All posts by MarketsMuse Staff Reporter

ETF News

June ETF Short Report: ‘Q’s’ Shorts Drop 42%

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Courtesy of Olly Ludwig

Short-sellers last month significantly cut their bets against an array of the broadest U.S. stock indexes, which looks quite sensible in the rearview mirror considering both the S&P 500 and the Dow Jones industrials average rallied by nearly 4 percent in June.

While financial markets are again on tenterhooks over the dismal fiscal situation in Europe—and Spain’s in particular—last month marked something of a respite from the three-year-old eurozone debt crisis, as short interest on non-U.S. stocks fell as well.

Most conspicuously, the number of shares short on the PowerShares QQQ Trust (NasdaqGM: QQQ), the Nasdaq 100 ETF, dropped 42.6 percent in June, compared with a nearly 9 percent rise in the prior month. The decline left short interest on the “Q’s” at 10 percent of the ETF’s outstanding long float, compared with more than 18 percent at the end of May, according to data compiled by IndexUniverse.

Shorts on the SPDR S&P 500 ETF (NYSEArca: SPY) meanwhile fell by almost 23 percent in June, compared to a 13 percent jump in May. Also, short interest on the iShares Russell 2000 Index Fund (NYSEArca: IWM) fell by more than 7 percent last month, after holding about steady in the prior month.

Dark Clouds Ahead? Continue reading →

ETF News, People Profiles

How NOT to Execute Your ETF Block Order..Best Ex Memo

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Editor note: For those who didn’t get the”Best Ex Meets Worst Ex” memo,  Ugo Egbunike from IndexUniverse spotlighted a block trade in QAI this past Monday that was apparently mangled by the executing broker, illustrating once again that ETFs are NOT stocks, and real best execution requires guidance from a truly-professional trader that actually knows how to execute ETF orders.

Someone got taken to the cleaners on Monday, buying 16,000 shares of  QAI—a trade that highlight the nuances of market-on-close (MOC) orders. They could have avoided it. Here’s what happened, why and how you can avoid it.

At 4:00:00 p.m. ET, around 16,000 shares of the IQ Hedge Multi-Strategy Tracker ETF (NYSEArca: QAI) were executed at $28.83—that’s $1.28, or 4.64 percent, more than its last traded price of $27.55 at 3:59:59 p.m. Eastern time. It was completely unwarranted.

At 3:59:59 p.m. ET, someone was offering 12,800 shares at $27.56. The fund’s underlying value didn’t change in that one second. At the end of the day, its net asset value was $27.50.

 

Time Exchange Bid Size Bid Ask Ask Size Trade
3:59:15
NYSE Arca
100
27.51
27.55
3,900
3:59:59
NYSE Arca
200
27.51
27.55
1,600
3:59:59
EDGA
$27.55
 3,800
3:59:59
NYSE Arca
200
$27.51
$27.56
3,800
3:59:59
NYSE Arca
200
$27.51
$27.56
12,800
4:00:00
NYSE Arca
$28.88 *
 16,077
4:00:00
Nasdaq
200
$27.51
$27.60
18,000

* NYSE Arca Market Closing Price                                                                        Source: Bloomberg

The trade was the result of a poorly executed market-on-close (MOC) order. MOC orders for NYSE Arca-listed ETFs are automatically entered into the NYSE closing auction, which is outside of the core trading session.

Unfortunately, orders in the NYSE closing auction are exempt from Rule 611: the Order Protection rule.  The basic idea behind the rule is to protect investors from faulty trades by comparing all nationally placed quotes.

If a better price exists for a market order, it gets routed to that exchange before it can get traded at its current exchange. In the case of the MOC trade in QAI, there was no protection—the trade was exempt because it occurred during the auction and not during the regular trading session.

It seems likely that the buy order was entered as a market order into the MOC NYSE closing auction. Had it been a limit order, the buyer’s limit would not have been $28.83, which means the final execution price would have been great news. Given that the last price was $27.55, a market order must have been behind that terrible trading strategy. Continue reading →

Global Macro Strategy

A New ETF Managed By ‘Random Roger’

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ImageCourtesy of Brendan Conway

Once upon a time, exchange-traded funds were simple index trackers. Nowadays you see the launch of products like the AdvisorShares Global Alpha & Beta ETF (RRGR).

This actively managed exchange-traded fund, which launched on NYSE Arca today, is built to reflect manager Roger Nusbaum’s ”tactical” and “global asset-allocation strategy (and his stock picks), with the aim of beating major indexes such as the S&P 500 and the Barclays Capital Aggregate Bond Index. It also has the unusual feature of buying and selling other ETFs. The “Random Roger” thing will be familiar if you’ve visited Nusbaum’s popular blog.

RRGR, which launched today on NYSE Arca, has a weighting of nearly 15% in the iShares Dow Jones U.S. Technology Sector Index Fund (IYW), 12% in cash, and 4% in the Vanguard Telecom Service ETF (VOX). HJ Heinz (HNZ), Kinder Morgan Emerging Partners (KMP) and Diageo PLC (DEO) are three of 11 stocks and ETFs that carry a 3% weighting, according to AdvisorShares. The yield will be around 3%, also according to AdvisorShares.

There have been predictions that actively managed ETFs are the next big thing. So far, though, the deepest inroads have been made in actively managed bond funds. Bill Gross’ Pimco Total Return ETF (BOND), just a few months old, is already the biggest actively managed ETF by assets. But the biggest equity ETF by assets isn’t a conventional equity ETF at all — it’s the $325 million AdvisorShares Active Bear ETF (HDGE), a short-selling strategy.

The new ETF has a net expense ratio of 1.40%, according to AdvisorShares’ website. Nor is it the first ETF to buy and sell other ETFs — AdvisorShares already has some of those.

ETF News

HARD is On:Currency-Centric ETF

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by Cinthia Murphy

United States Commodity Funds, the firm behind the $1.25 billion U.S. Oil Fund (NYSEArca: USO), filed paperwork with U.S. regulators to market its first currency fund, this one a futures-based currency ETF that would serve up exposure to a basket of five currencies at a time.

The U.S. Golden Currency Fund (NYSEArca: HARD) is a commodity pool comprised of futures contracts that represent equally weighted interest in five hard currencies that are widely used, easily exchangeable and issued by an economically strong country, the company said. The portfolio, which is rebalanced monthly, will have an estimated annual fee of 0.85 percent, including 0.60 percent in management fees.

The base currency for the strategy is the U.S. dollar, and therefore the dollar is not eligible to be one of the five currencies in the mix, the prospectus said.

Instead, the fund will select its exposure annually from the 25 most actively traded global currencies as measured every three years by the Bank of International Settlement currency trading report, the filing said. The latest BIS list, which was published in 2010, had the U.S. dollar, the euro, the Japanese yen, the British pound, the Australian dollar and the Swiss franc at the top. Continue reading →

ETF News

Cash Management ETFs Will Boom..

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Commentary below courtesy of Paul Amery, IndexUniverse.eu

Forbes columnist Ari Weinberg points out that bond ETFs should be seen as the “money market fund of tomorrow”, and he’s right.

Exchange-traded funds (ETFs) are well-positioned to make significant inroads into the US$2.7 trillion money market fund (MMF) sector, which is fighting a fierce rearguard action to maintain the fiction that fund net asset values can be kept stable.

In a vociferous lobbying campaign targeted at the US securities regulator, the Securities and Exchange Commission, a long list of US corporate and state treasurers say they can’t imagine a world in which MMFs might be allowed to “break the buck”—ie, have values that could fall below a dollar a share.

The chairman and namesake of the Charles Schwab Corporation, which manages US$160 billion in money market funds, told the SEC last month that MMFs are low-risk. “In 2008, at the depth of the financial crisis,” said Schwab, “only one money fund lost value for its clients. It lost one percent of its value; that is just one penny of the US$1.00-per-share price.”

But SEC chairman Mary Schapiro offers up a different version of events. She pointed out recently that over 300 money market funds have been bailed out by their sponsors since the 1970s. Just because MMF investors lost out only once or twice because fund sponsors stepped in to hide losses on the other occasions doesn’t mean that there isn’t risk to the whole system, in other words. Continue reading →

Strike Price, Tech Talk

ISE Lifts a Leg: Plans to Introduce Yet Another New Options Exchange

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The International Securities Exchange (ISE), the venue that bills itself as the first all-electronics options exchange in the United States will open a second by year’s end. The company has has filed a Form 1 application for a second exchange license with the Securities and Exchange Commission.

No details about the products to be traded, market structure, or fee schedule of the new exchange have been announced – except that it will run on ISE’s “Optimise” technology.

“Our Optimise technology platform was designed to support multiple markets and will enable our member firms to leverage their existing connectivity for our new exchange,’’ said Gary Katz, President and Chief Executive Officer of ISE.

The new exchange, the company said, however, will make use of a new piece of functionality added to Optimise: Legging orders.

According to a document filed with the SEC, a legging order is an order on the regular order book in an individual series representing one leg, or side, of a two-legged complex options order.

A legging order may be automatically generated for one leg of a complex order under two circumstances.

First, when the price matches or improves upon the best displayed bid or offer on the regular limit order book.

Secondly, when the net price can be achieved as the other leg is executed against the best displayed bid or offer on the regular limit order book.

The multiple-legged order type, ISE believes, will improve liquidity for complex orders by enabling interaction between the complex and regular order books.

ETF News

UBS breaks ETF launch record

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UBS is aiming to break into Europe’s exchange-traded fund big league following the listing of 64 of its funds on the London Stock Exchange, the largest number ever admitted to the LSE on a single day.

According to the LSE, the launch, which follows the listing of a suite of products by Vanguard Asset Management, has taken the total number of ETFs listed in London to 1,000.

The total value of ETF trading on the LSE has exceeded £500bn since the launch of the first fund in 2000, the exchange said.

UBS is carrying out the launch through its UBS Global Asset Management business. Its ETFs offer ‘A’ shares to retail investors and ‘I’ shares to institutional investors. Global head of ETFs Clemens Reuter said the unit size of ‘I” shares is a thousand times larger than ‘A’ shares: “Because they are dealt in bulk, the total cost of ownership becomes smaller.”

Of its London offerings, 17 will replicate the movement of indices through swap arrangements and a further 49 will operate in physical markets through the purchase and sale of underlying stocks. They will cover a range of equity sectors, plus investments in more esoteric areas such as infrastructure, rare earths and hedge funds.

For the full story, click here

Tech Talk

Exchanges Duel With Newcomers Over Trading Transparency; Payment for Order Flow Debate

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June 26, By Nathaniel Popper

MarketsMuse Editor Note: In what might prove to be the catalyst for even greater scrutiny of securities industry practices re market transparency, below extracts of article from front page of NY Times June 26 Business Section i.e. profile “lit” v. “dark” liquidity centers–and the nuances by which investor order flow is administered, and the impact on market integrity makes for a good read.

While most people trading stocks at home imagine their orders zipping from their brokers onto one of the nation’s stock exchanges, almost none of the trades go anywhere near those public markets.

In reality, most trades placed through online brokers like TD Ameritrade and Scottrade are sold to Wall Street firms, which accumulate and trade against tens of millions of these shares a day, rather than send them to a regulated exchange like Nasdaq or the New York Stock Exchange. The Wall Street firms then quickly flip them and turn an easy profit because they have more resources and market knowledge than mom-and-pop investors.

The trading, which takes place away from the gaze of regulators and the public in what are known as the dark markets, has taken off in recent years and steadily eaten into the portion of all stock trading that takes place on the public exchanges. Now, though, the exchanges are fighting back by looking to create dark markets of their own.

NYSE Euronext, the company that owns the exchange, is asking regulators to approve a new platform that would attract orders from ordinary investors and then divert them away from the normal exchange with the aim of getting the investor a better price. Nasdaq and the exchange company Direct Edge said they have similar plans in the works.

The proposal looks like a technical tweak to help ordinary investors. But it has become the front line in a battle over what the nation’s stock markets should look like after nearly a decade of fragmentation has resulted in over a third of all stock trades occurring in the dark, up from 15 percent in 2008, according to Rosenblatt Securities, a brokerage firm.

In the past, the exchanges have pushed regulators to force the dark markets to become better lit, but James Allen, the head of capital markets policy for the CFA Institute, said that with the new proposals the exchanges are acknowledging “that if you can’t beat them, join them.”

The practice [payment for order flow] took off after a series of regulatory changes over the last decade made it easier to trade off exchanges and more expensive to trade on exchanges. Today, four firms — Knight Capital Group, UBS, Citigroup and Citadel — have made a business out of paying for retail trades and trading against them. These firms generally pay retail brokers 15 cents for every 100 shares they are sent to trade against, industry experts say.

“…The retail brokers contend that the internalizers allow them to get the quickest and best execution for their customers…” Continue reading →

ETF News, People Profiles

MLPs: What You Didn’t Know-ETP Insight From An Expert

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Chris Hempstead, WallachBeth Capital

It took only 18 months for assets in MLP exchange traded products to grow from almost nothing to nearly $7.5bb.

What’s more amazing is that while the number of ETPs available in the market has grown significantly, nearly all of the inflow of assets into MLP ETPs has been captured by only 2 funds:

AMJ–JPMorgan Alerian MLP Index ETN $4.2bb assets under mgmt.

AMLP–Alerian MLP ETF $3.25bb assets under mgmt.

This success story has recently attracted more funds into the space and we expect that trend to continue.

The most recent launches in the MLP space are YMLP (Yorkville High Income MLP ETF) and the MLPA (Global X MLP ETF).

Here is the twist that precipitated this note: JPMorgan has announced (June 14) that they will cap the issuance in AMJ at 129mm notes.

This will bode well for the ETFs tracking the MLP space. A brief explanation below may help shed light on this.

When an ETP no longer allows for creations, the fund starts to trade like a closed end fund. The reasoning behind this is that the arbitrage mechanism which allows market makers to sell the ETP is no longer available. Without the ability to create, market makers may be less inclined to sell the fund short versus a hedge of the underlying assets.

It should be noted that this is only a cap of notes issued. Should the fund reach the cap (we expect it will very soon) and redemptions follow, the fund would allow creates until it reached the cap again.

So what happens now?

We simply wait and see. When AMJ reaches the maximum threshold, we will closely monitor the availability of AMJ notes available in stock loan as well as any premium in the funds pricing on the secondary market.This could bode well in the short term for existing holders of AMJ as the fund will likely trade at a premium once the creation facility is shut down. Early investors would not have expected this so it’s a win for them.

That being said, once this happens I expect investors looking at MLP ETPs will be drawn away from the AMJ ETN and towards the ETFs mentioned above. Why? With the creation facility wide open in ETF funds like AMLP, YMLP and MLPA we expect them to trade and track at or close to their respective net asset values. Continue reading →

ETF News

ETFs Passive No More in Challenge to $7.8 Trillion Market

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By Christopher Condon on June 26, 2012

Exchange-traded funds are posing a new threat to the $7.8 trillion market for active mutual funds by challenging the notion ETFs are only good for tracking benchmarks.

The $552 million First Trust Health Care AlphaDex Fund (FXH) (FXH), offered by Wheaton, Illinois-based First Trust Portfolios LP, follows an index that selects and weights U.S. health-care stocks based on a proprietary mix of financial measures such as sales growth and return on assets. Since its creation in 2007, the ETF has beaten the S&P 500 Health Care Index — 52 stocks chosen to broadly represent the industry — by almost 6 percentage points a year, and the actively managed Fidelity Select Health Care Portfolio by 3 percentage points annually.

“This isn’t an ETF that’s trying to track a benchmark,” Todd Rosenbluth, an analyst at research firm S&P Capital IQ in New York, said in an interview. “Its aim is to beat it.”

The AlphaDex fund is one of 155 ETFs, collectively holding about $12 billion, that are blurring the line between active and passive investing and threatening to further erode the market share of traditional stock and bond mutual funds. Unlike their passive peers, which use broad indexes to match a benchmark’s return, their goal is to capture outperformance, or alpha. While their assets are still a tiny slice of the fund industry, the payoff for such ETFs is potentially enormous: The pool of money chasing market-beating returns is almost four times larger than the $2.1 trillion held by investors in passive products.

Pimco ETF

Asset managers for years have pondered how to effectively combine the security-selection element of actively managed mutual funds with the tradability, tax advantages and other efficiencies of ETFs. Most have been dissuaded by the product’s necessity to reveal its holdings daily, which allows dealers to create new shares by delivering large baskets of a fund’s underlying securities to the ETF.

Active managers, especially those focused on equities, say that transparency would make it too easy for others to front-run their movements or simply copy them without paying to be in their fund. Some firms, including BlackRock Inc., the world’s biggest ETF provider, have asked permission from the U.S. Securities and Exchange Commission to introduce active ETFs that don’t reveal holdings daily. The agency hasn’t approved any such plans. Continue reading →

ETF News

J.P. Morgan Alerian Fund ETN (AMJ) Already Shows Premium

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  • Brendan Conway, June 22, 2012, 11:16 A.M. ET

The popular exchange-traded note whose share issuance was capped last week by J.P. Morgan Chase (JPM) is already trading at a premium. Investors who hold the JPMorgan Alerian MLP Index exchange-traded note (AMJ) can either cash out now with unexpected profits or they can ride the note’s unusual mechanics higher in hopes of even bigger gains.

But the outcome behind Door #2 is unpredictable. Nobody wants to be holding the bag if JPM suddenly reopens new shares. J.P. Morgan hasn’t said whether it will take that step. But if it does, the investment’s premium, which resembles what you see in closed-end funds, would collapse in a hurry. That’s a risk that investors will bear if they stick with this tracker of rich-yielding master limited partnerships.

The crux of the issue is that AMJ is no longer just a bet on master limited partnerships. It’s also a bet on what other investors who hold or want to hold the same J.P. Morgan note will do.

At the moment, there’s a 45-cent premium in AMJ’s market price versus the underlying assets, or about 1.2%. It will get bigger if more investors pile in.

“This is a free gift. But how long do you watch the premium build before you sell the shares out? It’s a question that the owners of AMJ have to ask themselves,” Chris Hempstead, a director at WallachBeth Capital tells Barrons.com.

ETF News

Blackstone’s GSO Preps Leveraged-Loan ETF With State Street

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Published June 21, 2012

Dow Jones Newswires

Blackstone Group (BX) unit GSO Capital Partners has filed paperwork to launch the first actively managed exchange-traded fund dedicated to high-yield corporate loans, apparently sensing demand for floating-rate loans secured on company assets amid exaggerated price swings in fixed-rate “junk” bonds.

GSO, based in New York, filed preliminary registration papers for the “leveraged” loan ETF and is waiting for the Securities and Exchange Commission to approve the project. The manager of $51 billion in credit assets is acting as a sub-adviser to giant ETF provider State Street Global Advisors.

Peter Rose, a spokesman for GSO, declined to comment. Marie McGehee, a spokeswoman for State Street, also declined to comment.

According to an April 20 filing, the investment objective of the SPDR Blackstone/GSO Senior Loan ETF is to outperform a commonly used loan index, the S&P/LSTA U.S. Leveraged Loan 100, by “normally investing at least 80% of its net assets … in senior loans.”

Read more: http://www.foxbusiness.com/news/2012/06/21/blackstone-gso-preps-leveraged-loan-etf-with-state-street/#ixzz1ySr5fJSy
ETF News

Short TVIX: The Ultimate VIX Contango Trade

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ETF Edge pictureJune 19, 2012

Contango is Back

The volatility futures curve is back in strong contango, and with it an opportunity to profit from the short trade on volatility linked ETFs/ETNs. For a primer on this trade, see previous articles here and here, but in short it’s an attempt to profit from the bias of investors to believe that market volatility in the future will be greater than it is in the present – essentially a fear of the “unknown unknowns”.

A Better Way to Play

In the past, I have advocated the use of short (VXX) or long (XIV) as ways to profit from steep contango, but there is, in my opinion, a more compelling way to profit from contango, short (TVIX).

is a 2x leveraged version of the VXX which should, in theory, return 2x the daily gains or losses of VXX or similarly structured funds.

However, as many have observed the TVIX had a pretty wild ride this spring. For those not familiar with the fund, in February the fund’s sponsor Credit Suisse temporarily halted creation of new units of the fund in response to skyrocketing demand and ballooning risk exposure for CS. Halting the issuance of new shares broke the mechanism that tends to keep funds trading in line with underlying value, and in a tulip mania moment, the market bid the price up to an 89% premium to fair value in just a few weeks. About a month later, when the sponsor resumed issuing shares on a limited basis, shares traded down sharply and more in line with fair value. Continue reading →

ETF News

State Street Introduces 2 New Corporate Bond ETFs

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By Benzinga.com

State Street’s STT -0.55% State Street Global Advisors unit, the second-largest U.S. ETF sponsor, will introduce two new bond ETFs on Tuesday.

The SPDR BofA Merrill Lynch Crossover Corporate Bond ETF will track an index that offers exposure to dollar-deonominated U.S.-issued BBB and BB-rated corporate debt. BBB is the lowest investment grade rating and BB is a non-investment grade rating.

Qualifying securities must have at least one year remaining term to maturity, a fixed coupon schedule and a minimum amount outstanding of $250 million. Original issue zero coupon bonds, 144a securities, both with and without registration rights, and pay-in-kind securities, including toggle notes, qualify for inclusion. Callable perpetual securities qualify provided they are at least one year from the first call date. Fixed-to-floating rate securities also qualify provided they are callable within the fixed rate period and are at least one year from the last call prior to the date the bond transitions from a fixed to a floating rate security, according to XOVR’s prospectus.

SSgA will also introduce the SPDR BofA Merrill Lynch Emerging Markets Corporate Bond ETF . Other ETF sponsors have already found success with emerging markets corporate bond ETFs, a fact that could either bode well for the SPDR BofA Merrill Lynch Emerging Markets Corporate ETF or indicate the ETF is late to the party.

The WisdomTree Emerging Markets Corporate Bond Fund EMCB +0.42% , which debuted in March, now has almost $60 million in assets under management. The iShares Emerging Markets Corporate Bond Fund (bats:CEMB), which debuted in April, has over $10 million in AUM.

Expense ratios were not included in the prospectus for either XOVR or EMCD.

ETF News, Tech Talk

Junk ETF Bond Volumes Signal Electronic Demand

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by Lisa Abramowicz

Trading of exchange-traded funds that focus on junk bonds is soaring while volume in the underlying securities slumps as dwindling dealer holdings prompt investors to seek electronic platforms.

Volumes in the two biggest ETFs in June have climbed 22 percent above the six-month average while overall trading for the debt has sunk 9 percent, according to data compiled by Bloomberg. A record $1.67 billion of shares was traded May 31 in the funds from BlackRock Inc. (HYG) and State Street Corp. (JNK), equivalent to 35 percent of the day’s total volume for U.S. junk debt.

“Hedge funds and individual investors recently may be able to articulate a trade more efficiently” through ETFs rather than the actual bonds, said Jason Rosiak, head of portfolio management at Pacific Asset Management, an affiliate of Pacific Life Insurance Co. in Newport Beach, California. “That could be considered an indictment on the bid-offer spread increasing due to dealers not taking a significant amount of risk.”

As trading becomes more difficult in the bonds, people will say trading in ETFs is more efficient,” said Chris Hempstead, director of ETF execution at WallachBeth Capital LLC in New York. “By trading the ETF, you’re transferring the onus for trading the bonds onto someone else.” Continue reading →

ETF News

Goldman Highlights ETF Correlations (XLF, XLK, XLU)

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By Benzinga.com

In a note out today, Goldman Sachs GS +1.96% said investors are continuing to increase usage of ETFs as hedging tools, a move that is “creating unintended consequences to their portfolios.” Goldman notes that managers and analysts are increasingly creating less-than-desirable hedges due, in part, to surprisingly high correlations among some sector funds.

“We see high trailing 3-month daily correlations among less-than-obvious pairs of sectors, including: Financials & Industrials, Tech & Discretionary and Materials & Discretionary,” Goldman said.

The recent performances of the various Select Sector SPDR funds indicate that Goldman’s note highlights valid points. In the past three months, the Financial Select Sector SPDR XLF +1.43% is down 9.7% compared to 8.8% for the Industrial Select Sector SPDR XLI +0.86% . The three-month gap is wider between the Technology Select Sector SPDR XLK +1.06% and the Consumer Discretionary Select Sector SPDR XLY +0.98% , which are down 5.8% and 3.3%, respectively. Over the past three months, the Materials Select Sector SPDR XLB +1.16% is down 7.5%.

“Indeed, of the 36 sector ETF pairs we examined, correlations on a 3-year basis are higher than 70% for 31 of the instances, emphasizing the importance for portfolio managers to choose sectors wisely when hedging at specific points in time,” Goldman said in the note. Continue reading →

ETF News

JPMorgan Caps Issuance on MLP ETN

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The ETF Professor, Benzinga Staff Writer

JPMorgan Chase (NYSE: JPM) announced on Thursday that will cap issuance for the popular Alerian MLP Index ETN (NYSE: AMJ) at 129 million notes. The move is significant because with almost $4.2 billion in assets under management, the Alerian MLP Index ETN is the largest exchange-traded product offering exposure to MLPs.

The universe of MLP exchange-traded products has grown rapidly, but the Alerian MLP Index ETN and the ALPS Alerian MLP ETF (NYSE: AMLP) combine for the bulk of the roughly $7.5 billion in MLP exchange-traded products assets under management, according to data furnished by WallachBeth Capital.

New York-based WallachBeth, one of the largest ETF execution firms in the U.S., said JPMorgan’s decision to cap issuance on AMJ could open the door for new MLP ETFs to gain assets. In a note published by the firm today, AMLP, the newly minted Yorkville High Income MLP ETF (NYSE: YMLP) and the Global X MLP ETF (NYSE: MLPA), another new fund, were cited as examples of fund that could potentially benefit from the AMJ issuance cap.

“When an ETP no longer allows for creations, the fund starts to trade like a closed end fund,” WallachBeth said in the note. The reasoning behind this is that the arbitrage mechanism which allows market makers to sell the ETP is no longer available. Without the ability to create, market makers may be less inclined to sell the fund short versus a hedge of the underlying assets.”

Continue reading →
ETF News

What’s Next? ETFs for IPOs. Renaissance Capital Joins the Fray.

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Reported by IndexUniverse’s Devon Layne and Olly Ludwig

Kudos to IU for scooping the news media–

Renaissance Capital, a research and investment management firm known for its IPO Plus Aftermarket Fund, filed regulatory paperwork requesting permission to offer a broad swath of ETFs targeting U.S. and non-U.S. stocks and bonds, with the first to be a fund that tracks its own Renaissance IPO Index.

The initial exchange-traded fund it is planning, called the Renaissance IPO ETF, will follow the performance of the U.S. IPO market through the use of an index that will be composed of a revolving list of qualified IPOs that change on a two-year rotation. The firm plans to market ETFs that are based on its own indexes.

[MarketMuse Editor’s note: we can only hope that FB incident and subsequent clog in IPO pipeline doesn’t put too much of a crimp in this initiative.]

Indeed, Greenwich, Conn.-based Renaissance’s “exemptive relief” filing with the Securities and Exchange Commission also requests permission to roll out funds with “affiliated indexes”—ETF lawyer-speak for in-house indexes. The petition with the SEC cited as precedents a number of firms that market self-indexed funds, including Russell and Van Eck Global.

The paperwork thus seeks to establish Renaissance’s presence in the dynamic ETF market, where total assets are now more than $1.150 trillion in over 1,450 securities. Moreover, the firm, by requesting to use its own indexes, is tapping into one of the newer trends in the ETF market that industry sources say reflects a desire among ETF sponsors to stop paying costly index-licensing fees. Continue reading →