Archives: May , 2012
ETF News, Strike Price

AlphaClone ETF Invests In Hedge Fund Equity Positions

Leave a comment

 

The AlphaClone Alternative Alpha ETF (ALFA), which began trading on Thursday, will invest in disclosed equity positions held by established hedge fund managers—the first ETF to do so.

The new ETF “seeks to capture alpha from these managers’ long positions while protecting against protracted market downturns through a dynamic hedge mechanism.” Its strategy has been derived from the research and hedge fund replication methodology developed by AlphaClone and its founder and CEO Mazin Jadallah and is based on the passive, risk-managed AlphaClone Hedge Fund Long/Short Index.

The index directly selects its long positions from public disclosures using a proprietary ranking system which measures the efficacy of following managers based on their disclosures over a complete market cycle (since 2000). The index also incorporates a rules-based hedge mechanism that adjusts holdings between being long-only and market-hedged based on certain technical price targets for a broad index of U.S. equities.

“AlphaClone offers our separate account clients strategies that expertly combine long hedge fund equity positions with disciplined downside protection,” says Jadallah, “With the introduction of ALFA, investors around the world can now access our proven investment approach in a transparent and easy to access vehicle that can help navigate today’s challenging market environment.”

The ETF is the first to result from AlphaClone’s partnership with the International Securities Exchange, a leading U.S. options exchange.

Exchange Traded Concepts serves as investment adviser to the new ETF.

ETF News, People Profiles

Hedge Fund ETF Weapons Turn Dangerous (?)

Leave a comment

By Christopher Condon on May 31, 2012

 

If you are convinced, really convinced, the price of crude oil will rise today and U.S. stocks will fall, Factor Advisors LLC has an exchange-traded fund for you.

The FactorShares 2X: Oil Bull/S&P500 Bear (FOL) (FOL) offered by the New York-based firm makes a two-times long wager on crude oil futures and a short bet on Standard & Poor’s 500 Index futures, in effect delivering twice the daily change in the spread between the two positions. The product’s birth followed “a lot of feedback” from institutional investors, including hedge funds, Stuart Rosenthal, chief executive officer of Factor Advisors, said in a telephone interview.

As the biggest ETF managers capture assets from traditional mutual funds with benchmark-tracking offerings, smaller competitors are catering to sophisticated investors with an increasingly complex arsenal of products. Often based on derivatives, these can be weapons for savvy investors to amplify wagers on rising or falling prices of everything from stocks and bonds to currencies and commodities. The same tools, readily available through conventional and online brokers, have proven hazardous for individual investors who sometimes misunderstand and misuse them with costly consequences. Continue reading →

ETF News, Strike Price

Black Swan ETFs Debut

Leave a comment

by on May 31, 2012

Innovation in the ETF industry has become standard over the past several years, with countless first-to-market products opening up new asset classes and strategies. And it turns out that the U.S. isn’t the only place where product development is going full throttle; our neighbors to the north have recently rolled out some rather unique exchange-traded products.  Horizons, one of the largest Canadian issuers of ETFs, recently debuted a suite of Black Swan ETFs that are designed to protect investors against sudden plunges in equity markets.

The new ETFs, including the Horizons Universa Canadian Black Swan ETF (HUT) and Horizons Universa U.S. Black Swan ETF (HUS) will combine traditional exposure to stock indexes with an actively-managed options strategy. The goal of these products is to protect assets in the event of extreme downside events–such as a wave of sovereign debt defaults in Europe.

The new Black Swan ETFs essentially consist of two components: exposure to broad stock indexes such as the S&P 500 or S&P/TSX 60 and a pool of put and call options that utilizes the Black Swan Protection Protocol. The basket of options will be actively managed by Universa Investments, which was founded by Mark Spitznagel. Universa made a fortune by betting against stock markets in 2008; Spitznagel’s fund returned more than 100% in 2008 as global stock markets tumbled.

Nassim Taleb serves as a Distinguished Scientific Advisor for Universa.

The idea behind the options pool is to assemble protection in the event that stocks plunge, with the goal of offsetting the losses incurred by the traditional long only position. That can potentially be done by simply buying put options that will be valuable if stock markets decline, or selling call options that will expire worthless in the event of a sharp decline. The goal is to generate positive returns from the options pool when stocks decline, with gains invested into equity markets when they are cheap on a historical basis–consistent with a “buy low” strategy.

The strategy essentially is intended to dramatically reduce downside risk taken on by investors. In exchange, the Black Swan ETFs may give up some upside potential when stocks are rallying. For example, the premiums paid to buy put options on the S&P 500 could erode returns if they expire worthless. Continue reading →

ETF News, People Profiles

Consolidated Tape Moves Step Closer In European ETF Space

Leave a comment

 

 

iShares, the exchange-traded fund provider, and data vendor Bloomberg have joined forces to offer a consolidated tape for ETFs in a bid to increase post-trade transparency and limit the effects of market fragmentation in Europe.

As part of the joint venture, the first of its kind in the European ETF market, Bloomberg will utilize its European Composite tickers, which aggregate volume and trading data for reported over-the-counter and exchange-traded iShares ETFs, to allow investors to see the best prices and liquidity. This includes data from 22 venues in Europe where ETFs are traded. Under upcoming European financial regulation in the form of the Markets in Financial Instruments Directive (MiFID II), it is expected that consolidated tapes will become mandatory for both equities and ETFs.

“Industry players have long called for the creation of a consolidated tape,” said Jean-Paul Zammitt, Bloomberg’s global head of core product. “We’re pleased to work with iShares to create the first composite view of the European ETF marketplace.” Continue reading →

ETF News

Jacques Cousteau grandson floats ETF

Leave a comment

Jacques Cousteau’s grandson is the newest member of the exchange-traded-fund world. Philippe Cousteau, the grandson of the famed conservationist, has teamed up with ETF provider AdvisorShares Investments LLC to launch an actively managed socially conscious ETF.

Mr. Cousteau won’t have anything to do with managing the newly minted AdvisorShares Global Echo ETF (GIVE). Forty basis points of the ETF’s 1.7% expense ratio, however, will go directly toward funding the Global Echo Foundation. Mr. Cousteau co-founded the group to provide resources for supporting women and children, microlending and environmental sustainability. AdvisorShares will donate an extra 25 basis points of its management fee to the foundation, as well.

Noah Hamman, chief executive of AdvisorShares, said the goal is to keep shareholders up-to-date on how the donations are being used so they can see the impact they are making. “We want to make the charitable part as transparent as the ETF,” he said.

Management of the assets will be left up to four socially conscious institutional money managers. The ETF will allocate among fixed-income, equities and long/short strategies to target an absolute return and a low correlation with the S&P 500. Continue reading →

ETF News

Red Kite Warns Copper ETF Would ‘Wreak Havoc’

Leave a comment

 

May 25 2012 | 3:26am ET

Metals trading hedge fund RK Capital Management has thrown down the gauntlet to JPMorgan Chase over the latter’s plan to launch a physical copper exchange-traded fund.

Lawyers for the firm, which runs the Red Kite hedge funds, warned the Securities and Exchange Commission that the ETF would inflate prices, harm supply and “wreak havoc on the U.S. and global economy.” The May 9 letter said that the ETF, which JPMorgan has been planning for two years, could remove up to one-third of the copper stocks traded on the London Metal Exchange.

RK followed up the letter with a visit with the SEC last week.

The letter also raised the specter of one of the biggest copper scandals in history, the 1995 Sumitomo fraud. While RK’s lawyers did not suggest anything untoward about JPMorgan’s plans, they did warn that, as with the Sumitomo scandal, the ETF would facilitate “the fixing of prices,” having investors underwrite the costs of holding physical copper.

RK is joined in its battle—the first public opposition to the ETF—by Southwire, one of the largest copper users in the U.S.

ETF News

Social Media ETF Index Weights Facebook (FB) at 8.8%

Leave a comment

 

The Solactive Social Media Index, the index tracked by the Global X Social Media Index ETF (Nasdaq: SOCL), has allocated 8.8% of its weight to Facebook (Nasdaq: FB), according to Global X. The Global X Social Media Index ETF, the lone ETF devoted exclusively to the burgeoning social media ETF, has been widely viewed as the first ETF destination for Facebook, the largest social media company.

It was expected that the index would add Facebook following the end of the stock’s fifth trading, which was Thursday May 24, and that the change would be reflected in the ETF on the next trading day.

Global X could not confirm the weight of Facebook within SOCL, but assuming the 8.8% allocation from the index carries over to the ETF, Facebook would have been SOCL’s fourth-largest constituent on Thursday behind LinkedIn (NYSE: LNKD), China’s Tencent Holdings and Sina (Nadaq: SINA).

SOCL has lost about 5% since Facebook’s IPO on May 18, but the ETF has seen it’s assets under management surge to over $25.1 million from $16 million and its average daily volume jump to over 50,000 shares from 36,000 shares.

At the close of markets on May 24, SOCL was home to 27 stocks with other prominent names including Google (Nasdaq: GOOG), Groupon (Nasdaq: GRPN) and Yelp (NYSE: YELP).

ETF News, Strike Price

As Market Sagged in Q1, Many Hedge Funds Held ETF Put Options

Leave a comment

 

It is no secret hedge funds have been using exchange-traded funds (ETFs) to make directional bets on a broad market index or a specific industry group. They frequently buy “call” options or hedge with “put” options. Sometimes they hedge by shorting the funds outright.

This said, one of the interesting unnoticed themes to emerge from the recent wave of quarterly 13F filings, which take a snapshot of the portfolios of equity investors on the final day of the first quarter, are the number of high-profile hedge fund managers who took new put option bets to hedge their exposure.

In many cases, these are hedge funds that don’t typically have a history of investing in ETFs. This hedging strategy so far has proved to be a prudent move, given that the stock market has sagged since its strong, double-digit first-quarter surge.

According to David Beth of institutional options and ETF execution firm WallachBeth Capital, “While we continue to see increasing ETF exposure on the part of our hedge fund clients, many of whom necessarily layer option strategies to hedge directional bias, we’re also seeing noticeable upticks insofar as traditional long/short managers initiating the use of  ETF options as part of a fundamental risk management approach.

Added Beth, “While the more sophisticated focus on strategies that can profit from changes in volatility and skew over both short and longer-term horizons,  even the most elementary strategies that use puts and/or calls are certainly gaining favor with long-established and well-respected hedge funds as well as other institutional client profiles.” Continue reading →

ETF News

iShares Files for new Latin America Bond ETF

Leave a comment

iShares, the global leader in ETF assets and total number of funds, appears to be continuing its bond ETF push with its latest SEC filing. In the release, the company revealed plans for a new emerging market bond fund, targeting the quickly growing region of Latin America.

If approved, the fund would be just the second U.S. product to target the space in ETF form, offering investors a new way to play the region. The potential launch would also continue iShares’ attempt at bond ETF dominance as six of the last seven funds that the company has put out have been in the fixed income world

The iShares Latin America Bond Fund looks to track the Barclays Latin America Bond Index which tracks the U.S. dollar denominated bond markets of corporate, sovereign, and quasi sovereign issuers domiciled throughout Latin America. At the end of last month, the index consisted of just over 300 different bonds Continue reading →

Strike Price

What’s Next?..Options Trading On Facebook (FB)

Leave a comment

Options on Facebook (NASDAQ: FB) will be available as early as May 29th. With volatile price action in FB after its IPO, traders will look to options strategies to profit

In the next several months FB is going to face pressure to grow into its current 100 Billion dollar valuation. As a growth stock trading over 100 times earnings, any sign of slower growth in Facebook will cause the stock to plummet quickly.Traders who do not think Facebook can hold its current valuation have a number of options strategies to profit from any fast downside price action.

Depending on implied volatilities of FB options, traders can be either short or long volatility. It is unlikely that FB stock will increase or decrease in value by more than 30% in one year. If options are trading will implied volatilities greater than 30%, traders should be net sellers of options. Selling vertical call spreads, which involves selling call options at strike prices above the current price and buying a call option at strike prices even farther out from the current price. This strategy will be profitable if FB maintains its price or decreases.

Notes WallachBeth Capital’s Randy Sharringhausen, an institutional options market expert, “Even if the company’s fundamentals don’t come close to justifying its IPO price, this is a company that has 450 million customers that visit every day and a corporate treasury flush with enough currency to finance any number of  major acquisition to better monetize its customers.  This should prove to be an interesting name to trade by the hedge fund and risk arb community, as well as the long/short managers.”

Continue reading →

ETF News

Are Junk Bond ETFs Sending Signals? (HYG, JNK, SJNK)

Leave a comment

By The ETF Professor
Benzinga Staff Writer

The proliferation of new junk bond ETFs in 2012 has been nothing short of impressive and two industry stalwarts, BlackRock’s (NYSE: BLK) iShares and Van Eck Global’s Market Vectors unit, have been leading the charge.

But it is some of the more seasoned high-yield bonds that are catching traders’ eyes on Thursday. Following an usual $725 million redemption last week in the $11.1 billion SPDR Barclays Capital High Yield Bond ETF (NYSE: JNK), activity is picking up across the board in highly liquid, large asset junk bond ETFs.

While the redemption in JNK last week wasn’t a true redemption because the seller allegedly took delivery of the actual bonds, unusual activity is permeating the high-yield bond ETF space today. JNK has already double its average daily volume.

“The selling we have seen today is not for receipt of bonds. This looks to be an exit trade from this asset class,” ETF market maker WallachBeth Capital said in a note.

“Considering that Germany may throw in the towel on austerity, the U.S. could enter round 3 of quantitative easing, the banks are under increased regulatory pressure and still the lingering Greek issues, it isn’t surprising that some might see higher rates on the horizon,” Chris Hempstead, head of ETF execution services at WallachBeth, said in an interview with Benzinga. “That would not bode well for these funds.” Continue reading →

ETF News, People Profiles

Top Managers Find Better Ways to Trade Tiny ETFs

Leave a comment

By Murray Coleman

Heading into this month, just 25 funds held 61% of all the assets in U.S.-listed ETFs–and there are more than 1,458 on the market right now, according to investment researcher XTF Global. That herd-like mentality is credited by analysts to an emphasis–some say an overemphasis–on size and liquidity.

A growing number of ETFs focus on smaller niches and esoteric themes, which could be useful in a portfolio but their bid-ask spreads are often wider because they hold fewer assets and trade less often.

“There is a common misconception that if an ETF is trading at relatively low volume levels and isn’t a leading asset gatherer, it’s best to stay away,” says Alec Papazian, a strategist at Cerulli Associates who has studied such issues.

Size is relative, and prices are often more competitive than they might seem at first glance, says Doug Sandler, chief equity officer at RiverFront Investment Group in Richmond, Va. “Basing a decision purely on an ETF’s liquidity and size is one of the dumbest investment moves anyone can make,” he asserts. “Market makers often don’t spend their time publicly streaming quotes of ETFs with low liquidity,” he says. “We’ve found that working with a specialist to source better deals has been a powerful tool.”

Brad Thompson, chief investment officer at Stadion Money Management in Watkinsville, Ga., agrees. The firm, which manages $5.5 billion in assets, figures its average ETF spread nets round 0.20% across all types of funds.

Stadion’s managers say they’ve been able to trade in larger volumes and significantly narrower spreads for ETFs tracking bond markets as well as alternative asset classes. In the past, such trades have included: the iShares Barclays Agency Bond (AGZ); the iShares S&P Global Timber & Forestry (WOOD); the SPDR S&P Emerging Europe (GUR); and the iShares S&P North America Technology Sector (IGM).

“If you’re a professional adviser and money manager, there are ways to use your firm’s asset base to leverage better trades,” says Chris Hempstead, a director at execution specialist WallachBeth Capital in New York. “The so-called ‘top of book’ price you see on a computer screen, representing the best bid or ask price as disseminated by the exchanges, is just a starting point.”

Click here for the full WSJ story

ETF News, Strike Price

Covered Call Portfolios-Lower Volatility, Better Performance

Leave a comment

For those not aware, the bloom is off the rose right now as equity markets are on track to record the biggest string of down days in a long time.  With the media distracting every investor re: FB’s IPO, the fact is, equities markets in general are confounding long-only fund managers.

The good news is that a growing number of institutional fund managers, and L/S hedge fund managers are going back to basics and revisiting the use of writing calls against positions that don’t necessarily move in a straight-up line.

The chart below is a good teaser illustrating the performance of select ETF covered writing performances, and a good lead in for the Seeking Alpha article that does a good job of framing the covered writing ‘argument’ for any fund manager that doesn’t use options in the course of their fiduciary obligation to minimize volatility and enhance alpha

 

ETF News, Strike Price

Institutional Investors Increase Use of ETFs, says Greenwich Associates

Leave a comment

At first used by Institutional Investors for manager transitions, rebalancing and other tactics, fund managers strategic use of ETFs are on the rise, in particular to gain long-term exposure to desired asset classes, according to a freshly-published study by Greenwich Associates.

In the hot-off-the press study, “57% of institutional ETF users employ these products to achieve strategic allocation ranges, while 20% of institutional funds use ETFs for tactical purposes to achieve alpha, as do 38% of asset managers using these products.”

The study also concluded that “once institutions integrate ETFs into their manager transition or cash equitization processes, they relatively quickly begin seeing additional applications for the products.”  Of equal note, holding periods of ETFs by institutional fund and other asset managers is on the rise, according to the study.

Noted Chris Hempstead, head of ETF Execution for WallachBeth Capital, “The Greenwich study does a good job of confirming what we’re seeing and hearing from clients; more tactical applications, and those that have longer-hold horizons are adding an options overlay element to their strategies so as to cushion volatility and enhance overall alpha.”

For the full report, greenwich associates – strategic uses for etfs

 

ETF News

Actively managed ETFs get big-name backing

Leave a comment

Article courtesy of Rachel Koning Beals..

Actively managed exchange-traded funds may have gotten the headliner needed to push this sleepy category into the investing mainstream.

Bill Gross and his bond-fund-giant Pimco in early May added a third actively managed ETF to their roster. This offering follows their actively managed Pimco Total Return ETF BOND +0.04% .

The ETF, a twist on Gross’s flagship Pimco Total Return Fund PTTAX +0.09% , is drawing a robust following in its short two-month run. It had more than $800 million in assets under management as of mid-May.

The actively managed ETF sub-category has remained a paper-thin slice of the trillion-dollar market. Now, in addition to Pimco, ETF leaders like State Street Global Advisor’s SPDRs, BlackRock’s iShares, Wisdom Tree, and others, look to increase their presence (slowly, for now) in the actively managed side of the business.

“Pimco’s lending its name into the active ETF space is a game-changer for the entire industry. It’s one of those things where if you don’t get ahead of the times, then you are left in the dust trying to catch up,” said Tom Lydon, president of Global Trends Investments and editor of ETFtrends.com. Continue reading →

People Profiles

#Facebook Over-Booked? Or Over-Cooked?

Leave a comment

Breaking News: Bloomberg LP reports Facebook will be raising its IPO price range by 15% (from $28-$34 to $34-$38) and AAPL co-founder Steve Wozniak said he will buy shares in Facebook at the get go, regardless of price.

AAPL co-founder Steve Wozniak

In the same story, Bloomberg LP also reported  a “Bloomberg Global Poll” of more than 1,250 investors, analysts and traders  found 79% of those polled believedFacebook doesn’t deserve such a high valuation (that  poll was based on the lower pricing set just one week ago).

Comments?

 

ETF News

State Street’s Junk ETF Sees Biggest Redemptions Since 07

Leave a comment

An investor used State Street Corp. (STT)’s exchange-traded fund to anonymously obtain almost $780 million of speculative-grade bonds without moving prices in the secondary market.

The investor on May 10 exchanged as much as 19.7 million shares in the SPDR Barclays Capital High Yield Bond ETF (JNK) for the equivalent of about $779.3 million in bonds held by the fund, according to data compiled by Bloomberg.

The redemption, the biggest in the four-year history of the $11.4 billion fund, came after the investor had accumulated shares over several weeks, according to the firm that brokered the trade. The investment in the fund, which tracks the Barclays Capital High Yield Very Liquid Bond Index, may mark a new way for investors to gain control over a large group of bonds without tipping off other investors.

“He used the ETF to get his exposure initially; he figured it was an easier way to maintain his anonymity,” said the broker in a telephone interview. “It was a unique approach. This was his plan going into it.”

Click here for the full article from BloombergLP