If you find two almost identical Volkswagens on a dealer lot and one costs 25% less than the other, it should be obvious that you are better off buying the cheaper one. A surprising number of investors seem to be forgetting that the same logic applies to the stock market.
A gap or spread has opened up between the price of Volkswagen AG’s ordinary shares (VOW), now at €299—equivalent to around $354—and its preference shares (VOW3), at €225. The latter aren’t conventional, debtlike preference shares; they are identical to the ordinary shares except that they don’t carry voting rights. In the U.S., there would be two different share classes.
Infamously, the spread last ballooned in 2008, when Porsche SE tried to take over VW. That saga, by way of a short squeeze that briefly made VW the world’s most valuable company, ended with VW taking over Porsche’s car-making operation, Porsche AG, leaving behind an investment company, Porsche SE (PAH3), with roughly 53% of VW’s ordinary shares and lots of lawsuits. Since that drama, VW’s ordinary and preference shares have rarely traded out of line.
Porsche SE isn’t a suspect this time round. The company says its stake in VW hasn’t changed in recent weeks, and it is hard to see why it would risk more legal challenges.
Instead, brokers are pointing the finger at inexperienced U.S. investors. They appear to be buying VW ordinary shares without realizing the confusingly named preference shares offer the same for less. Trading volumes of American depositary receipts that track VW’s ordinary shares (VWAGY) have surged, as have Google search volumes for the VWAGY ticker.
