Archives: June , 2012
ETF News

The Global Chase (Race) to Capturing Yield; High Yield Bond ETF Update

Leave a comment

Courtesy of Paul Amery, IndexUniverse.eu

On a longer-term view, last month’s US$1.3 billion net outflow from high-yield bond ETFs looks like nothing more than a blip.

Fixed income trackers are currently the fastest-growing sector of the ETF market and, within that category, high-yield (or “junk bond”) funds have recently attracted the greatest interest. The two largest US-listed funds of this type, iShares’ iBoxx $ High Yield Corporate Bond ETF (NYSE Arca: HYG) and State Street’s SPDR Barclays Capital High Yield Bond ETF (NYSE Arca: JNK) have added around US$10 billion in new assets since October, taking their combined size to nearly US$25 billion.

High-yield ETFs now constitute around 3 percent of the overall junk bond market and generate around 10 percent of the daily trading volume in such bonds, one market observer told IndexUniverse.eu.

ETF evangelists talk of the transformational role being played by such funds in what is traditionally a relatively illiquid sector of the market.

“We’re bringing a revolution to the high-yield bond market by increasing liquidity and pricing transparency,” a senior executive at one ETF issuer told IndexUniverse.eu last month.

“In this prolonged low-rate environment, we continue to see investors turn to high-yielding alternatives…and we’ve cautioned investors accordingly about reaching for yield,” says Vanguard’s CEO, Bill McNabb.

On the face of it, publicly available data support ETF managers’ contention that their funds can offer superior liquidity to the underlying bond markets.

iShares’ flagship European high-yield bond ETF, the €1 billion Markit iBoxx Euro High Yield Bond fund (LSE: IHYG), has traded on its primary (London) listing with an average bid-offer spread of 31 basis points since the fund’s inception in September 2010. By comparison, the weighted average bid-offer spread on the constituent bonds of the ETF’s underlying benchmark, the Markit iBoxx Euro High Yield index, has averaged over three times more during the same period, at 95 basis points.

Trading Costs For IHYG And Its Underlying Index Continue reading →

ETF News

“How Do You Like Them #Apple(s)?

Leave a comment

Courtesy of post-distribution desk notes from WallachBeth Capital’s ETF Execution Expert, Chris Hempstead..

8am Monday June 11

Maybe Apple can solve the world’s problems. We find out today!

As global markets react positively to the news of yet another ‘solution’ to the European debt crisis, a soft poll of peers reveals they are not as cautiously optimistic as the tape might indicate.

The latest announcement of a $125bb rescue package for Spanish banks seems like yet another attempt to hold back an incoming tide with a pile of sand. For those of you who don’t spend time at the beach, it does not work; the water always finds a way around it and eventually consumes it.

With that in mind and more importantly should you be looking for creative ideas to take a contrarian view against what could be a short term rally, and it seems as I write this the markets have thrown in the towel already, there was a nice little article in the WSJ this morning about a little known ETF, HDGE– The Active Bear.

Additionally there was a write up on Seeking Alpha highlighting the highs and lows of HDGE since its inception in January 2011 as well as worthy comparisons versus –SDS-Proshares Ultra Short S&P 500 over both the short and long term.

HDGE is an interesting and unique actively managed ETF as there are no others like it. The fund managers Brad Lamendsdorf and John Delvecchio run the portfolio of short equities. While some other ETFs exist with partial short positions, the HDGE is all short all the time and it is NOT a leveraged fund. Continue reading →

People Profiles, Strike Price

New Rules: NASDAQ Options Exchange (NasdaqBx) To PAY Takers of Liquidity

Leave a comment

Courtesy of Peter Chapman

TRADERS Magazine interview with Nasdaq OMX EVP Eric Noll unveils a new tact in the ever-changing world of major exchange strategies to attract order flow.

In this case, NasdaqBx is up-ending the current industry “make-take” fee model whereby exchanges pay rebates to market-makers who improve prevailing bids/offers, and charge fees to those who ‘take’ liquidity [by ‘hitting’ existing bids or ‘lifting’ prevailing offers].  Instead of rewarding liquidity providers who traditionally tighten up prevailing screen quotes, NasdaqBx is proposing to reward liquidity takers and will pay rebates to those who act on existing bids and offers.

Here’s a partial excerpt from TRADERS Magazine interview with Noll:

>>On the need for the new Bx exchange
Customer orders are highly price sensitive and [the retail brokers] aggressively seek rebates to [offset] their shrinking payment-for-order-flow pools. So they’re looking to replace with other functionality and other sources of income that what they were getting directly in terms of payment for order flow. So they are aggressive rebate seekers.

Eric Noll, NasdaqOMX SVP

>>On the new BX as a solution for the decline in payment for order flow
[Nasdaq Bx] gives us a chance to be the first options exchange to offer a model that pays takers of liquidity as opposed to makers of liquidity. Payment for order flow has become increasingly opaque. It has become increasingly difficult for earners of payment for order flow to know what they’re getting paid and how they’re getting paid. [Nasdaq Bx] is a model that actually makes their rebate for taking liquidity transparent, competitive and certain. And we think that has real value to them. So every other market model that operates out there operates primarily for the benefit of the provider of liquidity. This is going to be the first model out there that operates to the benefit of the taker of liquidity.

For the full interview, click here:

ETF News

10 New Commodities ETPs listed Down Under

Leave a comment

By Ben Collins

ETF Securities has released 10 new exchange traded products that aim to provide direct exposure so the commodities boom.

The ten new exchange traded commodities products have been listed on the Australian Securities Exchange (ASX), bringing the total number listed to 15.

“Historically, gaining exposure to this asset class was typically achieved by investing in the shares of mining and resource companies or, for investors with adequate expertise, commodity futures markets,” said Fred Jheon, managing director, Asia Pacific, ETF Securities.

“ETCs provide a convenient, transparent and liquid solution to investors seeking more direct exposure.”

The products are structured as deferred purchase agreements based on the commodity ETCs that have been issued by ETF Securities since 2006. Five of the new ETCs provide exposure to individual commodities such as Brent crude oil.

For investors seeking broader exposure to this asset class, ETF Securities said four ETCs aim to replicate the performance of commodity baskets, in sectors such as energy and agriculture.

The ETFS All Commodities (CSP) provides exposure to 20 different commodities across a range of sectors, which ETF Securities said affords even greater opportunity for diversification.

The ten new ETCs are designed to reflect the performance of the Dow Jones-UBS Commodity Index and its sub-indexes. ETF Securities is an exchange-traded products provider specialising in commodities with US$26.9bn in AUM at 31 March 2012.

ETF News

Direxion Files Plans to Introduce Another Bearish Bank ETF (FAZ, FAS, XLF)

Leave a comment

By Benzinga.com

Direxion, the firm behind the behind the infamous yet highly popular Direxion Daily Financial Bear 3X Shares FAZ +0.64% , is looking to add its lineup of non-leveraged products and has filed plans with the SEC to possibly introduce the Direxion Daily Financial Bear 1X Shares.

The Direxion Daily Financial Bear 1X Shares would not be a direct equivalent to FAZ because the new ETF, assuming it comes to market, will seek daily inverse investment results that correspond to the Financial Select Sector Index, the same index tracked by the Financial Select Sector SPDR XLF -0.11% .

FAZ and its bullish equivalent, the Direxion Daily Financial Bull 3X Shares FAS -0.69% , track the Russell 1000 Financial Services Index. Direxion’s filing didn’t include a ticker for the new fund, but the firm did say the fund will trade on the New York Stock Exchange and have an expense ratio of 0.65%.

That’s 30 basis points lower than what FAS and FAZ charge. The new Direxion fund could be a rival to the ProShares Short Financials SEF +0.17% , which is an inverse, non-leveraged product. ProShares, the largest issuer of inverse and leveraged ETFs, also issues the ProShares Short KBW Regional Banking KRS -2.70% , which is also a bearish, non-leveraged ETF.

Direxion, the second-largest sponsor of inverse and leveraged funds, has been looking to expand its non-leveraged offerings. The firm has introduced the the NASDAQ-100 Equal Weighted Index ETF QQQE -0.58% and the Direxion All Cap Insider Sentiment Shares KNOW +0.36% , among others in the past year.

(c) 2012 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

 

ETF News

#Apple Makes The Move to All-ETF Retirement Plans: Benzinga.com

Leave a comment

 

 

 

Whoaaa!…EDITOR NOTE RE: story below–re-distributed June 6 by this platform ONLY AFTER numerous ‘highly-accredited’ news outlets did the same earlier that day, has since been overtly challenged for its accuracy/veracity by IndexUniverse  . 

In hindsight, IU’s challenging multiple media outlets that regurgitated this story for a failure on the part of mainstream journalism in general is harsh, but not unwarranted when considering the overall decline of reporting. This is double-edged sword of an all-web world that enables and demands a 24/7 news cycle, which is powered by emotion and a lust for breaking stories–as opposed to well-researched reporting.

Without anyone having the benefit of actually being able to speak with any AAPL HR/Benefits execs to confirm or deny the elements of the story first written by  SourceMedia Inc.’s  Employee Benefit News, we respectfully caveat that EBN ‘s senior editor (who is the by-line author) either failed to do any fact-checking, or perhaps the story she attempted to write is that Apple Inc.’s HR/Benefits team plans on introducing yet another investment opportunity, within a presumably long list of funds that large company employees can invest their 401k money into.  To our valued audience, we–as well as Benzinga’s reporter are contrite for any role we might have inadvertently played in reporting what might end up being an inaccurate or erroneous report from SourceMedia’s Employee Benefit News.

All of that aside, the concept of offering an ETF-specific investment program within a list of options for employees of large and or small companies makes perfect sense. Charles Schwab has certainly acknowledged that it is working on such an investment program, albeit it is apparently still in development.

 

By Benzinga.com

Apple AAPL +1.53% , the largest U.S. company by market value, is once again setting a standard for innovation, but this time the innovation isn’t coming by way of the iPhone, iPad or Apple TV. Rather the company is making the move to an ETF-only retirement plan for its employees.

While the exchange-traded products has grown by leaps and bounds in recent to almost 1,470 total products with over $1.13 trillion in assets under management at the end of May, ETFs still are not prominently used in in company-sponsored retirement plans such as 401(k) plans. That market is still largely dominated by mutual funds.

At the end of 2010, ETF assets in 401(k) plans were scant at just $5 billion, or 0.2% of total assets, compared to $1.8 trillion, or 58% of 401(k) assets, according to Cerulli Associates. However, some firms are pushing the ETF/401(k) issue. For example, ExpertPlan announced that it will add more than 900 ETFs, including those offered by Barclays, Claymore, First Trust, iShares, Rydex and Wisdomtree, according to ETF Trends.

Charles Schwab SCHW +2.27% , the eleventh-largest U.S. ETF sponsor, has been working on an ETF-only 401(k) plan that would use index-based ETFs. Capital One’s COF +0.68% ING Direct offers index ETFs in its Sharebuilder 401(k) plan, and T.D. Ameritrade AMTD +2.41% also includes ETF options in its 401(k) plan, ETF Trends noted earlier this year.

But the move by Apple, not only the largest, but the most innovative U.S. company in the eyes of many, to all-ETF retirement plans stands as the strongest endorsement to date of the utility of ETFs when it comes to retirement planning. Continue reading →

ETF News

Zacks To Launch Yield Payout, MLP ETFs

Leave a comment

Zacks Funds, a Chicago-based financial research firm and mutual fund manager, on June 20 plans to roll out through Exchange Traded Concepts’ ETF platform a pair of ETFs-one focused on dividend-paying stocks and the other serving up exposure to master limited partnerships.

At heart, both the Zacks Sustainable Dividend ETF (NasdaqGM:ZDIV) and the Zacks MLP ETF (NasdaqGM:ZMLP) are designed to serve up yield potential. ZDIV, costing 0.70 percent a year, invests in 100 U.S. dividend-paying stocks selected from a universe of 1,500 large-cap securities. ZMLP invests in 25 to 50 U.S.-listed MLPs and costs 0.75 percent.

Both funds track proprietary benchmarks that apply a quantitative rules-based multifactor methodology to pick and weight only the securities that show the highest yield potential from their respective market segments.

The two funds will be listed on Nasdaq, the No. 2 U.S. stock exchange that has a growing presence in the world of ETF primary listings.

ZDIV’s underlying index is split into two equal subindexes, each comprising 50 stocks-the underlying securities are chosen and weighted based on liquidity and yield. The rebalancing takes place monthly, but in an alternating fashion:Each subindex is rebalanced only every other month so that each group of securities is held for 61 days, according to information the company provided in the prospectus. Continue reading →
ETF News

A Look At The New Hedge-Fund Guru ETF (GURU, ALFA, CPI)

Leave a comment

By Benzinga.com

For those that have always wanted to invest in a hedge fund, but can’t afford those pesky minimum investments (often well into six and seven figures) or for those that want to part with 2% or 3% in management fees on top of 20%-30% of the profits, the ETF industry is attempting to come to the rescue.

Hedge fund ETFs have been around for several years, but some new entrants to the hedge fund ETF game have popped up recently. The newest is the Global X Top Guru Holdings Index ETF GURU +0.33% , which debuted today.

GURU’s goal is to aggregate on a quarterly basis the expertise and knowledge of hedge fund managers into the transparent, cost-efficient and easily accessible format of an ETF—with no minimum investment, according to a statement issued by New York-based Global X.

Home to 52 stocks, GURU is an equal-weight fund as each of its constituents has an allocation of 1.96%. The ETF’s roster includes Apple AAPL -0.26% , Google GOOG -1.41% , Microsof MSFT -0.16% , Kraft KFT -0.13% , J.P. Morgan Chase JPM +3.19% , BHP Billiton BHP +0.59% and Cisco Systems CSCO +0.06% .

GURU tracks the top Guru Holdings Index uses a proprietary methodology to compile the highest conviction ideas from a select pool of hedge funds where the 13F information is most valuable.  Hedge funds with high turnover and non-concentrated positions are eliminated from the pool.  The fund is designed to rebalance quarterly in accordance with the 13F reports to capture any significant position changes, Global X said in the statement. Continue reading →

ETF News

High-Yield ETFs Lure Investors Bypassing Dealers: Credit Markets

Leave a comment

 

reporting from Lisa Abramowicz

Exchange-traded funds that own junk bonds are attracting unprecedented sums of cash from institutional investors seeking to slip in and out of the market as dealer inventories decline.

Institutional holders own 51 percent of BlackRock Inc.’s high-yield ETF, up 11 percentage points this year, according to data compiled by Bloomberg. The portion at State Street Corp. (STT)’s fund has grown to 60 percent, a rise of 18 percentage points.

The two funds, which allow individual investors access to the junk-bond market for as little as $37.59 a share, are attracting buyers from Bank of America Corp. (BAC) to Northern Trust Corp. as primary dealers gut corporate bond holdings by 81 percent since 2007. The market shift was underscored last month, when an investor redeemed as much as $780 million shares in State Street’s fund for the equivalent amount of bonds.

“Liquidity is the main reason that we’re using high-yield ETFs right now rather than high-yield bonds,” Tim Anderson, chief fixed-income officer at RiverFront Investment Group LLC in Richmond, Virginia said in a telephone interview. “In the good old days you could call up one of the major firms and there’d be a halfway decent shot you could sell $15 million, $30 million of bonds to them on the line,” said Anderson, whose firm is the sixth-biggest institutional shareholder in State Street’s fund. “They’re not keeping the same inventories anymore.”

“ETFs have increasingly become a more viable way to express credit views,” said Eric Gross, a credit strategist at Barclays Plc in New York. “We’ve seen corporate bond liquidity go down across both investment grade and high yield.”

“As long as something like JNK or HYG is easy to trade and relatively liquid, I’m not sure why anyone would go through the hassle of chasing down all the bonds, unless they were very good at doing it,” said Chris Hempstead, director of ETF execution at WallachBeth Capital LLC in New York. “It may be an affordable way to get exposure to the bonds.” Continue reading →

Strike Price

In Volatile Markets, Pensions Rediscover Covered Call Options

Leave a comment

by Rosalyn Retkwa

Writing covered call options against a portfolio of stocks to get extra income and hedge against downside risk isn’t new — not to individual investors, who’ve been doing it for decades.

But to pension fund managers, “historically, covered call writing programs have always been considered a marginal strategy,” says Neil Rue, a managing director at Pension Consulting Alliance of Portland, Oregon. Over the last 18 months or so, in a volatile stock market, covered call writing programs have done pretty well, he says, so there is a new wave of interest from pension funds for the first time in a long time.

In the traditional form of covered call writing — done more by retail investors — options are written on individual stocks, and the risk is that if the stock rises beyond the option’s strike price, the stock can be called away or claimed by the option holder at a price that has become a bargain. In giving up the stock, the call writer sacrifices some of the stock’s gains but also gets the option premium as an offset. If the option is not exercised, the option writer pockets the premium as profit.

Today, on the institutional level, buy-write programs — where a money manager buys a basket of stocks and simultaneously writes corresponding call options — are more likely to use a single option based on a broad market index such as the BXM, the Chicago Board Options Exchange’s S&P 500 BuyWrite index. The index-based options are different because they are settled in cash and not by the transfer of shares.

“The last time covered call writing programs got a decent amount of attention [from pension funds] was after the relatively poor stock market performance of the early 1990s,” Rue says. But during the raging bull market of the mid- to late 1990s, writing covered calls became a losing bet. Rather than adding a little extra income to stock portfolios, covered calls nicked the gains. “People got upset because they were underperforming, so they bailed, right at the wrong time,” before the downturn of 2000 to 2002, he says.

The rub is that “these strategies truncate, or limit, the upside” on stock portfolios, and previously, pension fund managers “simply had no appetite for that,” says Greg Nordquist, senior portfolio manager and director of overlay strategies at Russell Investments in Seattle.

He says he has also been seeing “significant renewed interest in covered call writing over the last two years.” Before that, pension fund managers wanted to go for stock portfolio gains that were “as high as they could get,” he says, but now, they are “very willing to sacrifice some upside for that downside cushion” because they are heavily invested in equities, and cannot bear the extreme downside. He says that’s the answer to the question: “Why now?” and not sooner, since “these strategies have been around forever.” Continue reading →

ETF News, People Profiles

ETFs Are Duking It Out Over Fees

Leave a comment

By LIAM PLEVEN

Exchange-traded funds have lured many investors away from mutual funds by offering lower fees. But increasingly, some ETFs are also using fees to compete with other ETFs.

In a handful of high-profile cases, particularly in commodities and stocks, investors can choose between two ETFs that are virtually identical except for their fees. Gold bugs, for instance, can buy into a bar of bullion by holding shares in either SPDR Gold Shares GLD +3.88% or iShares Gold Trust IAU +3.94% . But the SPDR fund charges 0.4% of assets a year in fees, compared with the iShares fund’s 0.25%.

Disparities like that point to the rising importance of price as a distinguishing factor in what has become a crowded and confusing ETF marketplace for many individual investors. It isn’t clear yet how effective the tactic will be in the long run—there may be good reasons in some cases for investors to stick with or buy a higher-priced fund. But it seems to hold promise as a marketing tool.

ETF News, Global Macro Strategy

African exchanges embrace ETFs

1 Comment

 

Rebecca Hampson 04 Jun 201

Africa is fast becoming a hotspot for the exchange-traded fund market, with South Africa in particular driving growth.The total value of the ETF market on South Africa’s national bourse, the Johannesburg Stock Exchange, grew 60% to R4.8bn ($622m) at the end of 2011 compared with the same period a year before.

Meanwhile, the number of ETF products listed on the exchange has also risen sharply, from 31 at the end of 2010 to 46 at the end of 2011, according to data from the JSE.

Such growth has prompted other national bourses on the continent to begin listing the products, or seek regulatory approval to do so, including those in Botswana, Nigeria, Ghana and Kenya.

Deborah Fuhr, managing partner at ETF consultancy ETFGI, said: “The growth in South Africa is driving the other African markets to enter into the ETF market. There have been more ETFs launched in Africa this year than in all of last year; it is truly booming.”

ETFs allow investors to simplify their investment portfolio strategies by giving them exposure to a specific sector or asset class and, notably, commodities. The African versions of the product appear to have appealed to a wide range of users, including private investors and institutions.

The authorities believe that the drive to promote ETFs and list them on national exchanges is a good way of attracting liquidity to the markets as a whole.

Damilola Ajayi, managing director at asset management house Vetiva Capital, said: “The introduction of ETFs has deepened African markets, especially in South Africa. For other markets, such as Nigeria, the recent introduction of ETFs has served to broaden the asset classes available to investors.”

Vetiva Capital launched its NewGold ETF in Nigeria last December. The product has seen its assets under management, based on investor inflows, grow nearly 45,000% albeit from an extremely low base. Continue reading →