LinkedIn and Yandex more popular than Glencore among institutional investors

It has been a week since the IPO of 3 large companies and there is an interesting early observation: The big asset managers are showing a preference to own internet related companies over a global commodities trading firm. In a role reversal, the long term investors are riding a technology bubble by buying enthusiastically into Yandex (NASDAQ: YNDX) and LinkedIn (NYSE:LNKD). The short sellers are equally active but in the opposite direction, betting that such sky high valuations are not sustainable. So while Yandex and Linkedin are popular with both long and short investors, Glencore (LSE:GLEN) is attracting relatively less interest.

LinkedIn Borrow Frenzy

As outlined in last Thursday’s piece, short sellers flocked to borrow shares in LinkedIn given the explosion of its share price on day 1 of the float. It is not every day that a share comes along trading at over 2,000 times earnings! The borrow fee (or cost of shorting) reached levels not seen since Citigroup redeemed its preference shares in 2008 given how much demand outweighed supply (utilization over 80% - orange line). On a scale of 1-10 (1 is cheap and 10 the most expensive) the fee the brokers are paying to source LNKD is a perfect 10. It also means that half of what is on loan has been sourced from broker inventory as well as the Custodian community.

LinkedIn Supply

The lack of available shares to borrow is mainly a function of how few shares were floated in the first place – 9.016 million out of 94.5 million. Of the 9 million shares making up the free float, 12% of these were bought by asset managers who lend (blue line). This is an impressive take up so soon after the IPO, hence my argument that long term investors are happy to own this Internet company. The average percentage of the free float held by such institutional funds in the ICB subsector is 20% - it is not far off already.
 

Yandex Supply

Amidst the shock and awe of the LinkedIn float you may, like me, have missed the IPO of Yandex - Russia’s web search provider. Funds who lend already own 11% of the Free Float (dark blue line) despite it trading at a P/E ratio of 75. Some long only asset managers are clearly in pursuit of growth “at any price” (as opposed to at a “reasonable” price as the GARP marketing goes). By way of comparison, China’s search engine company, Baidu (NASDAQ:BIDU) has 18% of its shares in securities lending programs so investors clearly see similarities between the two. Baidu saw its P/E ratio climb to 157 but is currently at 73.

Yandex Demand

22% of these Yandex shares are on loan (orange line) which is just under 1% of the shares outstanding (light blue line). Even if some of this borrowing is to ease liquidity for market makers, it still means there is already some short selling going on here and with a cost to borrow score of four, it is four times more expensive to borrow than normal.

Glencore Supply

Only 4.27% of Glencore’s Free Float shares (4355.82M) have been taken up by the funds who lend (dark blue line) in contrast to the double digit figures of the firms above. This is despite a much larger free float and much lower “estimated” P/E ratio of 8.5.

Glencore Demand

21% of the supply is on loan (orange line) which is 0.6% of all shares (light blue line). This is the lowest of the newly floated firms but only just. As with Yandex, one could imagine that some of this is to cover short sales even if there remains demand to borrow Glencore shares to help manage the early liquidity.

Bottom Line:

It is still early days for these IPOs but the comparison is reasonably fair given they all came to market within a day or two of each other. Only time will tell if long only investors will continue to hold more of the internet related firms than the commodities player. If this persists it shows how hungry for growth some elements of the institutional fund management community are becoming. Is this to combat the rise of passive investing via ETFs by chance?