Tag Archives: bond

ETF News, Fixed Income

News Alert: SEC Set To Hit Pimco With Wells Notice in Probe of Bond ETF

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Bond giant Pacific Investment Management Co. aka Pimco said Monday that it received a Wells Notice from the SEC and the firm could be sued by the country’s top securities regulator over how it valued assets in ETF $BOND, one of its most popular exchange-traded bond funds aimed at small investors.

MarketsMuse Flash News courtesy of WSJ; photo image courtesy of Bloomberg LP.

The Pimco Total Return ETF, previously managed by star investor Bill Gross, has been under investigation by the Securities and Exchange Commission for at least a year for artificially boosting returns, The Wall Street Journal has reported.

Pimco disclosed Monday that it received a so-called Wells notice from the SEC, an indication that the agency intends to file a civil enforcement action against the firm related to its investigation. The notice isn’t a formal allegation of wrongdoing and it doesn’t mean the agency has found that any laws were violated.

The original story from WSJ is available via this link

ETF News, Fixed Income

New Normal: Big Institutions Looking To ETFs Over Bonds

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MarketsMuse ETF and Fixed Income departments merge to profile trend on part of fixed-income focused hedge funds and institutional fund managers to use ETFs to express their bets on corporate bonds. This MarketsMuse blog update is courtesy of Bloomberg’s Lisa Abramowicz and her article, “A $200 Million Hedge-Fund Trade in Your Bond ETF Is Normal Now”. An excerpt from this article is below. 

Don’t be surprised if you see a huge chunk of cash simply evaporate one day from your exchange-traded bond fund. There’s a good chance it’s just a hedge fund cashing in on a bet.

An example of this can be found in BlackRock Inc.’s $5.1 billion long-term U.S. Treasuries ETF, which saw the greatest volume of withdrawals this year among similar funds. Among investors yanking cash was Passport Capital, the $4 billion hedge-fund firm run by John Burbank.

The firm sold its entire $217 million stake in the ETF in the period ended March 31, about three months after purchasing the shares, according to data compiled by Bloomberg.

On one hand, this is a remarkable amount of money, equal to about 4 percent of the fund at its current size. It’s also notable because ETFs have traditionally been marketed to individuals as a quick, easy way to invest in debt.

But that’s changing. These funds are increasingly being used by and advertised to big institutions, which are looking for the same efficiency as smaller investors at a time when it’s getting more difficult to execute big trades.

To continue reading about this new normal for both small and big investors, click here, for the article from Bloomberg’s Lisa Abramowicz and her article, “A $200 Million Hedge-Fund Trade in Your Bond ETF Is Normal Now”.

ETF News, Fixed Income

Bond ETFs Are Growing At Fastest Pace On Record

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MarketMuse update profiles the billions of dollars that have flowed into bond ETFs over the past few years and an in depth look at the reasoning behind it courtesy of the Wall Street Journal .

wall_street_journal_logoInstitutions are piling into exchange-traded bond funds at the fastest pace on record, driven by forces reshaping the increasingly illiquid corporate-debt market and their desire to stay nimble ahead of expected interest-rate moves.

Bond ETFs took in $32 billion globally this year through Feb. 26, according to data from Bloomberg LP, in what has been the strongest start to any year since the funds began in 2002.

More than half the $20 billion that flowed into fixed-income ETFs atBlackRock Inc. ’s iShares unit in the first eight weeks of this year came from institutions such as insurers and endowments. In some large funds, institutional money in ETFs has more than doubled in the past few years, the firm said.

The shift is the latest good news for providers of exchange-traded funds, which essentially are index-tracking funds that trade like stocks. Bond ETFs are already popular with individual investors because they have low fees and are easy to trade, qualities that are now appealing to more sophisticated investors who typically focus on hand-picking individual debt securities to beat their benchmarks.

“There was a monster rotation into fixed-income ETFs in February,” coming out of sector-based stock funds, said Reginald Browne, global co-head of ETF market making at Cantor Fitzgerald & Co. He said a client recently traded $1.8 billion in bond ETFs in a single trade.

A host of factors is behind institutions’ adoption of bond ETFs, analysts say. Among them: Deteriorating liquidity in corporate bonds has frustrated large investors as many individual bonds have become difficult to buy or sell quickly at a given price, thanks in part to rules limiting banks’ risk-taking.

For the entire article from the Wall Street Journals’ Katy Burne, click here.

ETF News, Fixed Income, People Profiles

Bond Guru Gundlach Launches Actively-Traded Bond ETF

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MarketsMuse update profiling the debut of bond guru and DoubleLine Capital’s founder Jeff Gundlach’s first foray into the ETF space is courtesy of ETF.com.The SPDR DoubleLine Total Return Tactical ETF (TOTL) is launching today (Tuesday, Feb. 24).

The $TOTL exchange-traded fund invests in just about every type of debt security, including investment-grade and junk debt—both sovereign and corporate—from issuers around the globe. The portfolio management team is led by none other than Gundlach himself, and will be advised by State Street, according to the prospectus. TOTL costs a net of 55 basis points in expense ratio, or $55 per $10,000 invested.

Gundlach, founder of Los Angeles-based DoubleLine Capital, is one of the most well-known fixed-income investors in the market today, but until now an absent presence in the quickly growing ETF market.

Partnership With SSgA

Last summer, he joined forces with State Street Global Advisors to bring to market an actively managed bond ETF that would go head-to-head with the Pimco Total Return ETF (BOND | B), which at the time was still managed by Bill Gross. Gross has since left Pimco to join Janus.

Replicating BOND’s success will be no small feat, considering that BOND gathered its first $1 billion in assets in less than three months after launch, and grew to become one of the biggest active bond ETFs in the market. BOND’s success was part Gross himself, part a solid track record of outperformance. TOTL has a powerhouse name behind it, but performance only time will tell.  Continue reading →

ETF News

Actively-Managed ETFs Poised to Proliferate in 2013 (?)

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Courtesy of WSJ Dec 28 Weekend Edition and reporter Joe Light

The world of ETFs is about to get pumped up.

A long-heralded blossoming of actively managed exchange-traded funds is one step closer, now that the Securities and Exchange Cwsjlogoommission earlier this month removed a hurdle that discouraged money managers from releasing such products.

For small investors, the change could mean more choices. But it also could cause money managers to add more risk to their portfolios as previously forbidden investment strategies become available, analysts say.

In March 2010, the SEC stopped approving new actively managed ETFs that use derivatives, which are contracts that derive their value from that of underlying securities, such as options and credit-default swaps. Portfolio managers use derivatives frequently in actively managed mutual funds to protect against the threat of bond defaults, currency fluctuations and other risks. The ban discouraged fund companies from starting actively managed ETFs. Instead, the vast majority of ETFs are low-fee index funds, which passively track an established benchmark.

Earlier this month, Norm Champ, director of the SEC division of investment management, said in a speech that the agency now will approve the use of derivatives in ETFs under certain conditions.

Continue reading →
ETF News, Strike Price

ETF New Rules: SEC Says Derivatives for Actively-Managed ETFs…

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etfdb images Courtesy of Back in March of 2010, the SEC began a review of the use of derivatives by ETFs, specifically actively-managed and leveraged funds. Norm Champ, Director of the SEC’s Division of Investment Management, stated that “The use and complexity of derivatives have grown significantly over the past two decades and have given rise to many interpretive and policy issues under the 1940 Act.”

But after over two years of analysis and review, the SEC finally made its decision last week: fund companies are now able to seek regulatory permission to include derivatives in actively-managed ETFs. There are, however, explicit stipulations that fund managers must adhere to [see also Actively-Managed ETFdb Portfolio ETFdb Pro Members Only]:

  1. The ETF’s board must periodically review and approve the ETF’s use of derivatives and how the ETF’s investment advisor assesses and manages risk with respect to the ETF’s use of derivatives.
  2. The ETF’s disclosure of its use of derivatives in its offering documents and periodic reports is consistent with relevant Commission and staff guidance.

The SEC stressed that it will continuously review this issue, but in regards to decisions concerning the use of derivatives by leveraged exchange-traded funds, they are still hesitant to grant permission. Champ expressed his concern over these powerful products, stating that “Because of concerns regarding leveraged ETFs, however, we continue not to support exemptive relief for such ETFs.”

What Does This Mean For ETF Investors?

Derivative use has been a touchy subject for many investors, as these powerful instruments have led to some of the worst financial disasters of all time. On the other hand, they have also provided lucrative opportunities for those with the knowledge and in-depth understanding of how exactly these products work. But will using derivatives in actively-managed ETFs do more good or harm for investors? Unfortunately, the most reasonable answer is that only time will tell. Below we outline the top five actively-managed funds that investors may want to keep a close eye on [filter by active/passive and other fields with the free ETF Screener]:

Ticker ETF Expense Ratio AUM
BOND Total Return Exchange-Traded Fund 0.55% $3.9 billion
MINT Enhanced Short Maturity Strategy Fund 0.35% $2.1 billion
ELD Emerging Markets Local Debt Fund 0.55% $1.5 billion
ALD Asia Local Debt Fund 0.55% $462 million
CEW Dreyfus Emerging Currency Fund 0.55% $276 million
 *As of 12/13/2012

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ETF News

Assessing the Merits of an ETF: Debunking Common Myths

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Extract of white paper published by Chris Hempstead, Head of ETF Trade Execution for WallachBeth Capital LLC

With respect to analyzing and selecting ETFs, one of the most common and frustrating mistakes that I overhear is “..unless the fund has at least some minimum AUM ($50mm in many cases), or has average daily trading volume less than [some other arbitrary number] (say 250k shares) it should be avoided…”

Some other arguments against ETFs go so far as to suggest that “..ETFs need to have a certain history or track record before they should be considered…” Adding insult to injury is the claim that “investors are at risk of losing all their money if an ETF shuts down.”

In light of recent articles being picked up by media from New York to Seattle, I would like to dismiss a few of these common, yet unwarranted reasons to avoid an ETF based solely on AUM, ADV or track record.

 First, let’s address AUM:

“ETFs with less than $50mm should be avoided”

In order for an ETF to come to market (list on an exchange) the fund needs to have shares created. This process is often referred to as “seeding”. The ‘seeder’ is the initial investor who delivers into the custodial bank the assets required to back the initial tradable shares of the ETF in the secondary market. ETFs issue shares in what are known as creation units. The vast majority of ETFs have creation unit sizes of 25k, 50k or 100k shares.

When a ‘new’ fund comes to market, they are usually seeded with at least 2 units of the fund. There are very few examples of ETFs that come to market with more than $5mm in AUM or an excess of 200k shares outstanding. One recent exception comes to mind: Pimco’s BOND launched with ~$100mm AUM and 1mm shares outstanding.

Understanding that ETFs have to start somewhere, it would be difficult to explain how more than 55% of ETFs (excluding ETNs, Leveraged ETFs and Inverse ETFs) have garnered AUM in excess of $50mm.

In other words, someone had to take a close look and invest into the funds. The ‘I will if you will’ mentality is probably not how the most successful fund managers find ways to outperform.

Ten of the top thirty performing ETFs year to date have AUM below $50mm.

(EGPT, TAO, HGEM, IFAS, SOYB, PKB, RTL, QQQV, ROOF and RWW)

Congratulations to the pioneers who ‘went it alone’, as they say. 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

PIMCO’s Eyes Fixed on ETFs

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Courtesy of James Armstrong

You know a market has arrived when the big kids start to play, and it became obvious that fixed-income exchange-traded funds were around to stay when the don of bonds—PIMCO—jumped into the game.

With the current volatility of the equities markets, investors know they need to have exposure to bonds, but they often desire the ease and liquidity of equities, which ETFs can provide. For that reason, PIMCO launched an ETF platform in 2009, which has grown to 19 funds.

Six of those funds are actively managed, including the cash-management strategy fund MINT, currently the largest active ETF in the world, and the BOND fund, which launched at the end of February and is managed by PIMCO co-founder Bill Gross. All of PIMCO’s funds trade on NYSE Arca.

Don Suskind, head of global ETF product management at PIMCO, said some clients prefer to use ETFs for fixed-income investments because they offer all the benefits of trading in the equities market—intraday liquidity, efficient price discovery, access through an exchange—plus they provide portfolios that are transparent.

Still, there are challenges in taking a basket of fixed-income products and getting them to trade like a stock. Fixed-income ETFs, unlike most equity exchange-traded funds, aren’t fully replicating. Bond indexes often have thousands of issues in them, so in tracking an index, an ETF might only hold half the number of issues in the index, sometimes as few as 3 percent. Continue reading →

ETF News

Actively managed ETFs get big-name backing

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Article courtesy of Rachel Koning Beals..

Actively managed exchange-traded funds may have gotten the headliner needed to push this sleepy category into the investing mainstream.

Bill Gross and his bond-fund-giant Pimco in early May added a third actively managed ETF to their roster. This offering follows their actively managed Pimco Total Return ETF BOND +0.04% .

The ETF, a twist on Gross’s flagship Pimco Total Return Fund PTTAX +0.09% , is drawing a robust following in its short two-month run. It had more than $800 million in assets under management as of mid-May.

The actively managed ETF sub-category has remained a paper-thin slice of the trillion-dollar market. Now, in addition to Pimco, ETF leaders like State Street Global Advisor’s SPDRs, BlackRock’s iShares, Wisdom Tree, and others, look to increase their presence (slowly, for now) in the actively managed side of the business.

“Pimco’s lending its name into the active ETF space is a game-changer for the entire industry. It’s one of those things where if you don’t get ahead of the times, then you are left in the dust trying to catch up,” said Tom Lydon, president of Global Trends Investments and editor of ETFtrends.com. Continue reading →