All posts by MarketsMuse Staff Reporter

ETF News, People Profiles

ETF-in-a-Box: You Too Can Launch An ETF for Peanuts

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The barrier to entry for issuers of ETFs keeps getting lower. What used to cost anywhere between $1mil-$5mil and many months of filing paper work to create and finally launch a new ETF, now, for just only $100k (before marketing/advertising costs), you too can launch an exchange-traded fund in under three months and maybe even become the next iShares or Wisdom Tree. At least that is the premise profiled by Lara Crigger’s post at ETF.com in her coverage of J. Garrett Stevens and his white-label ETF maker, Exchange Traded Concepts LLC, aka “ETC”.

Below is extracted from Crigger’s coverage…

Garret Stevens, President of ETC
Garret Stevens, President of ETC

Six years ago, J. Garrett Stevens, CEO of FaithShares, had just launched his first ETFs. He and his partners sat back, counted their victories, and eagerly waited for investors to bang down the door to buy up the funds.

They never did.

The rest of the story is all too familiar. Stevens and his partners had spent far more than they anticipated on getting their funds to market, with little left over to make sure investors actually knew the funds existed. As a result, the five FaithShares ETFs, despite solid performance, failed to accrue enough assets to survive. FaithShares shuttered its doors in 2011.

But a funny thing happened on the way to dissolution.

“People started calling, wanting to know if they could buy our exemptive relief,” said Stevens. “Or they wanted to know if we could consult and help them launch their own funds, since we’d already been down that road.”

That gave Stevens an idea: a white-label service that would shoulder the burden for would-be ETF providers looking to launch their very own funds. Thus was Exchange-Traded Concept (ETC) born.

To continue reading about Garett Stevens and his new company, the Exchange Traded Concept (ETC), click here

 

ETF News

ETFs-Know When To Hold ‘Em and When to Fold ‘Em-MarketsMuse

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MarketsMuse ETF update profiles the risks associated with tact-strategists over-trading exchange-traded products and the costs associated with using ETFs as trading products vs. investment products. Below extract is courtesy of Jason Zweig WSJ Weekend edition.

When hiring people who call themselves strategists, be aware that some act more like tacticians instead.

That is one lesson from several recent setbacks among ETF strategists, asset managers who specialize in picking exchange-traded funds—those popular investment baskets that mimic market benchmarks like the S&P 500-stock index or the Barclays U.S. Aggregate bond index.

Until recently, ETF strategists have been sizzling hot. By March 2014, they had garnered $103 billion in assets, up from $44 billion at the end of 2011. But assets slid to $91 billion at year-end 2014 and likely dropped further in the first quarter as disappointed investors pulled money out, says Ling-Wei Hew, an analyst at Morningstar, the investment-research firm.

Some strategists, such as Vanguard Advisers, a unit of the giant Vanguard Group, and Ibbotson Associates MORN -0.43%, a subsidiary of Morningstar, bundle ETFs into highly diversified portfolios that they patiently hold.

Yet other strategists rapidly trade from one ETF to another, from ETFs to cash or from cash to ETFs. That is more tactical than strategic. When they think a market is about to go down, these tacti-strategists will move to cash; if they are bullish, they will get out of cash and back into ETFs. While such trading could limit your losses during bad markets, it often comes at a high price in the form of annual management fees and other costs that can exceed 2%.

Such strategists may manage bundles of ETFs in separate accounts, advise mutual funds or even just sell their recommendations of when to trade which funds to financial advisers.

“Financial advisers have a real appetite for this kind of product right now, since it enables them to spend less time managing portfolios and more time managing the relationship with their clients,” says Jennifer Muzerall, a senior ETF analyst at Cerulli Associates, a financial-research firm based in Boston.

But can anyone reliably beat the market with funds that are designed only to match the market?

This past week, Hartford, Conn.-based Virtus Investment Partners VRTS -0.32%, which manages $55 billion in mutual funds and other assets, removed ETF strategist F-Squared Investments as an adviser to five Virtus funds.

The largest of them, now known as the Virtus Equity Trend Fund, underperformed the S&P 500 by at least two percentage points annually the past four years in a row; last year, it lagged behind the market by 11.9 points.

To continue reading the entire column by Jason Zweig, please click here

ETF News, Fixed Income

Corporate Bond ETFs for Single Issuers??

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MarketsMuse ETF and Fixed Income departments merge and gives credit to Morgan Stanley as they raise their own ETF flag with an innovative idea to package a single corporate bond issuer’s debt into one neat package so that ETF investors can express their bets on the issuer’s outstanding credit… Here’s the excerpt courtesy of Reuters:

 A bank proposal to pool corporate bonds of a single borrower into an ETF-style “trust” to help solve the credit markets’ chronic illiquidity problem is being circulated among issuers and investors, and finding some support.

Though still conceptual, the idea initiated by Morgan Stanley reckons investors could find more liquidity in a single instrument that represents several bonds issued by one borrower in a certain maturity, than in the individual bonds themselves.

According to the proposal, the trust would get positions in all of an issuer’s outstanding securities in the secondary market.

It would then group them according to whether they have short, intermediate or long-dated maturities, and issue separate trust certificates against each of those maturity buckets.

An underlying unit of bonds to represent each maturity trust certificate would be created and redeemed in a similar way as existing bond index exchange-traded funds.

To continue reading about Morgan Stanley’s new idea for an ETF, click here.

ETF News

VIX Index Gears Up For Accushares Overhaul-A Contango Cure?

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MarketsMuse ETF “What’s Next?” update profiling 2 new market volatility trackers from AccuShares with a revised approach to VIX that seeks to mitigate the contango concerns and compares these pending products to the frequently discussed, but often misunderstood tracker CBOE Volatility Index. This post is courtesy of coverage from CNBC’s Bob Pisani, who tweets frequently via @BobPisani

Bob Pisani, CNBC
Bob Pisani, CNBC

There’s a potentially important new ETF launching next Tuesday, May 19th, which allows investors to invest in the well-known CBOE Volatility Index.

Will it do a better job of tracking the $VIX than other ETF and ETN products? The answer is likely yes, but there are some wrinkles.

The CBOE Volatility Index measures the intensity of put and call buying for the S&P 500 for a 30-day period and is often referred to as the “fear index.”

The new Volatility ETF is attracting more attention than usual because the brains behind it is Robert Whaley, the man who invented the VIX.

His company, AccuShares, will float two different VIX ETFs: 1) the Spot VIX Up Class (VXUP), which seeks to track the VIX over a one-month period, and 2) the AccuShares Spot VIX Down Class (VXDN), which seeks to track the inverse performance of the VIX over a one-month period.

cnbcWhy an inverse ETF? It has to do with how the ETF is structured.

Other ETFs exist to track spot indices—including commodities like oil—but they buy future contracts in their respective sectors. When the contracts expire, the next contract has to be bought, which greatly increases the cost of investing, since most future contracts are in contango, that is, the cost of the contracts further out are more expensive.

So you are usually buying high and selling low.

That creates tracking errors from the index. In other words, most investors find the investment they bought does not track the spot index they want to follow.

AccuShares is trying a different approach with this VIX product, and with other spot indices they will be launching in the near future. They hold cash and cash equivalents. Each ETF has an “up” asset class and a “down” asset class. Assets are swapped back and forth, depending on the increase or decrease in the spot price.

On the 15th of every month, everything is recalibrated. So you are essentially making a bet on where the VIX might be in the middle of the month.

With that said, there are a couple important details:

1)      This is not free. There is a management fee of about 90 basis points a year.

To continue reading Pisani’s in-depth analysis of this new product, please click here

 

ETF News

Eaton Vance Ups ETMF Ante; Payment For Order Flow: Bounties For BrokerDealers

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MarketsMuse ETF update profiles a novel “payment-for-order-flow” approach on the part of ETF issuers who vie to whoo broker-dealers to promote their products to investors. Eaton Vance Corp. said Thursday it may help brokerages foot the bill to make its new type of actively managed exchange-traded products, called NextShares, available to their clients. Below extract is courtesy of Reuters’ Jessica Toonkel reporting

In an unprecedented move, Eaton Vance Corp will offer to help some brokerages pay their technology costs to make the fund company’s new breed of exchange-traded managed funds (ETMFs) available to investors, Tom Faust, Eaton’s chief executive officer, told Reuters this week. ETMFs are a hybrid between actively managed mutual funds and exchange-traded funds.

The Boston-based company also plans to pay brokerage firms a share of the revenues from the sale of the funds, which Faust hopes will be available by year-end.

BrokerDealer.com maintains the world’s largest database of broker-dealers and encompasses brokerdealer firms based in nearly 3 dozen countries

Tom Faust, Eaton Vance
Tom Faust, Eaton Vance

Big-name firms like Fidelity Investments and TD Ameritrade told Reuters they will not sell the funds until they see demand.

Helping to cover technology costs of distributors is new, but so are the Eaton Vance products, which require brokerages to take a new kind of order from investors, experts said.

“This is the first time I have ever heard of a firm offering to pay some brokerage costs for a new product,” said Ben Johnson, an ETF analyst at Morningstar.

He said the cost of gearing up to sell the product has been a sticking point for brokers. However, a number of executives at brokerage firms and industry consultants told Reuters that questions about whether there will be investor demand, and how they will get compensated to sell the new products, are even bigger issues that could keep them from selling the funds even with the Eaton Vance offer on the table.

Faust said figuring out the economic incentives and getting the systems up and running is top of mind for Eaton Vance.

“The biggest challenge we see at this stage of the game is getting broker dealers,” Faust said. “If we are looking to launch before the end of the year, we need the broker dealers to start making systems changes and otherwise preparing themselves to offer this to clients.”

Eight outside fund managers, including Mario J. Gabelli’s GAMCO Investors Inc., have licensed the right to sell NextShares. But large broker-dealers have not yet indicated that they’re taking the steps to offer them to financial advisers.

Investors will need to be informed by broker-dealers of the unique qualities of the funds when they trade, and they will place exchange orders in a way that differs from stocks or ETFs.

For the full article from Reuters, please click here

ETF News

RBC Global Asset Launches 5 New ETFs To Access International Equity Markets

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MarketsMuse blog update profiles RBC Global Asset Management launching five new liquid alternative equity ETFs. These five new ETFs allow for investors to be exposed to Canadian, American, and other international equity markets. These ETFs are now available for purchase on the Toronto Stock Exchange (TSX). These new ETFs are: 

  • RBC Quant Canadian Equity Leaders ETF (RCE)
  • RBC Quant U.S. Equity Leaders ETF (RUE) 
  • RBC Quant EAFE Equity Leaders ETF (RIE)
  • RBC Quant U.S. Equity Leaders (CAD Hedged) ETF (RHS)
  • RBC Quant EAFE Equity Leaders (CAD Hedged) ETF (RHF)

This update is courtesy of FINAlternatives’ article, “RBC Launches Liquid Alternative Quant Equity ETFs”, with an excerpt below. 

finalternatives11111RBC Global Asset Management has launched five new liquid alternative equity ETFs that employ quantitative, rules based methodologies for investment selections instead of relying on an index, according to a press release.

The new funds offer investors and advisors diversified core equity exposure in Canadian, U.S. and international equity markets, together with the option to hedge foreign currency risk, and trade on the Toronto Stock Exchange.

The RBC Quant Canadian Equity Leaders ETF (RCE) focused on companies domiciled in Canada and follows the RBC GAM’s rules-based Quant Equity Leaders investment process. It carries a management fee of 0.39%.

The RBC Quant U.S. Equity Leaders ETF (RUE) is similar to RCE but focuses instead on U.S.-domiciled companies that pass muster in the Quant Equity Leaders investment process. It also has a management fee of 0.39%. The ticker symbol “RUE” represents Canadian-dollar-denominated units, while the ticker symbol “RUE.u” represents U.S.-dollar denominated units.

To continue reading about these five new ETFs from RBC Global Asset Management, click here.

Fixed Income

e-Bond Trading Chapter 15: Bloomberg & State Street Join in Eurobond Push

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MarketsMuse blog update profiles yet another bond trading system. Bloomberg has introduced new bond trading platform, Bloomberg Bond Cross (BBX), which allows market participants to access European bond market liquidity. Participants now have access to the European bond market liquidity thanks to a new partnership between Bloomberg and State Street. This MarketsMuse blog update is courtesy of WatersTechnology’s article by Marina Daras, “Bloomberg, State Street Launch European Bond Trading System“, with an excerpt below.  

Bloomberg Bond Cross will use Bloomberg’s Trading System Order Execution (TSOX) technology to capture clients’ orders. State Street then finds the opposite side of the trade and participants can work towards negotiating and executing a trade with State Street acting as an impartial counterparty for each trade.

“Despite constraints on dealers’ ability to make-markets in corporate credit, large orders still need to be executed each day,” says George Harrington, global head of FICC trading at Bloomberg. “Bloomberg Bond Cross brings together our existing large network of Bloomberg Professional service subscribers, providing the ability for order staging, negotiation and transacting in one place, attracting volume and building liquidity to help investors identify trade opportunities with State Street.”

To continue reading about this new bond trading platform from Bloomberg, click here.

ETF News, Fixed Income, Global Macro Strategy, People Profiles

Boutique BrokerDealer Pays Homage To Veterans; Memorial Day Pledge to Semper Fi Fund

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MarketsMuse update is courtesy of a truly inspiring initiative on the part of Mischler Financial Group, the broker-dealer industry’s oldest firm owned and operated by Wall Street vets who are also Service-Disabled Veterans.

Mischler Financial Memorial Day Month Pledge: May Profits to Semper Fi Fund

For Immediate Release

Newport Beach, CA & Stamford, CT, May 12, 2015–Mischler Financial Group (“MFG”), the securities industry’s oldest minority investment bank and institutional brokerage owned and operated by Service-Disabled Veterans announced that in recognition of the upcoming Memorial Day celebration, the firm has pledged a percentage of its entire May profits to The Semper Fi Fund, a nationwide organization that provides immediate financial assistance and lifetime support to post 9/11 wounded, critically ill and injured members of all branches of the U.S. Armed Forces, and their families.

Since its establishment in 2004, the The Semper Fi Fund has issued more than 91,500 grants, totaling more than $107 million in assistance to over 13,800 of our heroes and their families. The Semper Fi Fund has been awarded the highest ratings from the leading charity organization watch dog groups, including an A+ Rating from CharityWatch.com, and 4-Star rating from CharityNavigator.com, the very highest ranking only given to 4% of all philanthropic organizations by the nation’s largest and most-utilized evaluator of charities. Semper Fi Fund is also considered “a top tier organization” by The Fisher House Foundation, one of the philanthropy community’s most recognized thought-leaders. Continue reading →

ETF News

ETFs Are Taking Over The World…

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MarketsMuse blog update profiles ETFs taking over the world, well the hedge fund world at least. ETFs assets are about to total $3 trillion which means are they are poised to out raise hedge funds. This update is courtesy of Bloomberg’s article, “ETF Assets Set to Overtake Hedge Funds This Year“, by Trista Kelley, Inyoung Hwang, and Lorcan Roche Kelly, with an excerpt below.

They’re cheap, easy to use, and they’re winning over more investors than ever.

Now exchange-traded funds — investment tools that seek to replicate the performance of a portfolio of securities — are growing at such a clip that their assets are poised to overtake those of hedge funds.

It’s no secret hedge funds have had a rough couple of years. Without the returns to make up for high taxes and fees, more investors are turning to the ever-growing range of ETF products on offer. ETFs have lower fees than mutual funds, lower taxes than index funds and are easier to buy or sell quickly than either. And underpinning gains is loose central-bank policy that has been fueling a general movement toward passive investing.

To continue reading about ETFs overtaking hedge funds, click here.

ETF News

Mining ETF Rises From The Ashes

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MarketsMuse blog update profiles the SPDR Metals & Mining ETF that has recently performed very well over the past few months. When oil prices reached a new low in January it sent a ripple across other sectors including the metal and mining sectors. XME was trading at its lowest price since March 2009. Although the sector ETFs are still on their road to recovery, the ETF, XME, is showing drastic improvement compared to many others. This MarketsMuse blog update is courtesy of an ETFTrends’ article by Todd Shriber titled, “This ETF is Springing to Life“, with an excerpt below. 

ETFTrends-logo

Mining stocks and the corresponding exchange traded funds have moved in fits and starts over the past few years. Unfortunately, there have been more fits than pleasantries, but the moribund industry could finally be putting in a legitimate bottom.

Though it is still down 27.5% over the past year, the SPDR Metals & Mining ETF (NYSEArca: XME) is up nearly 8% over the past month. That is a solid run for an ETF that started the year trading at its lowest levels since the first quarter of 2009. [Woes for a Mining ETF]

XME is meriting of consideration as some analysts believe the worst is behind the commodities space. Those were the sentiments of R.W. Baird when the research firm upgraded Dow component Caterpillar (NYSE: CAT) and Joy Global (NYSE: JOY) to outperform on Monday, according to CNBC.

To continue reading about the rise of this mining ETF, click here.

Fixed Income, Global Macro Strategy

Global Macro: Historical Backdrop re Yield Moves: Pre-Mature to Call Bear Market

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MarketsMuse Global Macro update is courtesy of extract from a.m. edition of “Sight Beyond Sight”, the newsletter published by global macro think tank Rareview Macro LLC and authored by Neil Azous.

Neil Azous, Rareview Macro
Neil Azous, Rareview Macro

In last Thursday’s edition of Sight Beyond Sight we argued that we couldn’t work out how anyone was able to make an argument about the short-term direction of fixed income, and especially calling the end of the sell-off, with a straight face. Put another way, there were a lot of pikers out there with no accountability or transparency voicing their opinions that day. Given that any attempt at analyzing fundamentals relative to positioning at historically climactic moments is generally a very poor exercise, we refused to go on the record that day and said we would regroup over the weekend. Given the resumption of the sell-off, that patience has served us well.

At this point, just repeating that CTA/Managed futures, a strategy that makes up ~10% of hedge fund AUM but deploys the most leverage, have lost on average ~5% over the last few weeks is a waste of time. Since CTA’s apply priced-based trend-following algorithms to the trading of futures contracts what matters is that many thresholds used to trigger a stop-loss have been breached and then some.

The takeaway at this point is that CTA’s/Managed futures strategies are way passed working through large offsides positions and many of them have now flipped their strategies to go the other way. Along those lines the positions that have flipped are more acute so far in Europe than the US.

That is very important to recognize because that position building is still in the early stages and as/if the new trends extend those positions will grow and grow given this is the most levered strategy within hedge fund products.

The big out-trade at this point is that asset managers still hold structural long US dollar and Treasury curve flattening positions and have yet to adjust them in the same way as the CTA’s. Why? Because their threshold for pain is a lot greater and they are not reactive to priced-based trend-following algorithms.

What does this mean? It means that the risk from here is that as CTA/Managed futures strategies ramp up new positions that will begin to force the hand of asset managers who have yet to be really reactive.

The new leverage being applied to the counter-trend on the hedge fund side plus the liquidation of structural position on the asset manager side is the point we think we are at now in terms of overall market positioning.

So what is most at risk now? Continue reading →

Tech Talk

NASDAQ Embraces Bitcoin; First Mover For Pre-IPO Application

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MarketsMuse Tech Talk update profiling Wall Street’s latest embracing of Bitcoin technology and a look at 11 May announcement from NASDAQ is courtesy of extracts from CNN.com and WSJ.

The Nasdaq stock exchange is tapping Bitcoin’s powerful new transaction technology to create a more secure, efficient system to trade stocks. Step 1: Pilot to take place in fledgling Nasdaq Private Market.

High-tech bankers are starting to realize Bitcoin could revolutionize trading. Nasdaq (NDAQ), a favorite exchange among many technology companies, is making the first move.

On Monday, the stock market announced it will start using a blockchain system to keep records for its Nasdaq Private Market, which handles trading of shares in the pre-IPO phase before a company goes public.

Nasdaq sees the blockchain’s perfect recordkeeping as a major step in the right direction for more transparency. The pre-IPO market doesn’t typically see as much trading and what does occur is often by a tight circle of employees and early investors.

See more at BrokerDealer.com

Fixed Income, People Profiles, Tech Talk

Fixed Income FinTech Chapter 14: More e-Trading Platforms for US Govt Bonds

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The US Government Bond Market is set to explode…with more e-trading systems.. MarketsMuse Tech Talk continues its curating of fintech stories from the world of fixed income and today’s update is courtesy of WSJ’s Katy Burne, who does a superb job (as always) in summarizing the latest assortment of US Government bond “e-trading” initiatives. MarketsMuse editor note: The financial marketplace is now littered with electronic trading platforms ostensibly designed to enhance liquidity and address the needs of respective market participants.

The once-revered premise of electronifying old-fashioned, non-transparent OTC markets so as to make them fully transparent and in turn, enhance liquidity in a manner that would inspire institutional investors to increase use of those products has, according to many, morphed into a ethernet rat’s nest. There are now almost as many of flavors of institutional electronic trading platforms as there are ice cream flavors from by Ben & Jerry’s and Baskin Robbins combined. Most if not all are ‘accelerated’ thanks to the innovation of rebate schemes, payment for order flow menus, and of course, high-frequency trading (HFT) applications, which has made the market structure more akin to a continuous “Battle of the Transformers.”

Despite the rising concern  on the part of both institutional investors and regulators as to the impact of market fragmentation (the latter of whom are easily-cajoled by the phalanx of lobbyists and special interest groups),  the Genie is not only out of the bottle, it’s reach continues…and the US Govt bond market is, according to those leading the initiatives described below, ripe for ‘innovation,’  for two good reasons. The first is the widely-shared belief that the rates market, which has been mostly range bound for several years thanks to the assortment of QE programs and lackluster economic recovery. is now anticipating a major uptick in volatility, which is a trader’s favorite friend. Secondly, the role of major investment bank trading desks, once ‘controlled’ the market for government bonds, has become severely diminished consequent to Dodd-Frank and the regulatory regime governing those banks and the financial markets at large.

Here’s the opening excerpt from Katy Burne’s column “Antiquated Treasury Trade Draws Upstarts”..

A host of companies are vying to set up new electronic networks for trading U.S. Treasurys, the latest upheaval in a $12.5 trillion market already being reshaped by some large banks’ pullback and the growth of fast-trading firms.

The efforts highlight the shifting role of banks, and gyrations in the market as the Federal Reserve prepares to lift interest rates in the months ahead.

Traditional Treasury trading is now widely viewed as “antiquated and rigid,” said David Light, a former head of government-bond sales at Citigroup and co-founder of CrossRate Technologies LLC, which is launching one of the new venues. “It simply did not evolve with all the changes in technology and regulation.”

Currently, there are two main channels for trading Treasurys on screens. Banks trade opposite their asset manager and hedge fund clients, with identities disclosed, via either Bloomberg LP or Tradeweb Markets LLC.

The banks then trade with other banks and professional investors anonymously, in exchange-like systems on either BrokerTec, owned by broker ICAP PLC, or eSpeed, owned by Nasdaq OMX Group. The banks trade with other banks in a wholesale market on one set of prices; they trade with customers on another set of prices. Continue reading →

ETF News

Could Russia ETFs Be Making A Comeback?

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After a rough year, Russia ETFs have been trying to make a comeback and it seems they may have finally done it. MarketsMuse blog update profiles the changes Russia has made that has helped boost Russia ETFs. This blog update is courtesy of Nasdaq’s article, “Russia ETFs Making a Strong Comeback – ETF News And Commentary“, with an excerpt below. 

2014 has been a catastrophic one for Russian equities thanks to the ban imposed on the nation by the West following its Crimea (erstwhile Ukrainian territory) annexation in the first half. The massive oil price crash in the second half also spurred many investors to abandon the country’s equities in apprehension of significant economic losses. As a result, Russian stocks almost halved in price last year .

However, things have changed in 2015. Like many other countries across the globe, Russia also entered into a cycle of rate cut in 2015 having slashed the key rate for the third time so far this year to ward off an impending recession. An upward movement in the local currency and cooling inflation has made this possible, per Bloomberg . 

In late April, Moscow reduced the key one-week interest rate to 12.5% from 14% and hinted at further easing if required. Notably, Russia generates about 50% of its revenues from oil and natural gas resources. So, this oil-dependent economy was crushed by the crude carnage last year. The Russian currency, the ruble, lost about 50% against the greenback in the second half of 2014 and stoked inflation.

To keep reading about Russia ETFs comeback, click here.

 

People Profiles, Strike Price

Open Outcry Options Pit Trading is Dead..Long Live Open Outcry Options Pit Trading

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MarketsMuse Strike Price update profiles a “return from the past and into the future” look at what many veteran (and former) option mart floor traders had all but given up for lost thanks to the electronification and bifurcation of institutional options trading.

We’re talking about those legacy, open-outcry trading pits, one -time bastions for burly and sharp-elbowed boys from Brooklyn and college ball-players-turned-options market makers and brokers who had reserved trading pit spots for them congregate and serve as liquidity centers for investors and upstairs traders to route and execute both small retail orders and large/complex institutional options orders. According to an article in today’s edition of the MarketsMedia.com newsletter, the options market is having a “Its Déjà vu all over again” moment.

Those who have been around for more than 15 minutes lament the fact that in recent years, those brick and mortar venues have become mere shells of their former selves and in some cases, ghost towns. The American Stock Exchange, arguably the pioneer in options pit trading, was acquired by the NYSE a few years back and is now literally a vacant lot that real estate developers hope to convert into a luxury rental and retail space. Beantown’s BOX might as well be a bowling alley, as trading via that venue is all electronic. One can hear a pin drop on the floor of the CBOE thanks to the ISE, the options market “Dominator” and a completely virtual exchange that has no physical structure other than corporate office space for their execs, and is otherwise comprised of air-conditioned warehouses patrolled by security dogs to protect rows of rack space for computer servers.

John Houlahan, OMEX Systems
John Houlahan, OMEX Systems

Noted John Houlhan, the COO of OMEX Systems, a long time, broker-favored OEMS platform (recently acquired by fintech firm Raptor Trading) and first designed exclusively for agency-only options and ETF floor brokerages operating on the AMEX and since embraced by a number of “upstairs” executing brokers, prop shops and select hedge funds, “Other than a handful of firms that were rolled up, most legacy floor brokerage firms and market-making firms turned in their trading smocks and floor badges long ago.” Added Houlahan, “The others who are relevant in the course of facilitating large block and/or complex options orders for institutional clients or hedge funds now generally operate from loft spaces in tony areas in Chicagoland, offices in various parts of Manhattan and New Jersey offices adjacent to exchange co-location areas.”

BUT WAIT! Everything you just read in that last paragraph is not entirely true; open outcry options trading floors are as relevant as ever, according to coverage from financial media firm MarketsMedia.com.. Here’s an extract from today’s edition of their newsletter, including a look at select veteran options market brokers who have lived to tell the tale… Continue reading →

ETF News

Social Media Popularity Doesn’t Show In Social Media ETF

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MarketsMuse blog update profiles the social media ETF, The Global X Social Media Index ETF (SOCL). So far this year, SOCL has not been performing very well, which is in contrast to social media performance in everyday life. Social media sites are gaining more users everyday however the trend doesn’t show in SOCL’s performance. Investopedia’s article “Is Social Media ETF SOCL Too Risky?” by Dan Moskowitz investigates the reason this trend occurs. Extracts from the article are below. 

The world is atwitter social media and its rapid growth right now. According to the Pew Research Center, 74% of online adults use a social networking site of some kind, up from 29% in 2008. And more advertising opportunities are blooming alongside the increased usage of mobile devices. In March, for the first time ever, the number of mobile-only internet users exceeded the number of desktop-only internet users, according to research firm comScore.

One of the trendiest ways to invest in social media is via the Global X Social Media Index ETF (SOCL), which tracks the largest publicly held social media firms around the world, including Facebook Inc. (FB), LinkedIn Corp. (LNKD) and Twitter Inc. (TWTR). With the sector’s global growth expected to continue for the long haul, betting on SOCL seems like a no-brainer.

What’s tricky with SOCL is that the trend doesn’t always match the performance. 

For starters, SOCL returned -15.04% in 2014. Take a look at SOCL’s top ten holdings, their percentage of assets, and their one-year stock performances 

The heavier-weighted holdings are performing well, but the 0.65% expense ratio for SOCL comes into play. Also notice that some of the weaker-performing stocks belong to Wall Street darlings — buzzy startups investors loved during their IPOs — that have had difficulty delivering consistent profits: Pandora, Groupon and Twitter, if you’re looking for a big industry name that’s falls farther down in SOCL’s holdings. If these companies are unable to deliver stock appreciation when markets are at all-time highs, then you shouldn’t expect them to perform well when the market takes a turn for the worse.

More people are accessing social media sites every day, a very positive trend. But without positive returns, that trend is irrelevant. Some of the companies/holdings for SOCL have difficulty delivering consistent profits and haven’t yet shown investors a clear-cut path to how they’ll do it down the road. If that’s the case when the stock market is at all-time highs, then it’s highly unlikely for these stocks to appreciate if and when the market falters. Put simply, unless you’re looking for a short-term trade, consider avoiding SOCL. But if the broader market continues to move higher thanks to Federal Reserve assistance and basic momentum, there’s a possibility it will take SOCL with it. As always, do your own research prior to making any investment decisions.

To read the entire article profiling the ETF SOCL, click here.

 

 

Fixed Income, Global Macro Strategy

Global Macro: Selloff and Noise Level Around European Fixed Income Reach Historic Levels

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MarketsMuse Global Macro update is courtesy of opening extract from today’s a.m. edition of “Sight Beyond Sight“, the global macro newsletter published by global-macro think tank Rareview Macro LLC and authored by Neil Azous, Rareview Macro’s Founder and Managing Member.

Neil Azous, Rareview Macro
Neil Azous, Rareview Macro

Forgive our saucy tone today, but this has been a long week. That is not because we were long European bonds, but because we provided a lot of free therapy to people who were. In the last two hours we have received way too many communications around today’s events.  At one end of the spectrum there are those arguing that Fixed Income has crashed, the bond bull market is over, and this is reminiscent of US Treasuries in 1994 or the Japanese JGB move in 2003. And at the other end, today’s reversal off the extreme yield levels seen just a short while ago is leading many to call the move finally over, arguing that supply/demand and the search for income are once again set to take over and force global yields much lower.

We don’t know how either side is able to make either argument with a straight face. Put another way, there are a lot of pikers out there with no accountability or transparency in their views voicing their opinions today. The attempt to analyze fundamentals relative to positioning at climactic moments historically is a poor exercise, especially considering the UK election is today and the US employment number is not released until tomorrow.

Instead, you might be able to make a better argument that the European Central Bank (ECB) was able to meet its bond buying quota very early in the month, and at choice prices and it is best for everyone else to wait until next Monday to go on the offensive. That just seems more rational. Just because we write a newsletter doesn’t mean we have to go on the record today. So we will not and instead regroup over the weekend and come back Monday refreshed.

To be clear, we are not “off-side’s.” We are just more interested in where Global fixed income will be over the next two to three months rather than getting caught up in the next two to three hours. In that spirit, for those who want to fall back on something more fundamental or process oriented instead, the below observations may be of interest.

US Fixed Income Observation

Below is a snapshot of our internal model for US interest rate hike probabilities over the next 18 months. The top graph looks at the total probability of a hike BY a certain meeting, whereas the bottom graph determines the probability of a hike AT a certain meeting. Beyond that, the very affordable cost of Sight Beyond Sight ® newsletter prohibits us from sharing any additional methodology with you. So please don’t ask us. Let’s just say we utilize this tool frequently in our internal process and we place a lot of weight on it. Continue reading →

Fixed Income

Investors Take a Big Bite Of Apple Inc Debt Issuance-And Love It; MarketsMuse

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MarketsMuse Fixed Income update profiles Apple Inc latest bond issuance courtesy of late afternoon desk notes distributed to institutional clients of deal co-manager Mischler Financial Group, the financial industry’s oldest and arguably largest boutique Finra member firm that is owned and operated by Service-Disabled Veterans. MarketsMuse Editors are compelled to add at the outset: The term “Service-Disabled” is a terrible misnomer that the US Dept of Defense should consider changing.

The vast majority of these veterans are ‘disabled’ only within the construct of the certification that is awarded to members of the military who were injured in the line of duty and since relieved from serving in active duty roles. Without discounting the sacrifices that so many veterans have made while serving in our military, sacrifices that have permanently altered their lives and those of their families consequent to truly debilitating injuries sustained, thousands of veterans who were injured in one way or another and who have since returned to the workforce have proven time and again that they are not only fully-able, but they are 110% “mission capable” and “mission ready” whenever provided the opportunity to demonstrate their trained skills and talents within private sector roles.

Moreover, SDVs can be found in leadership roles across the Fortune landscape, including CEO, CFO and corporate treasury positions at the world’s leading companies. We make note of this because the world’s most recognized company, Apple Inc. made the same note of this when appointing Mischler Financial to serve within the ranks of today’s cast of underwriters who helped bring this $8 billion, multi-tranche bond deal to the institutional investor marketplace. Without further ado, below is a short extract from Mischler’s nightly edition of debt capital market commentary, “Quigley’s Corner”

Ron Quigley, Mischler Financial
Ron Quigley, Mischler Financial

Two mega deals hit the tapes early this morning led by an $8b 7-part from Apple Inc. and a $10b 6-part from Shell International Finance.  There were a total of 8 IG Corporate issuers that tapped the dollar DCM to price 20 tranches totaling $21.525b bringing the WTD total to more than 14% more than the syndicate midpoint forecast or $45.125b vs. $39.34b.  Meanwhile, the Kingdom of Sweden also added $2.25b from the SSA space with a new 3-year bringing the all-in IG day totals to 9 issuers, 21 tranches and $23.775b.

New Record: Quickest In History to the Half Trillion Dollar Mark!

Today marks a landmark in the history of IG issuance – It is the earliest time in any year that we reached the $500 billion issuance mark.  YTD IG Corporate-only volume now stands at $510.797 billion! Investor appetite for the stability of higher rated credits and especially those from Corporate America is beyond robust. Congratulations to Apple for their help in putting us on top with this new and very impressive record!  Well-timed and well-priced no doubt!  YTD all-in IG issuance (Corporates plus SSA) is now $634.407 billion.  Not too shabby folks!

Investor’s Bite the Apple – And Like It Alot! A Look at Today’s 6-Part Demand

Apple Final Book Sizes Bid-to-Cover Rate Final Pricing Currently Trading
2yr FRN 590m 2.36x 3mL+5 issue bid
2yr FXD 2600m 3.47x +30 30/28
5yr FRN 840m 1.68x 3mL+30 $100.05/
5yr FXD 2900m 2.32x +45 44/42
7yr FXD 2900m 2.32x +75 75/73
10yr FXD 5850m 2.925x +100 99/97
30yr FXD 5300m 2.65x +140 141/139

A redacted version of Quigley’s Corner, including a synopsis of the day’s investment grade corporate bond market activity is available via Mischler Financial Group’s website.