Executive Summary
- Brookfield and Interactive Brokers Group recently performed stock splits to make shares more accessible for retail investors and enhance market liquidity.
- These corporate actions coincided with significant investments from billionaire hedge funds, including Bill Ackman’s Pershing Square and George Soros’s Soros Fund Management, signaling institutional confidence.
- Brookfield is pursuing a long-term strategy focused on capital efficiency and increasing return on equity through insurance, while Interactive Brokers Group is experiencing robust growth in customer accounts and international expansion.
The Story So Far
- Stock splits, like those recently executed by Brookfield and Interactive Brokers, are strategic corporate actions typically undertaken after significant share appreciation to lower a stock’s price, thereby enhancing its attainability for retail investors and boosting market liquidity. These moves coincide with substantial investments from prominent billionaire-led hedge funds, signaling institutional confidence in both Brookfield’s long-term strategy to improve capital efficiency and return on equity, particularly in insurance, and Interactive Brokers’ robust growth in customer accounts and international market expansion.
Why This Matters
- The recent stock splits by Brookfield and Interactive Brokers are strategically designed to enhance market liquidity and broaden their retail investor base, making shares more accessible. This move is significantly bolstered by substantial investments from prominent billionaire hedge funds, signaling strong institutional confidence in the companies’ long-term growth strategies, which include Brookfield’s focus on capital-efficient insurance and Interactive Brokers’ robust customer acquisition and international expansion.
Who Thinks What?
- Brookfield and Interactive Brokers Group believe their respective stock splits enhance share attainability for retail investors and boost market liquidity, with Brookfield focusing on capital efficiency and Interactive Brokers on growth and international expansion.
- Billionaire hedge funds, including Bill Ackman’s Pershing Square Capital Management and George Soros’s Soros Fund Management, signal institutional confidence in the companies’ strategies and future growth prospects through significant investments.
Brookfield and Interactive Brokers Group, two prominent financial firms, recently executed stock splits aimed at enhancing share attainability for retail investors and boosting market liquidity. These corporate actions have coincided with significant investments from several billionaire hedge funds, including Bill Ackman’s Pershing Square Capital Management and George Soros’s Soros Fund Management, signaling institutional confidence in the companies’ strategies.
Understanding Stock Splits
Stock splits are a mechanism companies use to artificially lower their share price and increase the number of outstanding shares, without altering the company’s overall market capitalization. This strategy is typically employed when a stock has experienced substantial appreciation, making it more accessible to individual investors and improving trading liquidity.
Unlike reverse stock splits, which can sometimes be perceived negatively, traditional stock splits are generally not viewed as a bearish indicator. They often follow periods of strong stock performance and are seen as a positive move by management to broaden the investor base.
Brookfield’s Strategic Split and Billionaire Backing
Brookfield, a large international asset and wealth manager overseeing more than $1 trillion in assets, implemented a three-for-two stock split on October 9. The split was structured as a stock dividend and was justified by the board of directors as a measure to maintain share attainability for retail investors and enhance liquidity.
Several high-profile investors have increased their stakes in Brookfield. Bill Ackman’s Pershing Square Capital Management initiated a position in early 2024, building it to 19% of its portfolio with over 41 million shares by the end of the second quarter, prior to the split. Two Sigma Advisers, co-founded by billionaires John Overdeck and David Siegel, also significantly increased its Brookfield position by 317% in the second quarter.
Brookfield CEO Bruce Flatt communicated a long-term strategy focused on improving capital efficiency and increasing return on equity, particularly through an emphasis on long-duration, low-risk insurance. Ackman’s team supports this direction, noting Brookfield’s existing $135 billion insurance and annuity arm and its strong positioning in the United Kingdom market. They anticipate the company could achieve a 20% compound annual growth rate in cash flow over the medium term and potentially command a higher earnings multiple.
The company currently trades at approximately 12 times its past year’s earnings, which Pershing notes is a discount compared to peers like Apollo and KKR. A shift towards a more capital-light strategy, particularly in insurance, has historically supported valuation growth for other financial institutions.
Interactive Brokers Group’s Growth and Institutional Interest
Interactive Brokers Group, a significant online brokerage serving both institutional and retail traders, completed a four-for-one stock split on June 17, following a year of substantial stock performance. The company also increased its dividend in conjunction with the split.
Billionaire investors have also shown strong interest in Interactive Brokers. Soros Fund Management, chaired by George Soros, increased its position by 1,027% to over 2.2 million shares in the second quarter. While a portion of this increase reflects the stock split, the substantial rise in share count indicates a deliberate addition of shares by the fund.
Interactive Brokers has demonstrated robust growth, with customer accounts increasing by 32% over the past year and more than half a million new accounts added in the first half of the current year, surpassing the total for all of 2023. Management attributes this growth partly to competitive interest rate offerings for cash balances.
The company’s international expansion has also been a key driver, with overnight trading options provided to clients in Europe and Asia, allowing them to access U.S. markets during their regular business hours. Interactive Brokers trades at 34 times forward earnings, with earnings growing by 20% in the first half of the year. Its diverse revenue streams and geographic reach across the U.S., Europe, and Asia-Pacific, along with a varied client base including retail traders, institutions, financial advisors, and proprietary trading groups, distinguish it from pure-play retail brokers.
Outlook
The recent stock splits by Brookfield and Interactive Brokers Group highlight a strategic effort to enhance market appeal and liquidity. The concurrent and substantial investments by prominent billionaire-led hedge funds underscore a belief in these companies’ underlying business models and future growth prospects, particularly as they adapt their strategies and expand their market reach.
