the earnings report. and the news reinforced their views. “Snap came to the public markets as its user and monetization growth were both starting to meaningfully slow. It now faces incrementally fierce competition from deeper-pocked rivals, including Facebook, and continues to trade at a valuation that looks quite lofty to us,” Nomura Instinet analyst Anthony DiClemente wrote in a note. He has a Reduce rating on Snap and a price target of $14.

Snap has more than $2 a share in net cash and marketable securities on its balance sheet. That should keep it afloat for a while. But the shares still look too pricey for an idea that could prove a fad. And even if it doesn’t, Facebook’s Instagram, which has moved aggressively, could be the ultimate winner.

Europe on Sale: Time to Buy Foreign Stocks

Overseas markets are cheaper than the U.S., and look ready to outperform.

The bull market in stocks that began after the 2008 financial crisis wears a Made in America label. In the eight years since then, U.S. stocks have trounced their foreign counterparts, as investors the world over bet on America’s slow but steady economic recovery and the fast-growing tech and social-media companies that dominate our market. Europe, on the other hand, has offered up serial political and banking crises; Japan, economic stagnation; and emerging markets, variants of all three.

Now the tables look to be turning. Overseas markets have attracted more investment fund flows this year than the U.S., reflecting a seemingly savvy bet by investors that the performance gap will narrow, or even close. The timing looks right: Given attractive valuations, diminished political risk, low interest rates, and a pickup in global growth, international markets, and Europe in particular, could finally start to outperform.

The Standard & Poor’s 500 stock index returned 215% in the past eight years (through April 30), including reinvested dividends, and is 50% above its 2007 high. By comparison, the Stoxx Europe 600 index returned 105% in that span in dollar terms, and remains below its 2007 high. The most popular foreign-stock benchmark, the MSCI EAFE index—which tracks 21 developed-country markets outside the U.S. and Canada—has returned a total 97% in dollars, and remains 20% below its former record, set in 2007. Europe accounts for more than two-thirds of the capitalization of EAFE.

“The S&P 500 has rarely been this popular,” says Darren Pollock of Cheviot Value Management. “It is hard to buy the unloved, but that’s what gives investors an edge.”

Indeed, the performance baton might have been passed already: The EAFE index outperformed the S&P 500 in the first quarter of 2017, returning 7.4% versus 6%. Emerging markets rallied 12%, and likewise could see further gains. Research Affiliates expects EAFE and emerging market equities to post the fattest investment returns of any asset class in the next 10 years, albeit with greater volatility. (For more on the outlook for emerging markets, see “It’s Time to Revisit Emerging Market Stocks.”)

After nearly a decade of U.S. dominance, investors could be forgiven for thinking the U.S. always rules. To the contrary, there have been many periods in which U.S. stocks underperformed foreign shares. From 1983 to 1988, for example, EAFE outperformed the S&P by more than 300%, due to a megarally in Japanese shares. EAFE led again, by 81%, from 2002 through 2007.

The long stretch of U.S. outperformance has lulled investors to sleep, says Matthew McAleer, a portfolio manager at Cumberland Advisors, who notes that U.S. institutional investors’ allocation to international stocks stood at a 25-year low of 18% as of the end of 2016, compared with a historical average of 28%. Cumberland upped its allocation to international stocks last year to 40% from 30%, and lowered its U.S. weighting to 60%.

The firm owns the iShares Europe exchange-traded fund (ticker: IEV), WisdomTree Europe Hedged Equity (HEDJ), and iShares MSCI All Country Asia Ex Japan (AAXJ), a mix of Asian developed and emerging market stocks. There are many other international and Europe-centered ETFs to choose from, including iShares MSCI EAFE (EFA), Vanguard FTSE Europe (VGK), and WisdomTree International Equity (DWM). Among country funds, iShares MSCI Germany (EWG) offers a play on the Continent’s economic engine.

THE CASE FOR A REVIVAL in European stocks, particularly the Continent’s many multinationals, rests in large part on expectations for improving global growth. The International Monetary Fund recently lifted its global growth forecast for 2017 to 3.5% from 3.4%. The more salient news is that global growth, which fell to 3.1% last year from 3.4% in 2015, seems to be regaining momentum.

Growth in U.S. gross domestic product, while tepid, bested the euro zone’s growth by a cumulative 9% from 2009 through 2016, says Pollock. This year Europe’s GDP is expected to increase by about 2%, after growing 1.7% in 2016—better than the U.S.’s 1.6%. Even the Japanese economy is pegged to expand by 1.2%, up from 1% growth last year.

“There are green shoots of activity” around the world, says Karyn Cavanaugh, a market strategist at Voya Investment Management. Overseas purchasing-manager indexes are strong, she notes, with Germany’s at a six-year high. Japanese business confidence is rising and manufacturing is doing well.

Global growth is good for U.S. multinationals, but even better for many non-U.S. companies, which tend to be cyclical in nature, says Harry Hartford, a portfolio manager at Causeway Capital Management. EAFE components also have more sales exposure than American companies to the rest of the world, especially emerging markets. “You’ll see better earnings growth from this,” he predicts.

Analysts estimate that European companies generate almost 50% of revenue outside Europe. S&P 500 components get roughly 30% of revenue from overseas, according to a recent report from Goldman Sachs.

A stronger dollar has been another factor in boosting U.S. performance. The Dollar Index, which measures the U.S. dollar against major world currencies, has risen 25% since the middle of 2014. That advance is “nearer to a cycle end, and [currency] should become a tailwind” for non-U.S. markets, says Alan Robinson, a global portfolio manager at RBC Wealth Management.

WITH THE JUMP IN economic growth, European companies could see substantial gains in corporate earnings. S&P 500 profits long ago surpassed a 2007 high, but EAFE profits remain 45% below their prior peak, notes Doug Ramsey, chief investment officer of the Leuthold Group.

Industry analysts look for EAFE earnings to increase by 18% to 19% this year, compared with an estimated gain of 10% in U.S. profits. While this rise comes off a low base for overseas stocks, it’s the direction and momentum that count most for investors. “We are in a normalization period” in which EAFE earnings will catch up with the U.S., says Savita Subramanian, head of U.S. equity and quantitative strategy at Bank of America Merrill Lynch. Subramanian recommends underweighting the S&P 500 relative to other markets, and notes that positive earnings revisions have been more numerous lately in Europe and Japan than the U.S.

One reason for that is EAFE components’ greater leverage to revenue growth, a consequence, in part, of higher fixed costs. Goldman Sachs calculates that a 1% increase in revenue at U.S. companies translates into a 1.8% jump in earnings. In Europe, the same 1% gain produces a 2.8% increase in profits. In Japan, the profit increase is 3.6%.

To a large degree, index structure has favored the S&P 500 in recent years over MSCI EAFE and the Stoxx Europe 600. Tech stocks account for more than 22% of the S&P, compared with only 5.7% of EAFE, and tech is the sector investors have been most eager to own. Apple (AAPL), Microsoft (MSFT), Amazon.com (AMZN), and Facebook (FB) were the S&P’s largest components, based on market capitalization, as of May 9, reflecting their enormous gains in recent years. That said, most big tech stocks are far from cheap, and similar outperformance in the next five years seems a tall order.

EAFE, in contrast, has a 21% weighting in financial stocks, chiefly European banks, although its largest components are Switzerland’s Nestlé (NESN.Switzerland), Roche Holding (ROG.Switzerland), and Novartis (NVS). Since the financial crisis, it has been hard to find a reason to own the banks, at least until recently. Europe’s big banks were much slower than U.S. institutions to repair their balance sheets after the crisis, although they look to have reached an inflection point, notes Causeway’s Hartford. “The deterioration is over,” he says.

In a report published last month, CreditSights, a credit-analysis firm, indicated that asset quality at European banks has improved “considerably.” The median ratio of nonperforming loans to total loans fell to 2.7% in 2016 from 3.4% in 2015, and substantially higher levels in prior years, reflecting the cleanup efforts of Italian and British banks, in particular. Financial stocks account for 14% of the S&P 500.

Among European banks, Stephen Auth, chief investment officer of equity at Federated Investors, favors France’s BNP Paribas (BNP.France). Auth, who says Federated will be adding EAFE stocks to its global allocation model in the next year, notes that BNP’s profit improvement is “earlier in the game” than competing institutions, and calls the stock, at 0.88 times tangible book value and 11 times this year’s expected earnings, “cheap.”

The iShares MSCI Europe Financials ETF (EUFN) offers broader exposure to European banks. The fund is up 15% year to date, but has yet to surpass its mid-2014 high.

By almost any measure, European stocks are trading at a discount to U.S. shares. The Stoxx Europe 600 sports a price/earnings multiple of 16 times this year’s expected earnings, just above the EAFE’s 15 times. The S&P trades for a loftier 18 times. “Historically, the U.S. premium has been one to 1.5 multiple points, not three,” says David Donabedian, chief investment officer at Atlantic Trust.

Valuation isn’t enough of a reason for international stocks to outperform, but better earnings growth could be a catalyst. “The U.S. is much closer to peak earnings than Europe,” he says. Dividend yields also favor foreign stocks. EAFE components yield 3%, compared with 2% for the S&P.

ANY DISCUSSION OF the second-longest bull market in U.S. history has to acknowledge the critical role of the Federal Reserve, whose postcrisis policies reduced U.S. interest rates to near zero, setting the stage for risk assets to soar in price. The Fed’s quantitative easing and aggressive rate cutting were “way out in front of the rest of the world,” says Joseph Quinlan, chief market strategist at U.S. Trust.

For a while, the European Central Bank “had cement shoes on,” he quips. It actually raised rates in 2011. Since then, however, the ECB and Bank of Japan have followed the Fed’s lead and remain in easing mode, even though the U.S. central bank is slowly raising interest rates. The latest monetary-policy divergence will increase liquidity outside the U.S. and is expected to have a positive impact on European stocks.

While many factors now favor international stocks disproportionately, foreign markets aren’t without potential pitfalls. The U.S. dollar could get a second wind, surging against other currencies, which would hurt the performance of non-U.S. markets. Political uncertainty has ebbed regarding the fate of the European Union, especially after the French presidential election, but Britain’s divorce negotiations with the EU could produce unpleasant headlines.

Demographics in both Europe and Japan aren’t as supportive of long-term growth as those in the U.S., and insurgent nationalism remains a threat in Europe, notwithstanding this month’s win in France by centrist candidate Emmanuel Macron.

WHAT WOULD HAPPEN to international shares if U.S. stocks correct sharply, or enter a bear market? Benjamin Segal, who runs the Neuberger Berman International Equity fund, says his expectation for EAFE outperformance isn’t predicated on the U.S. bull’s continued run.

If U.S. stocks retreat, “people will look to value stocks elsewhere,” he says, noting that EAFE components are cheaper. He likes the prospects for Unilever (UL), the consumer-goods conglomerate, and software giant SAP (SAP).

The past eight years have made it seem that U.S. outperformance is a given. But history, economic trends, and comparative valuations suggest a leadership change is in the offing, which could benefit Europe and other international markets for a considerable period of time.

Gundlach, Einhorn, Ackman at Sohn: 11 Picks, 4 Pans

Some stocks, such as UAL, moved on news from the investor conference. But long-term results are mixed.

In one of a series of legendary U.S. television commercials from the 1970s and 1980s, a room suddenly falls quiet and dozens of people lean in to listen to a young professional after he declares: “My broker is E.F. Hutton, and E.F. Hutton says…”

Decades later, the E.F. Hutton brand still exists, but it’s a shadow of its former self. And “brokers,” now called financial advisors, don’t hold sway in investing culture the way they once did. Today, it’s rock-star hedge fund managers that can literally cause an audience of potential investors to fall eerily silent as the pros take the stage to pitch their long and short investment ideas.

Such was the case at Monday’s 22nd annual Sohn Investment Conference, held at Lincoln Center in New York, before an audience of mostly financial professionals. The event, which this year raised more than $4 million for pediatric cancer research and treatment, annually draws marquee names like Bill Ackman, David Einhorn, and Jeffrey Gundlach, who attend to help raise funds for a good cause and talk up examples from their book.

Although the U.S. hedge-fund industry has received a black eye in recent years for subpar performance and stubbornly high fees, you wouldn’t know it from attending this event. Audience members, who paid $5,000 each to be there, don’t just hang on every word: They often use laptops and mobile devices to trade instantly on the tips tumbling out of fund jockeys’ mouths. Sometimes, they don’t even wait until the manager’s conclusion is clear.

On Monday, for example, Einhorn, the president of Greenlight Capital, began talking about Core Laboratories (ticker: CLB), an energy-services company he said he holds a position in. As he talked about the stock, it began to move up in anticipation that the famed investor—known primarily for bearish calls—was bullish on the shares. But then Einhorn began to poke fun at Core Labs’ management and the CEO in particular, who had wrongly talked up a V-shaped recovery in oil prices on numerous occasions. Einhorn predicted that the stock could fall more than 45%, in part because commodity prices won’t recover the way management expects.

WHILE HIS THESIS BECAME CLEARER at the end, Einhorn left the stage without declaring whether he was long or short Core Labs. A few minutes later, he returned to tell a laughing audience that he had indeed shorted the stock. During Einhorn’s sly and ultimately confusing pitch, the shares had traded in a upside-down V shape of sorts, rising a few percentage points at the beginning of the 20-minute talk, then falling. It closed down 2.4% on the day.

Regardless of your view of the Sohn conference’s investment value, the event can move stocks over the short term in the direction the speakers desire. Call it the Lincoln Center Lift—or Letdown, depending on how they go.

Shares of telecom provider CenturyLink (CTL) rose more than 5% Monday after Keith Meister, a managing partner at Corvex Management, argued that the stock could rise 40% higher, while paying a 9% dividend yield, because of its “transformational” announced takeover of Level 3 Communications (LVLT)

DHX Media (DHXM), an obscure owner of children’s television programs including Inspector Gadget and Teletubbies, gained 7% on the day, after Debra Fine pitched the company. Fine, founder of Fine Capital Partners, said the market is missing the way seemingly outdated programming is “being remonetized” through merchandising and reruns.

Even beleaguered United Continental Holdings (UAL) gained 4.8% Tuesday after Brad Gerstner, founder and CEO of Altimeter Capital, argued in his late-Monday talk that its stock could be worth roughly three times current value. He called United, which recently earned global scorn when it had a passenger forcibly removed from an overbooked flight, a play on both broad improvements in the airline industry and a better management team.

A Lincoln Center Lift can even propel stocks that have been gathering dust in the portfolios of celebrity fund managers. Shares of Howard Hughes (HHC), a nationwide real-estate company that owns New York City’s South Street Seaport, gained almost 4% on Monday after Ackman, CEO of Pershing Square Capital Management, pitched the stock. He is HHC’s chairman and a major shareholder. He offered little data to support his bullish view.

The real test of a stock’s worth isn’t what is does in an afternoon but how it performs over a year or longer. On that score, the Sohn conference’s track record is mixed,

In the past year, shares of Amazon.com (AMZN) gained 39% after the stock was pitched positively at the 2016 conference by Social Capital’s Chamath Palihapitiya. A recommendation by Gundlach, DoubleLine Capital’s CEO, to short the Utilities Select Sector SPDR exchange-traded fund (XLU) and buy the iShares Mortgage Real Estate Capped (REM), and add leverage, produced a total return of about 40%.

But Einhorn, who won fame for his legendary short call on Lehman Brothers months ahead of its 2008 collapse, wasn’t nearly as prescient with his announced short of Caterpillar (CAT) last May. The stock’s total return amounted to 35% in the year following that pitch. Barron’s, in a recent cover story, argued that the agriculture- and construction-equipment maker has even more upside.

And while General Motors (GM), Einhorn’s bullish pick last May, gained 13% in the following year, it trailed the Standard & Poor’s 500’s 19% rise on a total return basis.

In May 2015, the conference also had its share of stock-picking misfires. Most notable was Ackman’s bullish pitch on specialty drug maker Valeant Pharmaceuticals International (VRX). It fell by almost 85% in the year after Ackman’s recommendation, as the company became embroiled in controversy surrounding price hikes and questionable distribution practices. Perhaps Sohn’s real value isn’t the stock picks, but the opportunity it provides to listen to more than a dozen smart people discuss a wide variety of industries and companies.

In addition, all but $95 of the entry fee is a tax-deductible contribution to the Sohn Conference Foundation, which has raised $80 million since its founding in 1995 to fight childhood cancer—a fine return on $5,000.

Gundlach, Einhorn, Ackman at Sohn: 11 Picks, 4 Pans

Some stocks, such as UAL, moved on news from the investor conference. But long-term results are mixed.

In one of a series of legendary U.S. television commercials from the 1970s and 1980s, a room suddenly falls quiet and dozens of people lean in to listen to a young professional after he declares: “My broker is E.F. Hutton, and E.F. Hutton says…”

Decades later, the E.F. Hutton brand still exists, but it’s a shadow of its former self. And “brokers,” now called financial advisors, don’t hold sway in investing culture the way they once did. Today, it’s rock-star hedge fund managers that can literally cause an audience of potential investors to fall eerily silent as the pros take the stage to pitch their long and short investment ideas.

Such was the case at Monday’s 22nd annual Sohn Investment Conference, held at Lincoln Center in New York, before an audience of mostly financial professionals. The event, which this year raised more than $4 million for pediatric cancer research and treatment, annually draws marquee names like Bill Ackman, David Einhorn, and Jeffrey Gundlach, who attend to help raise funds for a good cause and talk up examples from their book.

Although the U.S. hedge-fund industry has received a black eye in recent years for subpar performance and stubbornly high fees, you wouldn’t know it from attending this event. Audience members, who paid $5,000 each to be there, don’t just hang on every word: They often use laptops and mobile devices to trade instantly on the tips tumbling out of fund jockeys’ mouths. Sometimes, they don’t even wait until the manager’s conclusion is clear.

On Monday, for example, Einhorn, the president of Greenlight Capital, began talking about Core Laboratories (ticker: CLB), an energy-services company he said he holds a position in. As he talked about the stock, it began to move up in anticipation that the famed investor—known primarily for bearish calls—was bullish on the shares. But then Einhorn began to poke fun at Core Labs’ management and the CEO in particular, who had wrongly talked up a V-shaped recovery in oil prices on numerous occasions. Einhorn predicted that the stock could fall more than 45%, in part because commodity prices won’t recover the way management expects.

WHILE HIS THESIS BECAME CLEARER at the end, Einhorn left the stage without declaring whether he was long or short Core Labs. A few minutes later, he returned to tell a laughing audience that he had indeed shorted the stock. During Einhorn’s sly and ultimately confusing pitch, the shares had traded in a upside-down V shape of sorts, rising a few percentage points at the beginning of the 20-minute talk, then falling. It closed down 2.4% on the day.

Regardless of your view of the Sohn conference’s investment value, the event can move stocks over the short term in the direction the speakers desire. Call it the Lincoln Center Lift—or Letdown, depending on how they go.

Shares of telecom provider CenturyLink (CTL) rose more than 5% Monday after Keith Meister, a managing partner at Corvex Management, argued that the stock could rise 40% higher, while paying a 9% dividend yield, because of its “transformational” announced takeover of Level 3 Communications (LVLT)

DHX Media (DHXM), an obscure owner of children’s television programs including Inspector Gadget and Teletubbies, gained 7% on the day, after Debra Fine pitched the company. Fine, founder of Fine Capital Partners, said the market is missing the way seemingly outdated programming is “being remonetized” through merchandising and reruns.

Even beleaguered United Continental Holdings (UAL) gained 4.8% Tuesday after Brad Gerstner, founder and CEO of Altimeter Capital, argued in his late-Monday talk that its stock could be worth roughly three times current value. He called United, which recently earned global scorn when it had a passenger forcibly removed from an overbooked flight, a play on both broad improvements in the airline industry and a better management team.

A Lincoln Center Lift can even propel stocks that have been gathering dust in the portfolios of celebrity fund managers. Shares of Howard Hughes (HHC), a nationwide real-estate company that owns New York City’s South Street Seaport, gained almost 4% on Monday after Ackman, CEO of Pershing Square Capital Management, pitched the stock. He is HHC’s chairman and a major shareholder. He offered little data to support his bullish view.

The real test of a stock’s worth isn’t what is does in an afternoon but how it performs over a year or longer. On that score, the Sohn conference’s track record is mixed,

In the past year, shares of Amazon.com (AMZN) gained 39% after the stock was pitched positively at the 2016 conference by Social Capital’s Chamath Palihapitiya. A recommendation by Gundlach, DoubleLine Capital’s CEO, to short the Utilities Select Sector SPDR exchange-traded fund (XLU) and buy the iShares Mortgage Real Estate Capped (REM), and add leverage, produced a total return of about 40%.

But Einhorn, who won fame for his legendary short call on Lehman Brothers months ahead of its 2008 collapse, wasn’t nearly as prescient with his announced short of Caterpillar (CAT) last May. The stock’s total return amounted to 35% in the year following that pitch. Barron’s, in a recent cover story, argued that the agriculture- and construction-equipment maker has even more upside.

And while General Motors (GM), Einhorn’s bullish pick last May, gained 13% in the following year, it trailed the Standard & Poor’s 500’s 19% rise on a total return basis.

In May 2015, the conference also had its share of stock-picking misfires. Most notable was Ackman’s bullish pitch on specialty drug maker Valeant Pharmaceuticals International (VRX). It fell by almost 85% in the year after Ackman’s recommendation, as the company became embroiled in controversy surrounding price hikes and questionable distribution practices. Perhaps Sohn’s real value isn’t the stock picks, but the opportunity it provides to listen to more than a dozen smart people discuss a wide variety of industries and companies.

In addition, all but $95 of the entry fee is a tax-deductible contribution to the Sohn Conference Foundation, which has raised $80 million since its founding in 1995 to fight childhood cancer—a fine return on $5,000.

Music streaming company looking to trade stock on open market without fundraising

Spotify has hired Morgan Stanley, Goldman Sachs and Allen & Co to advise on a public listing on the New York Stock Exchange, according to a company spokesperson.

The Swedish music company is considering listing its shares directly on the NYSE, instead of a traditional public offering, according to people briefed on the plans.

Spotify does not feel it needs to raise new money, said one person familiar with the company’s plans, which makes a direct listing, through which investors would trade shares in the open market, an attractive option. However, a final decision had not yet been made, the person added.

Goldman Sachs, Morgan Stanley and NYSE declined to comment. Allen & Co did not respond to a request for comment.

Spotify has raised more than $1.5bn and was valued at $8.5bn in a funding round last year.

The pioneer of music streaming has been sealing long-term licensing contracts as it strives for a sounder financial footing ahead of a public listing. Spotify last month struck a multiyear licensing deal with Universal Music, the world’s largest record label, passing a critical hurdle in its path to going public.

The company has also reached a deal with Merlin, the agency that represents more than 20,000 independent record labels and Spotify’s fourth biggest supplier of music.

Spotify is now in active negotiations with Warner Music and Sony Music, the other two of the big three record labels which together hold licensing rights to the vast majority of Spotify’s catalogue. The big three labels each hold minority stakes in Spotify. 

Spotify last month said that it had reached 50m paying customers, underscoring its role in driving revenue growth for the music business in the past year. Spotify’s closest rival, Apple Music, has 20m paying subscribers, providing the most lucrative streaming customer for record companies.

Spotify has added customers at a scorching pace, despite growing competition from technology companies such as Amazon, Google and Apple, signing up 20m new paying customers in the past year.

Music streaming has powered the fastest growth for the music business in nearly two decades, helping offset shrinking digital and album sales. Sales from streaming last year powered the fastest growth for the US music industry since 1998, as revenues from paying streaming customers grew 114 per cent to $2.5bn. 

However, the field has become crowded, and streaming companies are hampered by the hefty royalty fees they pay to the record labels.

Spotify incurred a net loss of €173m in 2015, despite revenues growing to €1.95bn, as royalty and distribution fees jumped to €1.63bn.

Pandora, the other major independent streaming company, this week stepped up its hunt for a buyer amid deepening losses.

Support for the single currency falls as political and economic troubles increase

Europe’s investment community has barely had time to breathe a sigh of relief following Emmanuel Macron’s victory in the French presidential elections before starting to fret about other latent threats to the eurozone.

Some investors have hailed the election — in which Mr Macron, a pro-EU liberal defeated Marine Le Pen, the Eurosceptic rightwing candidate — as a sign that Europe’s economic recovery remains on track.

This follows the defeat of anti-EU candidates in both the Netherlands and Austria over the past six months, which also alleviated fears that a rise in populism across Europe could spark a break-up of the eurozone.

But many of Europe’s largest investors are now turning their attention to another risk to their portfolios that is rapidly gaining momentum: the rise of Italy’s Five Star Movement, and its potential to upend the economic bloc.

The concern is that Five Star, the anti-establishment party set up in 2009 by Beppe Grillo, the Italian comedian and blogger, could win the country’s next election, which is due to take place within 12 months.

Mujtaba Rahman, managing director at Eurasia Group, a consultancy that advises large investors on political risks, says: “The biggest risk in Europe is Italy. The euro area is not working and as long as it fails to deliver growth, populism will continue to grow.

“[Italy has] corruption problems, fiscal problems, banking sector problems, a refugee crisis, the government in power has not been elected and the prime minister has no political mandate. This is a recipe for a big crisis in Italy, which we are very concerned about. Our view for now is Five Star will win the election next year.”

Recent polls have indicated Five Star is the most popular party in Italy, with the support of at least 32 per cent of the electorate, compared with 26 per cent for PD, the ruling centre-left democratic party.

Although most large investors recognise that Five Star’s political agenda remains unclear, they are concerned by the movement’s promise to hold a referendum on euro membership.

Philip Poole, global head of research at Deutsche Asset Management, Europe’s third-largest investment house, says: “Has the risk [to eurozone stability] entirely passed? It hasn’t, because the Italian elections are coming up, and Five Star is doing extremely well in the polls. Here you have the potential for an anti-EU coalition to be formed. The market has not really focused on this yet.”

Nicholette MacDonald-Brown, European equities fund manager at Schroders, the UK’s largest listed fund company, adds: “In political terms, [Italy] has to be the next big risk on the horizon.”

With public discontent on the rise about the country’s economic difficulties, banking crisis and high unemployment rate, there is widespread concern that the Italian population will choose to abandon the single currency, triggering an unprecedented political and economic crisis across the eurozone.

Such fears are particularly acute given that Italian public support for the euro is low compared with elsewhere in Europe. Just 53 per cent of the population supports the currency, according to a European Commission study carried out in the autumn of last year.

A strategist at one of the world’s largest hedge fund companies, speaking on condition on anonymity, says: “My base case in Italy is that some form of populist movement will be in power after the next election. Industrial production completely collapsed under the euro — it has been absolutely butchered. This has led to the slow rotting of a historically great economy. Italians know it — they’re not stupid.

“A high-probability scenario is that Five Star gets in, they call a referendum on the euro within six months, and it results in a euro exit from Italy. That’s the beginning of the end of the euro. The implications for financial markets are absolutely profound. How do you reprice all of those assets?”

Other investors are hopeful that Matteo Renzi, Italy’s former prime minister who was forced to resign last December after losing a referendum on constitutional reforms, will claw back support. He successfully recaptured the leadership of the PD earlier this month.

Mr Renzi won more than 70 per cent of the ballots cast by 2m party supporters, alleviating concerns that the referendum loss had left him discredited.

Ewen Cameron Watt, chief investment strategist at BlackRock, the world’s largest asset manager, is optimistic that Italians will opt to continue using the single currency when given the choice. “What we have seen so far with the euro — whether with Cyprus or Greece — is that people choose the currency over sovereignty as their wealth is denominated in the currency,” he says.

“As Italy is so much more important to the eurozone project, [any] referendum [on the euro] will cause market palpitations. One would be an idiot not to recognise that. But so far people have voted for their pocket books, not for their ideals.”

Others are less convinced. Nicholas Brooks, head of economic research at Intermediate Capital Group, the UK-listed asset manager, says that according to polls, just under 50 per cent of Italians support parties with Eurosceptic platforms. “Italy is a crucial risk,” he says.

Monica Defend, head of asset allocation research at Pioneer, one of Italy’s largest fund companies, adds that Mr Renzi’s political comeback is unlikely to curb the groundswell of support for Five Star. The electoral system in Italy has also set the bar lower than elsewhere in Europe for an extremist party to come to power, she says.

Ms Defend, whose team oversees €106bn of assets, says: “It seems reasonable to [assume that] the PD and the Five Star Movement will be neck and neck [in the election next year]. If we went into an election today, [the current system] would strongly favour the Five Star Movement.

“What we would really like to see is a government that will endorse the eurozone project further.”

Amid growing nervousness about Italy’s political prospects, many of Europe’s largest investment houses are avoiding the country altogether. Pioneer’s asset allocation team and the absolute return team at Jupiter, the UK fund company, have zero exposure to Italy.

Lucy MacDonald, chief investment officer for global equities at Allianz Global Investors, the German fund house that oversees €480bn of assets, similarly says her investment team has no Italian holdings.

“Investors are absolutely right to focus on Italy. It has weak growth, a very weak banking system and a very difficult political backdrop,” she says, adding that these concerns are affecting asset prices elsewhere in Europe.

“The overall impact of instability in a country of that size you cannot ignore. We need to look at that when assessing euro-area strength or weakness. Although the underlying economic picture [across Europe] is stronger, the existence of this threat in a large part of the euro area will keep a bit of a ceiling on [eurozone asset prices].”

Deutsche Asset Management has an overweight position on Italian government debt, although Mr Poole says this holding is likely to be “reappraised” as the election edges nearer.

“The election is still potentially a year away, so it is not something we would use at this stage to position funds. But a Five Star victory would clearly be negative [for eurozone asset prices]. For sure, if that happened, it would be very negative for peripheral bond spreads, for eurozone equities, and in particular for the euro.”