Bill Gross Finds Safety in Betting on Corporate Buyouts

The Wealth Advisor Contributor

March 27, 2022

(CityWire) - The surge in safe-haven allocations caused by the Russian invasion of Ukraine has led many investors to crowd in similar areas, but Bill Gross believes he has found one market that is not yet saturated.

In his latest market note, ‘In the parking lot’, Gross said bear market thinking has taken hold of stocks after a period of hyper growth, while commodities have proven the hot place to be and the role of bonds has continued to confound asset allocators.

However, Gross said he has been putting his own cash to use in corporate buyouts and acquisitions over the past six months. ‘[They] have already provided annualized returns of 5-10% that beat cash with reduced risk compared to Tesla and other “high fliers”,’ he wrote.

‘Companies such as Microsoft, Oracle, and Qualcomm have announced acquisitions at fixed prices that provide single-digit capital gains opportunities if completed. There is risk in that almost all of them require regulatory approval of some sort and a few of my purchases have lost money when approval is denied – but most are completed, the predominant risk being the time it takes for regulators or even countries to get around to applying their stamps of approval.’

Gross cited Microsoft’s completed purchase of Nuance Communications for $16bn, which was first announced in April 2021 and provided anyone who bought in on the announcement an annualized return in the region of 7%.

Using hyper growth as a metaphor for driving fast along the freeway, with more conservative ideas akin to being sat in a parking lot, Gross said there are merits to going slow in the current climate.

‘Most investors on the 2021 freeway opted for Facebook or Netflix and did much better for a while than Nuance in the markets’ parking lot, but now? Well, over the same time period Netflix is down 30% and Facebook the same. Can both of these go back up?,’ he wrote.

‘Of course, but if you’re conservative and want to avoid this type of volatility you might consider some current “buyout” opportunities that provide prospective 5-10% returns and that beat yieldless cash.’

Gross singled out communications giant Oracle’s move for Cern, which is set to be completed in the latter part of 2022, and Microsoft’s deal for gaming company Activision Blizzard, as two areas in which savvy investors could make decent capital over the mid- to long- term.

Chris Sloley
March 16th, 2022