All posts by MarketsMuse Staff Reporter

ETF News

German ETFs Offer Good Opportunities in Rebounding European Market

1 Comment

MarketMuse update is courtesy of ETF Trends’ Todd Shriber.

Earlier this week and over the past few months, MarketMuse has been covering the rocky European market, thanks to Greece, and its recent rebound, with ETF $GVAL. Now investors have even more to be excited about with the recent success of German ETFs. 

The U.S. is not the only developed market where stocks are eying record highs. Germany’s benchmark DAX accomplished that feat Friday, climbing above 11,000 for the first time.

Exchange traded fund investors are responding, pumping massive of amounts of capital into Germany ETFs. The Recon Capital DAX Germany ETF (NasdaqGM:DAX), the only U.S.-listed DAX-tracking ETF, is up nearly 8% in the past month.

With its heavy tilt toward large, multi-national companies, the DAX index is benefiting from a depreciating euro currency. A weaker euro would help support export growth and potentially generate greater revenue from overseas operations for the multi-nationals.

A weak euro and sturdy data out of the Eurozone’s largest economy is prompting investors to put new capital to work with Germany ETFs. Through Thursday, only three ETFs have seen greater inflows than the $494.1 million added to the iShares MSCI Germany ETF (NYSEArca: EWG), the largest Germany ETF.

One of those three is the WisdomTree Europe Hedged Equity Fund (NYSEArca:HEDJ), which allocates 26% of its weight to German stocks. No ETF has seen larger 2015 inflows than HEDJ’s $4.1 billion in new assets and the gap between HEDJ and the second-place inflows ETF, the SPDR Gold Shares (NYSEArca: GLD), is sizable at over $1.6 billion.

Thanks to the faltering euro, investors are also flocking to currency hedged Germany ETFs. After taking in $450 million on Thursday, the iShares Currency Hedged MSCI Germany ETF (NYSEArca: HEWG) has added over $491 million this week. The ETF, which uses EWG with a EUR/USD hedge, had $287.4 million in assets heading into Thursday.

On a percentage basis, the Deutsche X-trackers MSCI Germany Hedged Equity Fund (NYSEArca: DBGR) and the WisdomTree Germany Hedged Equity Fund (NasdaqGM: DXGE) have also seen significant asset growth. DXGE has more than doubled in size this year while DBGR has tripled in size since the start of 2014.

Underscoring the advantage of the euro hedge with German equities, DBGR and DXGE have both produced double-digit returns over the past month while EWG is up “just” 7.5%. Importantly, economic data supports the case for more upside for Germany ETFs,

“German gross domestic product expanded 0.7 percent in the fourth quarter, soaring past an estimate for 0.3 percent. Private consumption rose markedly in the fourth quarter, and investment developed positively, driven by a significant increase in construction output,” reports Inyoung Hwang for Bloomberg.

 

Global Macro Strategy, Strike Price

A Safer Options Bet For Arbing $AAPL and $GOOG : Think “Dividend Strategy”

Leave a comment

MarketsMuse update profiling a very intriguing options strategy for professional traders is courtesy of a.m. edition of “Sight Beyond Sight” , the global macro strategy-centric publication from Rareview Macro LLC. The MM editors include former option market-makers and we’re reasonably confident that the following idea has not yet been considered by those who pride themselves on innovative, yet low risk option strategies. Caveat: for professionals only.

Neil Azous, Rareview Macro
Neil Azous, Rareview Macro

New Idiosyncratic Situation in Apple & Google…Avoiding the Mainstream Noise

There is no overnight recap today. Instead, we are going to present an equity idea on Apple Inc. (symbol: AAPL) and Google Inc. (symbol: GOOG).

If a discretionary money manager looks at their portfolio construction through the lens of “return streams” one such bucket would be called “idiosyncratic”. It is debatable what type of investment qualifies as “idiosyncratic” but we would argue “option conversion arbitrage” falls into this category nicely.

Option conversion arbitrage does not typically find its way into books about options trading. That is not surprising, given that the term alone would prompt most eyes to glaze over. With a little extra effort, however, this stock and options combination strategy should not be too difficult to fully understand.

Furthermore, demystifying conversion arbitrage does not require an advanced degree in finance or being a veteran market maker. All it will require is a basic understanding of put and call options (both buying and selling), familiarity with stock buying/shorting and knowledge of the stock dividend process. Conversions incorporate these elements, and a few others, in their cost and profitability structures and in the dimension of risk assessment, so you should brush up on them before getting started. Continue reading →

Fixed Income, Tech Talk

Chapter 5: Electronic Corporate Bond Trading—Do I See a Chapter 6?

Leave a comment

Same story, different day..’electronifying the corporate bond market’. . Folks have been looking for this Holy Grail for the past 20 years..That’s right..other than Bloomberg’s 1990’s system, a company named BondNet was the first to launch a web-based platform. That was an independent IDB platform created by some very innovative folks who got put into the penalty box when it was announced they would allow buyside managers to access it.Then Came Market Axess with their corporate bond offering (which was sponsored by a consortium of BDs and provided 2 different levels…one for the wholesale market (BDs) and the other for buyside…no need to guess why there were 2 levels of access…because there were 2 levels of prices displayed…Duh..that’s how the corporate bond market works, silly!

At the same time that BondNet and MarketAxess were getting their feet wet, TradeWeb was already in 2nd gear with their US Treasury bond offering…Great technology..great pioneers……Well, 20 yrs flash forward and TradeWeb..which had judiciously avoided going down a path that was full of torn limbs, is trying to steal corporate bond thunder from MarketAxess. TradeWeb’s focus is on the meat i.e. trade sizes of $1mil bonds and greater—while MarketAxess is somewhat stuck in the odd-lot land…not because they haven’t tried to get larger block orders, but because the culture of the corporate bond landscape is not friendly to trading blocks on a live screen… 

That said, the WSJ thought it only fair to give TradeWeb some publicity via a very complimentary profile their current capo di tutti…Here is the opening of that story:

Can one man drag corporate-bond trading into a new age, where others have failed?

Meet Mehra “Cactus” Raazi, a former salesman from Goldman Sachs Group Inc., who has been working to do just that at fixed-income technology operator Tradeweb Markets LLC.

The New York firm is counting on Mr. Raazi as the frontman for its new electronic bond-trading system, an effort to bring the corporate-bond world into the 21st century. It has charged him with drumming up interest among asset managers and hedge funds for a system it says will enable easier and cheaper trading in U.S. corporate debt.

While trading technology can be humdrum, Mr. Raazi is anything but. Tall and athletic, with chiseled features, a neat crop of salt-and-pepper hair and a taste for custom motorcycles, he sometimes sports an ascot with skulls on it or a leather wristband featuring silver skulls. He practices the combat sport muay thai and has a stake in a lower Manhattan late-night burlesque club, The Box, said people familiar with his activities.

“He comes off very polished,” said Michael Adams, managing director at Sandler O’Neill + Partners LP, who saw Tradeweb’s new platform in the fall.

Whether the new platform, and Mr. Raazi’s efforts to sell it, will succeed still is uncertain, according to traders and analysts. Tradeweb has been silent on any progress it has made so far.

That is despite investors calling for more efficiencies amid shrinking stockpiles of bonds at securities dealers. For years, electronic trading has remained a fraction of the $7.7 trillion U.S. corporate-bond market. Instead, much of the trading is done over the phone.

Only about 15% of corporate-bond trading in the U.S. between investors and dealers is conducted electronically today, up from about 8% in 2010, according to bond-platform owner MarketAxess Holdings Inc., which has the vast majority of that volume.

Appetite is rampant among startups, exchanges and others to find the magic formula that can boost that share of electronic trading, because of the vast sums to be made from becoming the dominant player.

As many as 18 new companies are in various stages of launching competing platforms this year in the U.S., according to researcher Greenwich Associates.

“We’re not coming at this thing with a crystal ball,” said Tradeweb’s Chief Executive Lee Olesky in a briefing with reporters in the fall. Mr. Raazi declined to comment for this article through a spokesman.

Tradeweb’s effort has powerful backers in the 11 banks that co-own the company, including four of the big U.S. bond dealers: Bank of America Merrill Lynch, Citigroup Inc., Goldman and J.P. Morgan Chase & Co.

But it faces significant headwinds, as shown by the failure of numerous recent bond-platform launches, including at least two previous attempts by Tradeweb in the U.S. Past efforts have foundered for a variety of reasons, including that old trading habits are slow to change.

Advancing the workings of corporate-bond trading is the latest challenge facing issuers and investors. A doubling of issuance volumes since the financial crisis has vastly expanded U.S. corporate-debt securities outstanding to $1.46 trillion at the end of 2014, from $707.2 billion at the end of 2008, according to the Securities Industry and Financial Markets Association. Yet liquidity, reflecting the capacity to buy or sell securities quickly at a reasonable price, has retreated, traders say.

Into this breach steps Mr. Raazi, who is 44 years old and was educated in California. In 2007, Goldman praised him for swiftly closing out $1.2 billion of bets against souring mortgage securities. In 2010, a Senate subcommittee probing banks’ role in the U.S. housing crisis released a March 2007 email in which a Goldman executive lauded Mr. Raazi’s timely trading. “Cactus Delivers” was the subject line.

For the entire article from WSJ, click here

ETF News

Take A Bite Out of This Apple: Tech ETF Surges Off Of Apple’s Success

Leave a comment

MarketMuse update is courtesy of ETF Trends’ Tom Lydon. 

Shares of Apple (NasdaqGS: AAPL) are up a modest by the stock’s standards 0.6% today, pushing the iPhone maker’s market capitalization to a lofty $732 billion and some change.

As has been well-documented, Apple’s ascent to becoming the first company with a market value of $700 billion and its targeting of the unheard of $1 trillion stratosphere is benefiting plenty of exchange traded funds. One of those ETFs is the Fidelity MSCI Information Technology Index ETF (NYSEArca: FTEC).

FTEC is one of the newer kids on the sector ETF block, having debuted in October 2013 as part of Fidelity’s 10-ETF sector suite. That group has since grown by one with the recent addition of theFidelity MSCI Real Estate Index ETF (NYSEArca: FREL).

Fidelity has navigated the ultra-competitive sector ETF landscape with success. In June 2014, Fidelity’s original 10 sector ETFs had a combined $1 billion in assets under management, a number that has since more than doubled to $2.2 billion.

FTEC has been a primary driver of Fidelity’s sector ETF growth. At the end of January, the ETF had $352.6 million in assets under management, good for the second-best total among Fidelity sector ETFs behind the Fidelity MSCI Health Care Index ETF (NYSEArca: FHLC).

In an environment where Apple has more than restored its juggernaut status, FTEC earns its place in the Apple ETF conversation with a weight of 17.1% to the iPad maker. That is more than double FTEC’s weight to Microsoft (NasdaqGS: MSFT), its second-largest holding.

FTEC’s Apple weight of 17.1% also exceeds the weight to that stock found in one of the fund’s primary rivals, the Vanguard Information Technology ETF (NYSEArca: VGT).Unlike rival ETF issuers, Vanguard does not update its funds’ holdings on a daily basis, opting to do so once a month. VGT’s latest holdings update, from Dec. 31, 2014, showsan Apple weight of 15.3%. With the stock’s 14.5% gain this year, VGT’s Apple exposure is now likely well over 16%.

FTEC and VGT compete for the affections of cost-conscious investors as both charge just 0.12% per year, making the pair the least expensive tech sector ETFs on the market. Each has returned 2.1% year-to-date.

Like its rivals, FTEC is a cap-weighted ETF, meaning as Apple’s market value rises, the stock’s presence in FTEC grows. Since the start of December, FTEC’s Apple weight has increased by 140 basis points.

“FTEC offers more exposure to semiconductors and data processing & outsourced services companies and no exposure to integrated telecom services stocks,” according to S&P Capital IQ, which rates the ETF overweight.

ETF News

Will Investors Buy Into The Latest Buyback ETF? A Look at $SPYB

Leave a comment

MarketsMuse update profiles last week’s launch of the SPDR S&P Buyback ETF, an exchange-traded fund focused on tracking the stock price performance of companies that are in midst of corporate share repurchase (10b-18) programs. Excerpt courtesy of ETF Daily News.

Buybacks and dividends have been among the primary contributors to the stock market Bull Run. In fact, share buybacks in the third quarter amounted to $143.4 billion – the fourth highest quarter for spending on buybacks by S&P 500 companies since 2005.

This massive surge in spending by U.S. companies on share buybacks has prompted issuers for launching new products targeting this space. State Street has recently launched a product that would tap companies having a high buyback ratio.

The product – SPDR S&P 500 Buyback ETF – was launched on February 4 and trades under the ticker SPYB. Below we have highlighted some of the details about the newly launched fund.

SPYB in Focus

The ETF looks to track the performance of the S&P 500 Buyback Index, which provides exposure to 101 companies in the S&P 500 with the highest buyback ratio in the last 12 months. The index follows an equal weighted strategy and is rebalanced quarterly. The equal weighted strategy ensures that the index’s assets are quite well diversified with none of the individual holdings having more than 1.2% exposure in the fund.

Tesoro Corporation, Kohl’s Corporation and MeadWestvaco Corporation    are the top three holdings of the fund. Sector-wise, Consumer Discretionary takes the top spot with a little less than one-fourth of fund assets, followed by Technology and Industrials with 18.2% and 16.3% exposure each..

The index currently has a dividend yield of 1.47%, while the fund charges 35 basis points as fees.

How does it fit in a portfolio?

Though most investors prefer dividends to buybacks as they allow investors to get the cash immediately, a buyback has its own set of advantages. Buybacks reduce the outstanding share count and thus increase earnings per share. Further, they are more tax efficient than a special dividend.

Per Fact Sheet, U.S. share buyback increased 16% year over year and 6.6% quarter over quarter during the third quarter of 2014. Moreover, U.S. companies are currently sitting on a record amount of cash, which might encourage the companies to continue to be active on the share buyback front.

For the entire story from ETF Daily News, please click here

ETF News

Catch Europe’s Rebound With $GVAL ETF

1 Comment

MarketMuse update profiling Europe’s market rebounding is courtesy of ETF Trends’ Tom Lydon. 

With Greece seemingly in the headlines every day, and rarely with good news, it is easy for investors to perceive European equities as damaged and vulnerable to more declines.

On the brighter side of the ledger, history is littered with examples that highlight the profitability of contrarian investing and buying when others are fearful. Enter the Cambria Global Value ETF (NYSEArca: GVAL).

GVAL debuted in March to 2014 and to say the ETF was the victim of inauspicious timing is to understate matters. While an ideal way to gain access to some attractively valued developed European markets, GVAL also features ample emerging markets exposure. Neither emerging nor non-U.S. developed markets were the places to be soon after GVAL debuted.

“GVAL has gotten off to a humble start. But if you’re a believer in value investing as a discipline, then GVAL deserves a serious look. In a market in which the U.S. has outpaced its foreign competitors for years, I consider GVAL to be an excellent, diversified rebound play on Europe and emerging markets,” according to Charles Sizemore.

GVAL’s current emerging markets exposure among its top 10 country weights does not lack for controversy. Brazilian stocks, embroiled in a graft controversy surrounding Petrobras (NYSE: PBR), made up 12% of GVAL’s weight at the end of the fourth quarter. Russia and Greece, rarely deliverers of good news, combined for another 14% of GVAL at the end of 2014, according to Cambria data.

“But herein lies the beauty of GVAL. Few investors would have thick enough skin to take a large position in any of these countries individually. But even investors with nerves of steel would have trouble building a viable portfolio of stocks from most of these markets due to the lack of available U.S.-traded ADRs to buy.   Very few investors have access to the small and mid-cap foreign stocks that dominate GVAL’s portfolio,” notes Sizemore.

The actively managed GVAL targets the cheapest, most liquid picks in countries where political or economic crisis have depressed valuations. GVAL’s eligible country universe includes Greece, Russia, Hungary, Ireland, Spain, Czech Republic, Italy and Portugal. At the end of 2014, 56% of the ETF’s country weight was allocated to Eurozone nations.

Investors can also access a sliver of GVAL via the Cambria Global Asset Allocation ETF (NYSEArca: GAA). Known as the ETF without an annual fee, GAA debuted in December and holds other ETFs. At the time of launched, GAA held a 4% weight to GVAL.

Fixed Income, Global Macro Strategy

$AAPL Swiss Bond Deal-Slicing Through the Jibber Jabber With a Rareview

Leave a comment

MarketsMuse update profiling Apple, Inc. ($AAPL) Swiss bond issuance is courtesy of extract from a.m. edition of Rareview Macro LLC’s “Sight Beyond Sight.”

The commentary on Apple Inc. (symbol: AAPL) and Swiss franc (CHF) below is certainly a rare view, simply because most professionals are still trying to decipher the impact of this morning’s Swiss bond deal.

Neil Azous, Rareview Macro
Neil Azous, Rareview Macro

Given the focus on the world’s largest company and Switzerland in the aftermath of the shift in central bank policy in January, one would think there would be a lot more discussion about the debt offering described below. It is not happening. That is not because professionals or the media are not interested in the deal. It is, instead, largely because this offering is intellectually challenging to first analyze and second, to report on.

Apple Inc.: To Sell CHF750M Bonds in 2-Tranche Offering; Scheduled To Price Today.
o Tranche 1: CHF500m 11/2024 at MS +27bps area
o Tranche 2: CHF250m 15Y at MS +37bps area
o Lead managers: CS, GS
So let’s analyze this together through our lens. Continue reading →

Strike Price, Tech Talk

Options Market-Makers Migrate to Miami: Trading Firms Increase Stake in MIAX Options Mart

Leave a comment

MarketsMuse options market coverage of MIAX, the latest entrant to the continuously fragmented world of securities exchanges is courtesy of Traders Magazine

Options industry market makers, Citadel Securities LLC, KCG Americas LLC, Morgan Stanley & Co. LLC, Optiver US LLC, Susquehanna Securities, Timber Hill LLC, and Wolverine Trading, LLC have closed an equity rights transaction between themselves and MIAX. This is the second equity rights transaction MIAX has completed.

The structure of the new second transaction provides the MIAX members with the right to invest in the MIAX’s parent holding company Miami International Holdings, Inc. (MIH) in exchange for payment of an initial purchase price or the prepayment of certain transaction fees and the achievement of certain liquidity volume thresholds on the Exchange.

“The launch of this equity rights program is another major milestone for MIAX,” said Thomas Gallagher, MIAX’s chairman and chief executive. “Following the success of our first equity rights program, we wanted to again provide MIAX Exchange Member firms with the ability to acquire an equity interest in MIH through a unique transaction.”

Five of the firms, KCG Americas LLC, Morgan Stanley & Co. LLC, Susquehanna Securities, Timber Hill LLC, and Wolverine Trading all were part of the exchange’s first equity rights program.

Coverage of this story is credited to Traders Magazine and John D’Antona

ETF News, Global Macro Strategy

Currency-Hedged ETFs In Demand by Global Macro-Focused Traders

Leave a comment

MarketsMuse update courtesy of reporting by Reuters’ Gertrude Chavez-Dreyfuss and Ashley Lau

NEW YORK (Reuters) – U.S. investors spooked by wild swings in the foreign exchange market are piling into exchange-traded funds that strip out the local currency on their international equity portfolios, making them one of the most sought-after financial products in 2015.

With the dollar having rallied more than 19 percent since the beginning of 2014, investors are seeing gains in overseas stock markets eaten up by losses against the greenback.

“People are voting with their feet,” said Luciano Siracusano, chief investment strategist for WisdomTree Investments in New York. “They’re putting billions of dollars into these funds, and what they’re saying is, ‘We don’t want to be 100 percent unhedged.’”

Some say there aren’t enough of these products for investors looking for international exposure. These ETFs have about $31.5 billion in assets, up nearly five-fold from 2011. But assets in international equity ETFs exceed $275 billion, according to WisdomTree.

“There are 40 countries with stock markets deep enough to have a currency-hedged product,” said David Kotok, chairman and chief investment officer of Cumberland Advisors in Sarasota, Florida, which oversees $2 billion, and whose firm’s equity investments are solely through ETFs. Continue reading →

ETF News

Greece ETF Crumbles to Ruins

1 Comment

MarketMuse update is courtesy of Business Insider’s Sam Ro

MarketMuse has previously reported on the volatility the Greece elections created early this year now even more problems have ensued for the country. Following the the European Central Bank’s announcement that it lifted its waiver on minimum credit rating requirements for marketable instruments issued or guaranteed by Greece, Greece’s ETF crashed leaving just ruins left.

The Greek stock market closed hours ago, but the exchange-traded fund that tracks Greek stocks, GREK, crashed during the final minutes of trading in the US markets.

The euro is also getting walloped, falling 1.3% against the US dollar.

This comes following bad news from the European Central Bank (ECB) to Greece’s debt-laden banks.

Shortly after 3:30 p.m. ET, the ECB announced that it lifted its waiver on minimum credit rating requirements for marketable instruments issued or guaranteed by Greece.

To put it another way, Greek banks can no longer exchange their junk-rated sovereign bonds for cash.

“The waiver allowed these instruments to be used in Eurosystem monetary policy operations despite the fact that they did not fulfill minimum credit rating requirements,” the ECB said in a press release. “The Governing Council decision is based on the fact that it is currently not possible to assume a successful conclusion of the programme review and is in line with existing Eurosystem rules.”

“In other words, the ECB doesn’t see Greece complying with existing bailout rules,” Bloomberg’s Lorcan Roche Kelly explained.

However, it’s not all bad. The ECB has another way for Greek banks to exchange their securities for liquidity. The cost of borrowing will however be higher.

“Liquidity needs of Eurosystem counterparties, for counterparties that do not have sufficient alternative collateral, can be satisfied by the relevant national central bank, by means of emergency liquidity assistance (ELA) within the existing Eurosystem rules,” the ECB said.

“The move from the ECB today is a copy of the suspension of Greek debt that occurred in February 2012,” Kelly noted.

“For Greek banks, this move by the ECB will not directly be a disaster as they have reduced their exposure to the Greek sovereign since 2012 and so are less reliant on that debt as collateral,” Kelly argued.

Still, it appears to be more bad than good. And judging by the reaction in the currency and equity markets, investors and traders were hoping for better.

For the original article, click here.
Fixed Income, Global Macro Strategy

Fixed Income Guru Says This About Interest Rate Outlook-

Leave a comment
ron quigley
Ron Quigley, Mischler Financial Group

MarketsMuse fixed income fix for Feb 5 is courtesy of Industry Veteran and debt capital markets guru Ron Quigley, Managing Director and Head of Fixed Income Syndicate for Mischler Financial Group, the sell-side’s first and foremost investment bank/institutional brokerage boutique that is owned and operated by service-disabled veterans.  Mr. Quigley is also the author of “Quigley’s Corner”, a daily debt capital market commentary distributed to 1000+ Fortune treasurers, investment managers and public plan sponsors.  Mischler Financial Group is the winner of the 5th Annual Wall Street Letter Award for “Best Broker-Dealer/Research”

The Guy-in-the-Corner’s Take on Interest Rates (Feb 4 Quigley’s Corner)

So, I was asked by a Senior Managing Editor of an anonymous multi-billion dollar global financial news operation for my thoughts on interest rates. When I began my response to him, it just seemed to continue as there are so many factors that influence that discussion. My response turned out to be a feature unto itself so without further ado, I thought I’d feature it in today’s “QC.”

As concerns your question about how recent jumbo deals (think “Apple”) have raised speculation of interest rates rising, there is a POV out there claiming issuers are quick to print in anticipation of higher rate action. I, however, lean the other way…….FAR the other way and here’s why:

I have always been a proponent of “lower-for-longer”. Yellen added language in her last minutes flagging the EU as a potential impact on keeping U.S. rates lower. In the prior minutes, she didn’t mention the EU at all (which I thought was egregious not to at least mention the worst and most impactful economic story on our planet).

o On any given day a slew of news would be headliners in their own right. Aside from MENA unrest and the dramatic ISIS killings and impact in the world’s most sensitive hotbed – MENA – there are myriad factors that can all impact our rate environment:

o The Swiss National Bank’s action to remove its cap with the euro is a red flag or bad sign to the markets. It means the Swiss (unknown for surprises and bastions of stability) do not like what they see in on the horizon for for the EU. Did someone say “currency wars?” Remember history and NEVER forget it. We are dealing with severe currency volatility between the USD, EURO, YEN et al. These are reminders of the economic dislocation circa the 1930s……and we know what that led to. Continue reading →

ETF News

Mutual Funds Issuer Hoping to Enter the ETF Ring

Leave a comment

MarketMuse update courtesy of ETF Trends’ Tom Lydon

American Funds, one of the largest mutual funds issuer, are waiting for the SEC to approve an application for the issuer to enter the ETF industry. 

Capital Group Cos., the parent company of American Funds, submitted an application for ETFs to the SEC a year ago. A notice from the SEC indicates approval of American Funds’ ETF foray appears likely though there is still time for opponents to request an SEC hearing, though such a hearing is unlikely, reports Trevor Hunnicutt for InvestmentNews.

California-based American Funds has $1.2 trillion in assets under management, or more than half the current AUM tally for the U.S. ETF industry. However, ETFs are the fastest-growing corner of the asset management industry, underscoring the desire of mutual fund companies to become involved with products that institutional investors and advisors are increasingly adopting.

While it took nearly two decades for the ETF industry to reach $2 trillion in assets, it will not need nearly as long to get to $5 trillion, according to a new report by PwC. The PwC repots says the global ETF industry will reach $5 trillion in combined AUM by 2020.

News of American Funds potentially entering the ETF business represents a reversal from the company’s previous stance on ETFs. The company has been a strident supporter of active management at a time when data indicate many active managers consistently fail to beat their benchmarks.

In September 2013, Capital Group published a study that “argued that its stock-picking mutual funds outperformed their benchmark indexes in the majority of almost 30,000 periods examined over the past 80 years. That included 57 percent of one-year stretches, 67 percent of 5-year periods and 83 percent of 20-year ranges. The Capital Group study examined 17 of the company’s mutual funds that invest in equities or both equities and bonds. It measured their performance over every one-, three-, five-, 10-, 20- and 30-year period, on a rolling monthly basis, from Dec. 31, 1933, through Dec. 31, 2012.”

Still, “only about 13% of actively managed, large-company stock funds posted returns above that of the S&P 500 for 2014,” the Wall Street Journal reports.

Although the SEC notice did not specify whether American Funds will issue active or passive ETFs, the firm’s reputation for active management implies the company would favor actively managed ETFs, a still small, but fast-growing segment of the ETF business. Some industry observers also see actively managed ETFs being a key driver of ETF industry growth in the coming years. For the week ending Jan. 16, U.S.-listed actively managed ETFs had a combined $17.24 billion in AUM with nearly half that total allocated to PIMCO and First Trust ETFs, according to AdvisorShares data.

While that is just a fraction of the overall U.S. ETF industry, increased demand for active ETFs and the potential for a more favorable regulatory environment could make actively managed ETFs a $500 billion asset class by 2020, according to a report by publishedSEI Investments last year.

 

ETF News, Global Macro Strategy, Strike Price

Global Macro ETF: A Rareview- Look No Further and Look Down Under $MVMVE

Leave a comment

MarketsMuse global macro trading insight courtesy of extract from 4 Feb edition of Rareview Macro LLC’s “Sight Beyond Sight” with reference to $MVE and $MVMVE

Neil Azous, Rareview Macro
Neil Azous, Rareview Macro

There are a lot of moving parts overnight, including the continuing debate on whether crude oil has bottomed or not. But if we had to focus on just one part of the narrative it would be Australia – the tentacles of which stretch out all the way to basic resources, yield, beta, deflation, and sentiment.

Now before dismissing any read through from this antipodean nation as not as relevant as other indicators, we would argue that what is happening there may well have more meaningful ramifications for global risk assets than most realize.

Firstly, the Market Vectors Australia Junior Energy & Mining Index (symbol: MVMVE) is showing the largest positive risk-adjusted return across regions and assets for the second day in a row.

By way of background, MVMVE covers the largest and most liquid Australian and offshore small-caps generating 50%+ of their revenues from energy & mining and listed in Australia. This basket of securities is not only highly geared to capex, utilities, infrastructure, and engineering but it is the poster child for Australia-Asia commodity speculation. Put another way, it has been the worst-of-the-worst and a favorite proxy to watch for those who hold the dogmatic view that China and Australia are both zeros.

We do not want to overemphasize the importance of just one index, so we are highlighting it more as a starting point than anything else. It is not uncommon for this index to show up on our equity monitor but it is rare for it to take the leadership across all regions and assets, and very rare for that to happen on back-to-back days. For that reason, it has prompted us to do some further analysis on that food chain.

Model Portfolio Update – Increased S&P 500 (SPY) Short Position Continue reading →

ETF News

Russia’s ETF Tries to Get Back On The Horse

1 Comment

MarketMuse update courtesy of ETF Trends’ Todd Shriber.

MarketMuse has been profiling the recent market turmoil found all across Europe but mainly Greece and Russia. After a difficult past six months, Russia’s ETF has recently been back on the rise. 

Entering Tuesday, the Market Vectors Russia ETF (NYSEArca: RSX) sported a six-month loss of 35.2%, making it difficult to be bullish on Russian equities.

However, what is now a three-day rally for oil futures is compelling some traders to revisit RSX and the adventurous are even mulling positions in the Direxion Daily Russia Bull 3x Shares (NYSE: RUSL), the triple-leveraged equivalent to RSX. RSX is the oldest, largest and most heavily traded Russia listed in the U.S.

Over the past five days, the United States Brent Oil Fund (NYSEArca: BNO) is up more than 14%, which is important because Russia, the largest non-OPEC producer in the world, prices its oil in Brent terms, the global benchmark. RSX and RUSL have responded with arguably tepid five-day gains of 1.6% and 4.3%, respectively.

Still, traders with temerity might want to give RUSL a look because there are signs of capitulation among RSX bears.

“The RSX, country ETF for Russia, seen below on the daily timeframe, shows a consolidation pattern which has morphed into a sideway channel. Bears have thus far failed to crack it lower, perhaps blinded by love for a crash in crude and failing to recognize the temporary bottoming signs in place for energy and energy stocks. Thus, RUSL is on my radar as a levered long play, especially if RSX holds over $15.30 today,” according to Chessnwine of Market Chess.

Russia ETF

Lunch with Russia ETFs, in particular RUSL, is far from free. RSX has a three-year standard deviation of 27.2%. Said another way, RSX has been 1,200 basis points more volatile than the MSCI Emerging Markets Index over the past three years.

Additionally, oil prices will likely determine the near-term fate of RSX and RUSL. After all, no non-OPEC is as heavily dependent on oil as a driver of government revenue as Russia is. Nearly half of Russia’s government receipts come by way of oil exports.

Of course, there is the valuation argument, a familiar refrain of Russia bulls in recent years. Indeed, Russian stocks are down right cheap. At a forward P/E of four, the MSCI Russia Index trades at less than half valuation of the MSCI Emerging Markets Index and about a quarter of the valuation of the S&P 500.

There is another interesting point in favor of RUSL: Investors’ tendency to be wrong with leveraged ETFs. RUSL has seen outflows of over $21 million over the past month,according to Direxion data.

There is validity in going against the crowd with leveraged ETFs. Consider this: From about Aug. 20, 2014 to Sept. 23, the Direxion Daily Gold Miners Bear 3X Shares (NYSEArca: DUST) lost $185.3 million in assets but surged 55% over that period.

ETF News

State Street Slashes SPDR ETF Fees; Issuers In A Race to Zero? Nah..

Leave a comment

MarketsMuse blog update courtesy of extract from news report by Reuters’ Ashley Lau

State Street Corp said on Tuesday it has slashed management fees on 41 of its SPDR exchange-traded funds, joining major ETF providers BlackRock Inc and Vanguard in their efforts to lower fees as price competition heats up.

The price cuts at State Street, which affect a range of international and domestic equity and bond funds, come at a time when cost has become an increasingly important factor for ETF providers. Vanguard, which recently surpassed State Street to become the No. 2 U.S. ETF provider, has been winning assets with its razor-thin fees.

With the new price reductions, State Street’s SPDR Barclays Aggregate Bond ETF, for example, now has an expense ratio of 0.1 percent, down from 0.21 percent. That brings the fund closer to the range of the Vanguard Total Bond Market ETF and the iShares Core U.S. Aggregate Bond ETF, which both have an expense ratio of 0.08 percent.

State Street said the fee reductions are part of an ongoing review process “to identify improvements that are beneficial to investors.”

“Competitive pricing is a core benefit to the SPDR ETF value proposition,” said James Ross, global head of SPDR ETFs at State Street Global Advisors, the company’s asset management business.

ETF assets have been flowing into Vanguard, long a leader in low fees. It increased its U.S. market share to 21.3 percent at the end of 2014, more than doubling its market share since 2008.

BlackRock, the largest ETF provider, has also been expanding its “iShares Core” lineup of low-cost ETFs, a program it started in October 2012 to compete with cheaper funds offered by other providers. The company said on Monday it would extend a partial fee waiver of annual management fees on certain iShares funds in Canada. (Reporting by Ashley Lau; Editing by Dan Grebler)

 

Fixed Income, Tech Talk

Electronic Trading of Corporate Bonds: Buy-Side Says: Don’t Fix What Ain’t Broken

Leave a comment

Marketsmuse.com continues coverage of corporate bond electronic trading initiatives with outtake courtesy of coverage by Traders Magazine and column authored by Wall Street & Technology’s Ivy Schmerken. MM editor note: Since it was our chief honcho who coined the phrase “electronification of markets” 20 years ago, we’re also the first to say “If anyone has their pulse on fixed income electronic trading schemes, Ivy does.”

While new electronic venues are pushing to solve a liquidity shortage, buyside traders say the market is working fine, and they value dealer relationships.

Ivy Schmerken
Ivy Schmerken

Buyside traders say they are still finding liquidity from traditional voice dealers in the corporate bond market, though they will increase their usage of electronic venues for small trades to boost efficiency.

Despite concerns about a looming liquidity crisis and sellside balance sheets constraints, head traders speaking at an industry conference sponsored by Tabb Group said they mainly rely on voice traders to meet their liquidity needs.

Though the panel discussion was focused on the liquidity conundrum and the development of electronic bond trading networks, buyside traders said the market is working fine and they are not in a panic over a potential liquidity crisis.

“There are people confused as to where we are now and where they think we will be if we don’t see some automation or electronification of the market,” said Michael Nappi, VP Investment Grade Trader, Investment Grade FI at Eaton Vance. He said liquidity weaknesses do not affect all issues and sectors. Continue reading →

Global Macro Strategy

Confused About Crude? You’re Not Alone; Global Macro Traders Tongue-Tied

Leave a comment

MarketsMuse excerpt from Feb 3 edition of Rareview Macro LLC’s  Sight Beyond Sight global macro commentary..

Professionals Not Discussing Crude Oil Strength…Short Euro Put on Hold

This is simple.

Neil Azous, Rareview Macro
Neil Azous, Rareview Macro

WTI crude oil is now up ~18% from the January 29th lows. It is not a question of whether the bounce continues or worth debating whether a V-shaped or U-shaped recovery is materializing. What is more important is whether a low was made and a new medium-term range is now being carved out.

Now anyone who monitors cross-market correlation will understand that the price of a barrel of Brent crude oil is highly correlated with the inverse of the trade-weighted dollar. Therefore, if the price of oil is stabilizing there is a quantitative argument that the dollar will stop rising, at least in the short-term.

Professionals are highly sensitive to pattern recognition and the last two times the Euro-Dollar (EUR/USD) corrected (i.e. Oct & Dec 2014) the currency cross appreciated by 2.5-3.2%. This is in line with the current bounce off the low price (i.e. 2.6%) following the ECB meeting in January.

So the question is why is it that those who never participated in the first place or those that reduced their long dollar exposure at the end of 2014 and missed the January QE move, but believe the currency cross will trade down to parity (i.e. 100) by the end of this year, have not used this bounce to get short of EUR/USD, especially considering you now have policy confirmation from the ECB? Continue reading →

Global Macro Strategy, People Profiles

Global Macro Czar Paul Singer Says This About Buying Govt Debt: “Nuts to You!”

Leave a comment

Elliott Management Founder Says It’s ‘Nutty’ to Hold Government Debt

Below MarketsMuse extract courtesy of FinAlternatives.com’s afternoon edition (which is courtesy of coverage from Bloomberg LP’s Kelly Bit) is a beauty for those who follow the musings of this global macro trading titan…and the comments are consistent with what makes Paul Singer, well, Paul Singer..

By Kelly Bit (Bloomberg) — Paul Singer, the billionaire founder of Elliott Management Corp., said government policy has encouraged traders to take massive concentrated positions in “fantastically” overpriced markets and that the government bonds of developed countries are at unsustainably high prices.

“Today’s trading levels of stocks and bonds reflect ‘thumb on the scale’ valuations driven by persistent and massive government asset purchases and zero percent (or lower!) short- term policy rates, as well as an essentially unlimited tolerance for risk,” Elliott wrote in the firm’s fourth-quarter letter dated Jan. 30, a copy of which was obtained by Bloomberg News. Continue reading →