Stock splits are tools that publicly traded companies can use to artificially lower their stock price and increase their outstanding share count without changing their market cap. The most common reason a company may conduct a traditional stock split is if its stock just went on a big run and management wants to make it more attainable for retail investors.
Unlike reverse stock splits, regular stock splits are not considered bearish, and investors do not see them as impediments for buying the stock. Here are two companies that have undergone stock splits, with billionaire investors and their hedge funds pouring into them.
Brookfield
Brookfield (BN +0.12%), a large international asset and wealth manager with over $1 trillion in assets under management, caters to both individual and institutional investors.
The company recently instituted a three-for-two stock split implemented through a stock dividend on Oct. 9. The board of directors said the split is meant to ensure that shares remain attainable to retail investors and to boost liquidity. Several billionaire investment managers have purchased the stock:
- Bill Ackman's Pershing Square Capital Management initiated a position in early 2024 and built it to 19% of its portfolio, owning over 41 million shares at the end of the second quarter, prior to the split.
- Two Sigma Advisers, a division of Two Sigma Investments co-founded by billionaires John Overdeck and David Siegel, increased its position in Brookfield by 317% in the second quarter and now owns 31,700 shares.
In a second-quarter letter to shareholders, Brookfield CEO Bruce Flatt said the company's long-term plan is to improve capital efficiency to increase return on equity, a key financial metric for financial firms. It plans to do this by focusing on long duration, low risk insurance.
In Pershing's second-quarter letter to shareholders, Ackman said that Brookfield has already built up its insurance and annuity arm to $135 billion in assets. Ackman and his team also like how this business is positioned in the attractive United Kingdom market. They think Brookfield can grow annual cash flow at a 20% compound rate in the medium term and earn a higher earnings multiple over time.
NYSE: BN
Key Data Points
Based on its earnings over the past year, Brookfield trades at about 12 times earnings, which Pershing notes is a discount to peers like Apollo and KKR. Transitioning to a more capital-light strategy and focusing on insurance has helped many other financial companies drive up their valuations over time, so I think Brookfield's strategy has a good chance of succeeding.
Interactive Brokers Group
Another financial company that billionaires have been buying is the large online brokerage Interactive Brokers Group (IBKR 1.76%), which caters to institutional traders and retail investors. The stock has exploded this year and is up over 50%. Interactive Brokers completed a four-for-one stock split on June 17, while also increasing its dividend.
Billionaires have clearly taken notice of the company and continued to pile into the stock in the second quarter:
- Soros Fund Management, where billionaire investor George Soros is still the chairman, increased its position by 1,027% to over 2.2 million shares. A good portion of this reflects the stock split, but the share count still increased by a multiple of more than 10, indicating the fund added shares.
Interactive Brokers has experienced strong growth over the past year, with customer accounts up 32%. It has also added more than a half-million new accounts through the first half of the year, more than in all of 2023.
Management believes the company's interest rate offerings make the brokerage an attractive place for customers to put their cash. And international growth has been strong because the company offers overnight trading to its many clients in Europe and Asia, which allows them to access the U.S. markets during their regular trading hours.
NASDAQ: IBKR
Key Data Points
The stock is not exactly cheap, trading at 34 times forward earnings, but the company has already grown earnings through the first half of the year by 20%.
Interactive Brokers offers more revenue sources than a pure-play retail broker, with geographic diversity among the U.S., Europe, and the Asia-Pacific region, as well as client diversity among retail traders, institutions, financial advisors, and proprietary trading groups.
