U.S. stocks were higher in March, with the S&P 500 recording its fifth consecutive monthly gain. Demonstrating remarkable resilience, the S&P 500 surged by 10.6% in the first quarter, marking its best performance at the start of a year since 2019. Notably, despite double-digit declines from two of the largest constituents, Apple (AAPL) and Tesla (TSLA), the index persevered. Amidst these fluctuations, the ‘Magnificent Seven’ cohort remained stalwarts of the market landscape. Companies such as Nvidia (NVDA), Meta Platforms (META), Microsoft (MSFT), and Amazon (AMZN) showcased exceptional strength, propelling the market forward and significantly contributing to the S&P 500’s overall performance.
These four companies alone accounted for an impressive 46% of the S&P 500’s gains, underscoring their influence and dominance within the index. On March 21, the Federal Reserve maintained interest rates at their current levels and reiterated its forecast for three interest rate cuts this year. The market continues to price a first rate cut to occur in June. Federal Reserve Chair Jerome Powell noted they will continue to seek confirmation that inflation is moving closer to the central bank’s 2% target, even after a recent spate of hotter inflation readings.
Global M&A activity totalled $798 billion in the first quarter of 2024, an increase of 38% compared to 2023. The U.S. remained the dominant geography for dealmaking with $485 billion of new deals, which increased to 61% of global activity from 47% a year ago, making it the largest percentage for U.S. deal activity since the first quarter of 1989. Private Equity accounted for 19% of M&A activity in the first quarter as total value reached $154 billion, an increase of 13% compared to 2023. Energy & Power was the most active sector in the first quarter with total volume of $146 billion and accounting for 18% of overall value, followed by Technology at 16%, for $125 billion, and Financials at 13% for $105 billion. Merger Arb performance in March was bolstered by deal spreads that firmed broadly, as well as overbids and deal completions, including Karuna Therapeutics, Everbridge, and JSR Corp.
March was a strong month for the convertible market. Our portfolio participated as the broader equity markets moved higher, and a few company-specific drivers lead to outperformance relative to the convertible universe. New issuance was robust this month with many companies using converts to refinance upcoming maturities. The ability of these companies to issue paper at attractive terms has led to a consistent bid for convertibles that will mature over the next two years, a change from last year when many of these converts lagged the broader market. Generally, the new issuance has been attractive with higher coupons and a greater level of equity sensitivity, and it has largely performed well so far.
Opinion article by Michael Gabelli, managing director at Gabelli & Partners
To access our proprietary value investment methodology, and dedicated merger arbitrage portfolio we offer the following UCITS Funds in each discipline:
GAMCO MERGER ARBITRAGE
GAMCO Merger Arbitrage UCITS Fund, launched in October 2011, is an open-end fund incorporated in Luxembourg and compliant with UCITS regulation. The team, dedicated strategy, and record dates back to 1985. The objective of the GAMCO Merger Arbitrage Fund is to achieve long-term capital growth by investing primarily in announced equity merger and acquisition transactions while maintaining a diversified portfolio. The Fund utilizes a highly specialized investment approach designed principally to profit from the successful completion of proposed mergers, takeovers, tender offers, leveraged buyouts and other types of corporate reorganizations. Analyzes and continuously monitors each pending transaction for potential risk, including: regulatory, terms, financing, and shareholder approval.
Merger investments are a highly liquid, non-market correlated, proven and consistent alternative to traditional fixed income and equity securities. Merger returns are dependent on deal spreads. Deal spreads are a function of time, deal risk premium, and interest rates. Returns are thus correlated to interest rate changes over the medium term and not the broader equity market. The prospect of rising rates would imply higher returns on mergers as spreads widen to compensate arbitrageurs. As bond markets decline (interest rates rise), merger returns should improve as capital allocation decisions adjust to the changes in the costs of capital.
Broad Market volatility can lead to widening of spreads in merger positions, coupled with our well-researched merger portfolios, offer the potential for enhanced IRRs through dynamic position sizing. Daily price volatility fluctuations coupled with less proprietary capital (the Volcker rule) in the U.S. have contributed to improving merger spreads and thus, overall returns. Thus our fund is well positioned as a cash substitute or fixed income alternative.
Our objectives are to compound and preserve wealth over time, while remaining non-correlated to the broad global markets. We created our first dedicated merger fund 32 years ago. Since then, our merger performance has grown client assets at an annualized rate of approximately 10.7% gross and 7.6% net since 1985. Today, we manage assets on behalf of institutional and high net worth clients globally in a variety of fund structures and mandates.
Class I USD – LU0687944552
Class I EUR – LU0687944396
Class A USD – LU0687943745
Class A EUR – LU0687943661
Class R USD – LU1453360825
Class R EUR – LU1453361476
GAMCO ALL CAP VALUE
The GAMCO All Cap Value UCITS Fund launched in May, 2015 utilizes Gabelli’s its proprietary PMV with a Catalyst™ investment methodology, which has been in place since 1977. The Fund seeks absolute returns through event driven value investing. Our methodology centers around fundamental, research-driven, value based investing with a focus on asset values, cash flows and identifiable catalysts to maximize returns independent of market direction. The fund draws on the experience of its global portfolio team and 35+ value research analysts.
GAMCO is an active, bottom-up, value investor, and seeks to achieve real capital appreciation (relative to inflation) over the long term regardless of market cycles. Our value-oriented stock selection process is based on the fundamental investment principles first articulated in 1934 by Graham and Dodd, the founders of modern security analysis, and further augmented by Mario Gabelli in 1977 with his introduction of the concepts of Private Market Value (PMV) with a Catalyst™ into equity analysis. PMV with a Catalyst™ is our unique research methodology that focuses on individual stock selection by identifying firms selling below intrinsic value with a reasonable probability of realizing their PMV’s which we define as the price a strategic or financial acquirer would be willing to pay for the entire enterprise. The fundamental valuation factors utilized to evaluate securities prior to inclusion/exclusion into the portfolio, our research driven approach views fundamental analysis as a three pronged approach: free cash flow (earnings before, interest, taxes, depreciation and amortization, or EBITDA, minus the capital expenditures necessary to grow/maintain the business); earnings per share trends; and private market value (PMV), which encompasses on and off balance sheet assets and liabilities. Our team arrives at a PMV valuation by a rigorous assessment of fundamentals from publicly available information and judgement gained from meeting management, covering all size companies globally and our comprehensive, accumulated knowledge of a variety of sectors. We then identify businesses for the portfolio possessing the proper margin of safety and research variables from our deep research universe.
Class I USD – LU1216601648
Class I EUR – LU1216601564
Class A USD – LU1216600913
Class A EUR – LU1216600673
Class R USD – LU1453359900
Class R EUR – LU1453360155
GAMCO CONVERTIBLE SECURITIES
GAMCO Convertible Securities’ objective is to seek to provide current income as well as long term capital appreciation through a total return strategy by investing in a diversified portfolio of global convertible securities.
The Fund leverages the firm’s history of investing in dedicated convertible security portfolios since 1979.
The fund invests in convertible securities, as well as other instruments that have economic characteristics similar to such securities, across global markets (but the fund will not invest in contingent convertible notes). The fund may invest in securities of any market capitalization or credit quality, including up to 100% in below investment grade or unrated securities, and may from time to time invest a significant amount of its assets in securities of smaller companies. Convertible securities may include any suitable convertible instruments such as convertible bonds, convertible notes or convertible preference shares.
By actively managing the fund and investing in convertible securities, the investment manager seeks the opportunity to participate in the capital appreciation of underlying stocks, while at the same time relying on the fixed income aspect of the convertible securities to provide current income and reduced price volatility, which can limit the risk of loss in a down equity market.
Class I USD LU2264533006
Class I EUR LU2264532966
Class A USD LU2264532701
Class A EUR LU2264532610
Class R USD LU2264533345
Class R EUR LU2264533261
Class F USD LU2264533691
Class F EUR LU2264533428
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