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.
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. More…
by Michael Johnston 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. More…
Good op-ed courtesy of TabbForum re: debate about whether having yet more options exchanges makes sense, or is just plain silly.
The Pros and Cons of Options Exchange Proliferation :: TabbFORUM – Where Capital Markets Speak.
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.” More…
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. More…
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).
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.” More…
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 More…