Archives: September , 2012
ETF News, People Profiles

WSJ Weekend: Managing ETF Costs-Focus on Fees & Order Execution

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Courtesy of Jason Zweig / WSJ Columnist

On Sept. 21, Charles Schwab, SCHW -0.74%the discount broker, cranked up its publicity machine to announce it is cutting expenses on its 15 exchange-traded funds, or ETFs, by an average of 50%, to as low as 0.04%. Invest $10,000 and you can pay as little as $4 a year.

Could expenses go to zero? “Well, with our pricing adjustment, they do round to zero,” quips Marie Chandoha, president of Charles Schwab Investment Management. Schwab isn’t alone: 16 ETFs charge less than 0.1% in annual expenses, according to XTF.com, an ETF-rating website. Investing is within spitting distance of becoming free—and that is unambiguously worth celebrating.

Nevertheless, investors need to bear in mind that annual expenses are the most visible—but far from the only—cost of an ETF. Even as annual expenses race toward zero, you can still get clipped on other costs if you aren’t careful.

Let’s take a moment to put what is happening into historical perspective. In 1976, Vanguard Group introduced First Index Investment Trust (now the Vanguard 500 Index Fund ), which sought to replicate the return of the Standard & Poor’s 500-stock average. The fund’s expenses the first year, says Vanguard’s founder, John C. Bogle, ran at 0.43%.

Today, the cost of a $10,000 account in the same portfolio—now available both as the Vanguard 500 Index mutual fund and the Vanguard S&P 500 VOO -0.45%ETF—is as low as 0.05%. That is less than one-eighth what the same portfolio cost a generation ago and roughly 98% less than what a conventional mutual fund cost in the 1970s.

“There’s still lots of room for improvement” on fees, says Vanguard’s chief investment officer, Gus Sauter. “There’s a tremendous amount of [downward] pricing pressure in the marketplace now.”

Continue reading →

ETF News

Gambling ETF (BJK) Jumped On NFL Ref News-Benzinga

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Courtesy of Benzinga.com ETF Professor

It might just be a coincidence, but one ETF benefited this week from the maelstrom over the NFL’s replacement referees and subsequent return to work by the league’s regular officials. That fund is the Market Vectors Gaming ETF (BJK: 34.01, -0.10, -0.29%).

To say the replacement officials affected football wagers is an understatement. An estimated $300 million changed hands worldwide Monday following a controversial call at the end of the Green Bay Packers/Seattle Seahawks game that saw the latter emerge the winner, according to The Associated Press.

That call worked in favor of sports books because the vast majority of bettors who had action on the game were on Green Bay, the favorite. The problem is too much controversy and incompetence at the hands of the replacement refs is not good for sports books.

And that is not good for big casino operators that run sports books such as Las Vegas Sands (LVS: 46.37, -0.40, -0.86%), Wynn Resorts (WYNN: 115.44, +0.01, +0.01%) and MGM International (MGM: 10.75, -0.13, -1.19%). That trio combines for over 19 percent of BJK’s weight.

So it probably was not surprising to see BJK rise on Tuesday, the first trading day after the Monday Night Football flap. Perhaps BJK rose on speculation the Monday Night Football debacle would force NFL Commissioner Roger Goodell’s hand to get the regular officials back to work as soon as possible.

Read more: http://www.foxbusiness.com/news/2012/09/28/gambling-etf-jumped-on-nfl-ref-news/#ixzz27s3IgfXD
ETF News

Why Actively Managed Mutual Funds Are Investing in ETFs

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   Courtesy of Stan Luxenberg

 

09/28/12 – 10:23 AM EDT

NEW YORK (TheStreet) — Actively managed mutual funds traditionally earned their fees by picking the most attractive stocks and bonds. But these days more portfolio managers are investing in ETFs.

According to Morningstar, hundreds of mutual funds have taken the plunge. More than 130 active mutual funds own SPDR S&P 500 (SPY). Investors in the S&P 500 ETF include Columbia Dividend Income (LBSAX), Hartford Growth Opportunities (HGOAX) and AllianceBernstein Dynamic All Market (ADAAX). More than 80 funds have invested in iShares MSCI EAFE (EFA), including PIMCO Global Multi-Asset (PGMAX), Sterling Capital Strategic Allocation Equity (BCAAX) and USAA Global Opportunities (UGOFX).

Not so long ago, active mutual funds stayed clear of ETFs. After all, active managers were supposed to outdo benchmarks — not load up on index funds. But gradually portfolio managers have discovered that ETFs can play useful roles. “ETFs can be convenient ways to gain market exposure quickly,” says Cory Banks, managing editor of ETF Report.

Portfolio managers use ETFs in a variety of ways. While some managers take big positions in ETFs, many funds have only limited stakes. Vanguard Windsor (VWNDX), an active large value fund, has 0.9% of its assets in Vanguard Value ETF (VTV), and Vanguard Morgan Growth (VMRGX) has 0.8% in Vanguard Growth (VUG).

For such active funds, ETFs can offer easy ways to manage cash. Say investors suddenly pour money into a fund, and the portfolio manager can’t decide which stocks to buy. To avoid sitting in cash — which could be a drag on returns — the manager could hold an ETF as a temporary measure.

ETFs can also be used to manage taxes. Say a manager has a loss in a stock but doesn’t want to give up on the holding. The fund can sell the shares, book the loss, and put the proceeds in cash. Under IRS rules, the manager must wait more than 30 days to buy back the shares. Instead of keeping cash, the fund may decide to hold an ETF for a few weeks and then repurchase the original stock. Continue reading →

ETF News, Global Macro Strategy, People Profiles

Not So Bad After All For Europe ETFs

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Courtesy of the ETF Professor at Benzinga.com

MarketsMuse extends our warm wishes to all of those celebrating the Jewish New Year and extending  you  “L’Shanah Tovah”

Today’s piece from ETF Professor couldn’t be better timed considering the upcoming (Oct 11)  European Investing & Trading Summit at London’s May Fair Hotel with a special ‘carve-out’ focused on ETF trading and liquidity across the Euro landscape.

Summit Coordinator MarketsMedia advises us at press time that the ETF trading session, hosted by WallachBeth Capital MD Andy McOrmond, is oversubscribed, but additional tix are being made available.

In theory, 2012 should have been a much darker year for ETFs tracking eurozone nations. Headlines have included speculation about Greece’s imminent departure from the eurozone, the need for a massive bailout of Spanish banks and Italy not being far behind in the bailout buffet line.

Then there are these facts. Italy is mired in a recession. Spain’s unemployment rate is over 20 percent and Greece could make the ominous switch to emerging market from developed market status.

Those are just a few of the issues Europe ETFs have had to deal with in 2012. Apparently, markets are not all that logical because while many global investors have anointed U.S. equities the toast of the developed world because the SPDR S&P 500 SPY -0.42% is up 16 percent year-to-date, some eurozone ETFs are doing quite well, too.

iShares MSCI France Index Fund EWQ -1.57%

France departed the AAA credit rating club earlier this year, but the CAC 40 Index has posted a gain of 11.2 percent year-to-date. The iShares MSCI France Index Fund has been even better with a gain of nearly 13 percent. A large part of the reason for EWQ’s good fortune is that many of its components derive the bulk of their revenue from outside the eurozone.

For example, Total TOT -1.56% and Sanofi SNY -1.40% account for about 22 percent of EWQ’s weight and neither is eurozone dependent. EWQ needs to move above $22.65 to confirm another breakout.

iShares MSCI Belgium Investable Market Index Fund EWK -0.94%

Belgium is another surprise eurozone winner this year, particularly because the country endured some ratings downgrades in late 2011. In fact, 2011 was so rough on EWK it was outperformed by the iShares MSCI Spain Index Fund EWP -2.96% and the iShares S&P Europe 350 Index Fund IEV -1.28% . Continue reading →

ETF News, Strike Price

Institutional investors see big tail-risk event ahead

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Courtesy of Christine Williamson

About three-quarters of executives from a mixed universe of institutional investors think a significant tail-risk event is likely to very likely within the next 12 months, according to a new survey from State Street Global Advisors.

Survey respondents — money managers, family offices, consultants and private banks — expect the five most likely causes of a tail-risk event in the next year would be a global economic recession (36%); a recession in Europe (35%); the breakup of the eurozone (33%); Greece dropping the euro (29%); and a recession in the U.S. (21%). (Percentages total more than 100% because respondents could select multiple causes.)

About 80% said they believe that tail-risk management should be an integral part of portfolio management, and 73% said they are better prepared to weather a severe market downturn since making strategic asset allocation changes after the 2008 market crash.

Fully 80% of the universe said they are somewhat confident to very confident that they have some form of downside protection in place that will protect their portfolio from the ravages of a severe downturn in the market, said Michael Arone, managing director and global head of portfolio strategy at SSgA, in an interview.

When it comes to the strategies that provide the most effective hedge against tail risk, 61% of SSgA’s survey group named diversification over traditional asset classes; 55% cited risk-budgeting techniques; 53%, managed volatility equity allocations; 50%, direct hedges; 43%, other alternative investments; 39%, managed futures allocation; 38%, single-strategy hedge funds; and 37% named hedge funds of funds.

Prior to the 2008 tail-risk event, 89% of institutional investors — a category in which SSgA included pension funds, money managers and private banks — diversified across asset classes, a practice that dropped to 67% in mid-2012. Risk budgeting was employed by 71% of institutional survey respondents pre-crash vs. 63% post-crash in mid-2012; managed volatility equity strategies, 50% pre-crash, 55% mid-2012; managed futures allocation, 44% pre-crash, 39% mid-2012; direct hedging, 36% pre-crash, 44% mid-2012; hedge funds of funds, 41% pre-crash, 28% mid-2012; single strategy hedge funds, 34% pre-crash, 39% mid-2012; and other alternative investments, 57% pre-crash, 58% mid-2012.

SSgA commissioned the survey, which interviewed 310 investment professionals in June and July.

The firm’s full report, “Managing Investments in Volatile Markets,” will be available on Sept. 27.

Original Story Link: http://www.pionline.com/article/20120924/reg/120929951

This copy is for your personal, non-commercial use only. Reproductions and distribution of this news stor

Strike Price

Options Industry Looks for New Sources of Order Flow-RIAs Need Education

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  Courtesy of Peter Chapman

With options volume down this year, industry professionals are looking beyond traditional players such as retail investors and hedge funds for growth.

“We are strongly focused on the institutional space,” Alan Grigoletto, director of education at the Options Industry Council, said at this year’s joint Futures Industry Association and OIC options conference in New York. “In the coming years, we see much more participation from wealth advisers and pension funds, and even endowments.”

Most of the industry’s volume comes from two sources: retail traders and hedge funds. Retail investors were the driving force that got the industry on its feet in the 1970s. The hedge funds have jumped in over the past 10 years.

But with volume down 13 percent through August of this year, tapping new sources of flow has taken on new urgency. During the first eight months of this year, volume dropped to an average 16 million contracts per day from 18.5 million last year.

“The appetite is just not there,” Nasdaq OMX managing director Chuck Mack said at the FIA-OIC confab. “We need that appetite. We need the hungry investors to come back in.”

For those looking to corral new players, there’s good news and bad news. The good news is that registered investment advisers are “flocking to the options market,” Jeff Chiappetta, a TD Ameritrade executive responsible for institutional trading, including advisers, told conference-goers.

The bad news is that pension funds and mutual funds are not flocking to options, according to industry sources. Mutual funds are starting to set up hedged versions of some of their stock funds using options, but the trend is nascent. Pension plans are also tiptoeing into options, but the pace is glacial.

“The trustees on the boards of these [pension] plans come from all walks of life,” Gregg Johnson, a consultant to public pension plans with Gray & Company, told conference attendees. “They range from policemen and firemen up to sophisticated investors. But when they hear the word ‘options’ or ‘derivatives,’ they become frightened. They don’t understand. They always think they add more risk to a portfolio, rather than reduce it.” Continue reading →

ETF News

ETFs Overtaking Swaps for Junk-Bond Speculation:

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By Mary Childs – Sep 17, 2012

Exchange-traded funds are poised to overtake credit derivatives by year-end as a way to speculate on junk bonds.

The value of corporate securities held by the five-largest junk ETFs almost doubled in the past year to a record $31.4 billion, while the net amount of protection bought or sold on the debt using the two current credit-default swaps indexes declined 3 percent to $35 billion, data compiled by Bloomberg show. The ETFs are growing at an average 5.2 percent monthly pace this year, which would put assets at more than $36.5 billion by Dec. 31.

Trading in credit swaps has slowed as the market faces regulation for the first time under the Dodd-Frank Act, potentially making them harder and costlier to buy and sell. The growth of junk-bond ETFs, which are listed on exchanges and brokered like stocks, has accelerated since their inception in 2007 as investors seek a faster and cheaper way to trade debt.

“Product innovation is often the answer to regulatory change and I don’t think it’s any coincidence that we’ve seen this explosion of interest in fixed-income ETFs just at the point at which CDS as a product and asset class comes under pressure,” Will Rhode, director of fixed-income at research firm Tabb Group LLC, said in a telephone interview.

Gaining Influence

Junk-bond ETFs, which have attracted 25 percent of high- yield fund inflows since 2010 as measured by EPFR Global, are gaining influence in a market where both securities and their derivatives are generally traded off exchanges.

Even investors seeking to hedge against losses on the securities have started using ETFs, with the number of shares borrowed to bet against one run by State Street Corp. surging almost three-fold from the end of 2011.

Credit swaps, created in the 1990s as a means for lenders to protect against losses on corporate debt, gained popularity in the past decade as a way to wager on gains without actually owning bonds or loans.

With the Federal Reserve saying last week it will probably hold its interest-rate target near zero through at least mid- 2015 and conduct a third round of bond purchases to stimulate the economy, investors are gravitating toward the funds to boost returns as demand for default protection diminishes. Continue reading →

ETF News

Virtu Financial Buys Dutch Market-Maker in Push to Provide European ETF Liquidity

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Courtesy of WSJ with reporting by Jenny Strasburg

Virtu Financial LLC said it bought a Dutch market-making business, bolstering the U.S. trading firm’s presence in a European exchange-traded-funds market that has emerged as a profitable battleground for high-speed traders.

Virtu, one of the most-active traders of stocks, commodities and other securities in the U.S. and Europe, acquired the market-making division from Amsterdam-based Nyenburgh Holding BV, the companies said. They declined to disclose the value of the transaction.

Market makers stand ready to buy and sell securities at quoted prices, helping ensure that trades are executed smoothly. Market makers take a sliver of profit from each transaction, and the flow of data can help them profit in their own trades.

With the Nyenburgh deal, New York-based Virtu gains relationships with ETF issuers as well as buyers and sellers of the instruments, which include pensions and hedge funds, said Chris Concannon, a Virtu partner and chief compliance officer of its broker-dealer operation. Virtu has traded European ETFs since 2009.

Virtu expects growth in the ETF market will help fuel trading in the assets that underlie them, from gold and palladium to agricultural-commodity futures. The firm, through its Dublin-based office, became a registered market maker on the London Stock Exchange in August, and is registering on major European exchanges, said Douglas Cifu, Virtu’s president and chief operating officer.

The deal comes amid mounting competition and regulation in the European market for ETFs, or investment funds that track the performance of indexes and other baskets of individual securities. Unlike in the U.S., the majority of ETF trading in Europe occurs in over-the-counter transactions. But new rules are pushing more ETF trading onto exchanges, providing opportunities for  trading firms like Virtu to grab a bigger share of the market.

Noted James Ryan of London-based ETF broker WallachBeth International, “Virtu’s expanded role as a liquidity provider in European-based ETFs will necessarily enhance the playing field as the ETF market in Europe continues to evolve and otherwise catch up to the US market in terms of both institutional investor transparency and overall liquidity.” Continue reading →

ETF News, Global Macro Strategy

London’s Oct 11 “Euro Trading Summit” Said To Be Oversubscribed By Leading Euro-land PMs and Dealing Desk Heads; ETF Live Trading Session a Major Attraction

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    Considering the issuance calendar is chock full of interesting, high yield  deals, we’re hearing that tix for the Oct 11 European Trading & Investing Summit at the May Fair Hotel in London are oversubscribed.

Then again, when taking a look at the “who’s who” of European PM’s and senior dealing desk traders that will be in attendance,  coupled with a trading session that will include “live rounds” fired into the ETF marketplace, and followed by a private cocktail/networking  reception, its no surprise this single-day event could prove to be the single-best place for top Euro fund managers to be on that upcoming Thursday.

Aside from the live fire ETF session being hosted by New York-based WallachBeth Capital’s Andy McOrmond, the program agenda includes interactive, forum discussions covering FX, Fixed Income Derivatives and Alternative Assets: Searching for Alpha.

Noted Andy McOrmond, “We know that the folks at MarketsMedia organize good programs, and because this particular conference is drawing in the top ETF-focused PMs and traders, we already know there won’t be enough seats to accommodate everyone.”

Global Macro Strategy, People Profiles, Strike Price

2012 Equity Options Conference-Industry Elite To Attend Sep 12-13

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For those institutional fund managers, hedge fund traders and anyone else that’s tired of watching the volatility shrink,  the Futures Industry Association is joining with the Options Industry Council to host a special conference this week (Sept 12 & 13th) at the New York Marriott Marquis.

However dry these programs tend to be, we’re actually excited about the Thursday Sept 13 (11:15 am) program “Changing Execution Landscape” whose panel members will include WallachBeth Capital Pres/COO David Beth, TABB Group’s Andy Nybo and Vishal Gupta, head of execution for Volant.

Strike Price, Tech Talk

Citi Launches Intelligent Options Algorithms

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Citi has added intelligent options algorithms for U.S. equity options to its suite of advanced electronic trading strategies.

The algorithms are intended to provide traders with speed, liquidity and the desired degree of exposure, using Citi’s proprietary smart routing logic, which provides liquidity and price improvement while avoiding information leakage.

“The intended users of the new option algos are buy-side traders looking to intelligently work option orders systematically using Citi’s advanced algorithmic logic,” said Kevin Murphy, head of U.S. options electronic execution at bulge bracket bank Citi. “Traders get the added benefit of having each ‘child’ order eligible for liquidity and price improvement opportunities via Citi’s proprietary smart order router.”

Platforms combining execution, analytics and risk management have become the de facto standard of care for market practitioners as algorithmic and high-frequency trading strategies have proliferated across asset classes.

Fellow bulge bracket bank Credit Suisse recently launched in the Asia-Pacific region AES Guerrilla 2012, an agile trading strategy to assist investors in sourcing liquidity.

Credit Suisse’s AES, or Advanced Execution Services, team developed Guerrilla 2012 for clients trading in Asia-Pacific equity markets, whether they are calm or volatile, liquid or illiquid.

“Guerrilla has long been one of the most popular trading strategies in the U.S. and Europe, and now Guerrilla 2012 brings our algorithmic offering to clients in Asia,” said Hani Shalabi, head of AES for Asia-Pacific at Credit Suisse. “This is one algorithm which is flexible and intuitive enough to adapt real time to current market conditions.”

The options space is a comparatively late arrival to cutting-edge trading techniques, but it is catching up. Continue reading →