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ETF News, People Profiles

ETF.com Announces Finalists for ETF Industry Beauty Pageant Awards; 25 Categories; 100+ Nominees

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“And the nominees are…” MarketsMuse update profiles ETF industry portal ETF.com annual awards for ‘Best Of’ across 25 different categories, with more than 100 nominees. Winnners will be announced at an awards dinner that will take place March 19 at Pier 61 in New York City.

Below please find the extract from the ETF.com announcement.

“….In recognizing the forces that support the growth of the ETF industry, each year at its annual ETF.com Awards Dinner ETF.com recognizes the people, companies and products that are moving the industry forward. The dinner takes place March 19 at Pier 61 in New York City.

The award selection process follows three steps:

  1. An open nominating process
  2. A “Nominating Committee” composed of senior members of ETF.com’s editorial and analytics components narrows the nominees to a maximum of five in each category
  3. A “Selection Committee” of independent ETF experts votes on the winners.

The nominees are:

Category 1: Lifetime Achievement Award

Awarded annually to one living individual for outstanding long-term contributions to ETF investor outcomes, whether from a position of media, regulation, product provider or investor. Previous winners are not eligible.

Nominee No. 1: John Bogle
From an untiring emphasis on the “humble arithmetic” of indexing, to the customer-owned structure of his brainchild, Vanguard, there’s zero doubt that Jack Bogle is perhaps the biggest reason fund fees are falling and getting lower. Even his cranky critique of the perils of over-trading ETFs is, in its way, laudable: He truly wants what’s best for investors.

Nominee No.2: Lee Kranefuss
You won’t find an executive with more ETF-specific “street cred” than Lee Kranefuss. His almost-evangelical belief that the future of investing belonged to ETFs has been crucial to the rise of the industry. Under his direction, iShares grew to be the biggest ETF issuer in the world, and the unrivaled breadth of the company’s product line serves as the perfect metaphor of the power of ETFs.

Nominee No. 3: Burton Malkiel
Burton Malkiel put indexing on the map with his 1973 book, “A Random Walk Down Wall Street.” An enthusiastic proponent of index–based investments and ETFs, this Princeton academic remains engaged in many realms of the investment business, not least at chief investment officer of Wealthfront, the biggest player in the new “robo-advisor” field.

Nominee No. 4: Gus Sauter
During his 25-year career at Vanguard, Gus Sauter saw the firm shift from upstart to the biggest mutual fund company in the world. Sauter’s emphasis on indexing, on thoughtful diversification in asset allocation and on encouraging investors to stick to their plans puts Sauter and his nearly decade-long stint as CIO at the very center of Vanguard’s spectacular rise.

Category 2: ETF of the Year – 2014
Awarded to the ETF that has done the most to improve investor opportunities and outcomes in 2014, by opening new areas of the market, lowering costs, delivering new exposures or otherwise creating better options for investors. There is no requirement on when this fund launched.

Nominee No. 1: Global X GF China Bond (CHNB)

As the first ETF to provide access to China’s onshore bond interbank market, CHNB opened up the third-largest fixed-income market in the world. The fund pulled in nearly $50 million in investor flows in 2014, and offered investors the opportunity to access a relatively high-yielding asset with low credit risk.

Nominee No. 2: PIMCO 25+ Year Zero Coupon U.S. Treasury (ZROZ | C-57)
2014 was supposed to be a year of rising interest rates. Instead, rates plunged, and funds on the edge of the duration spectrum like ZROZ returned nearly 50 percent. As the longest-duration US-bond ETF, ZROZ was well positioned to ride 2014’s surprise rate drop. With a 0.15 percent annual expense ratio, ZROZ allows cheap, efficient access to the longest-term U.S. Treasuries.

Nominee No. 3: Vanguard Total International Bond (BNDX | B-57)
Vanguard broke new ground in the ETF world by offering the first global ex-U.S. broad-market bond fund. While other global-ex U.S. fixed-income funds cover parts of the bond universe—sovereigns or corporates—BNDX covers the entire non-USD investment-grade bond market. Vanguard’s choice to hedge BNDX’s currency exposure reduces the number of risk considerations for U.S.-based investors. At 20 basis points, the fund is very well priced, and quite efficiently run. The fund pulled in more than $2 billion in net inflows in 2014.

Nominee No. 4: Vanguard Total Stock Market (VTI | A-100)
Among the 38 ETFs offering total U.S. stock market exposure, VTI stands out for best representation and exceptionally low costs. With nearly 3,700 constituents, VTI captures virtually the entire investable U.S. equity market. Better still, VTI actually costs less than its published expense ratio of 5 basis points, with an average actual tracking difference versus its index of just 2 bps. VTI covers the entire U.S. stock market, basically for free; it’s hard to argue with that.
Nominee No. 5: WisdomTree Europe Hedged Equity (HEDJ | B-48)
The only nonvanilla ETF to make the top 10 flows list in 2014, HEDJ has captured the attention (and dollars) of tactical investors looking to make a currency-hedged bet on eurozone equities. With the euro on the rocks, its ability to protect against falling currency meant it outperformed non-hedged European equity ETFs by 10-12 percent for the year. HEDJ attracted $4.9 billion of inflows in 2014.

Category 3: Best New ETF – 2014
Awarded to the most important ETF launched in 2014. Note: Importance is measured by the overall contribution to positive investor outcomes. The award may recognize ETFs that open new areas of the market, lower costs, drive risk-adjusted performance or provide innovative exposures not previously available to most investors. Only ETFs with inception dates after Jan. 1, 2014, are eligible.

Nominee No. 1: EMQQ Emerging Markets Internet & Ecommerce (EMQQ | B-48)

As amazing as emerging market funds like VWO, EEM or IEMG are, they do have some conspicuous holes, which EMQQ aims to fill. Investors who want to own all of the emerging markets cannot overlook EMQQ, which will give them access to Internet and e-commerce companies that are typically excluded from traditional indexes because they are listed on the New York Stock Exchange.

Nominee No. 2: First Trust Dorsey Wright Focus 5 ETF (FV | C-23)

FV is a perfect example of how flexible ETFs are. This fund qualifies as a catchy riff on the “smart beta” trend, putting into one convenient, dynamic and tradable fund-of-funds wrapper Tom Dorsey’s popular system of technical analysis. It was the fastest-growing new ETF launched in 2014, pulling in $1.2 billion in inflows.

Nominee No. 3: iShares Core Total USD Bond Market ETF (IUSB | D)

Broad-market bond funds that track the Barclays Aggregate overlook certain corners of the U.S. bond market: High-yield bonds are excluded from the Agg, for instance, as are many internationally issued bonds denominated in U.S. dollars. IUSB offers a broader take on the bond market, bringing extra yield to core bond exposure. It’s also cheap, charging just 0.15 percent a year in expenses.

Nominee No. 4: Market Vectors ChinaAMC China Bond ETF (CBON)

CBON offered U.S. investors access to Chinese debt issued in mainland China for the very first time. With the Chinese market rallying and bond opportunities looking thin elsewhere, this novel exposure is a welcome addition to the mix.

Nominee No. 5: PowerShares DB Optimum Yield Diversified Commodity Strategy (PDBC) This fund isn’t the first of its kind in the commodity space, but it is the cheapest, and that counts for a lot in a pocet of the ETF industry that remains relatively pricey. The fund allows investors to steer clear of cumbersome “K-1” tax forms reserved for futures while still enjoying futures-like exposure.

For the entire announcement from ETF.com, please click here.

ETF News

An ETF For The Mile-High Club

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MarketMuse update courtesy of Zacks.com from Nasdaq.

The U.S. aviation industry has been on cloud nine since the oil price succumbed to gravity.  Moreover, a pickup in the domestic economy, rising cargo demand, a boost to tourism and the subsiding Ebola scare put the industry in the top-performing category.  The sentiment around the sector was so bullish that Airlines rocketed to the highest level since 2001 in late December, per Bloomberg. 

Investors should note that the ETF industry was largely unable to reap the return out of this booming industry as Guggenheim closed the last airline ETF Guggenheim Arca Airline ETF (FAA) in 2013. Prior to that, Direxion Airline Shares ETF (FLYX) had also faced the same fate in 2011. However, to fill the void, a new airline ETF has been filed lately. The fund looks to trade under the name of U.S. Global Jets ETF (JETS) . 

The Proposed Fund in Detail 

The passively managed product intends to track the U.S. global Jets Index that considers worldwide airline companies, per the prospectus. The index attaches weight to the companies on the basis of the square root of their average daily volume seen in the trailing three months. The index looks to consider 25 to 40 airline stocks across the market. The product will charge 60 bps in fees. 

How Does it Fit in a Portfolio? 

The global aviation industry holds a steady outlook for 2015. The outlook is especially positive for the U.S. economy, with GDP growth gaining momentum. Consolidation benefits, growing travel demand and enhanced ancillary revenues also provide an impetus for growth. Other regions including the Middle East, Latin America & Africa and Asia-Pacific also hold promise. 

Several Gulf-based airlines continue to build up their positions within the global airline industry. Fleet development should improve over the coming years. Apart from the high demand from the oil rich Gulf nations, a major part of the fleet demand will be driven by China and India, and continuous expansion of low budget carriers around the world. 

If this was not enough, an unexpected plunge in oil prices turned out to be the real catalyst in propelling the industry. Airline profit outlook depends on fuel prices, the major variable component in the industry. The oil price drop of about 50% seen in 2014 is yet to turn around in 2015. In such a bullish backdrop, the upcoming airline ETF has every reason to be successful, if it gets approval. 

ETF Competition 

The road ahead for the proposed ETF is nothing but clear skies. The industry has long been waiting for such a product after the shutdown of the Guggenheim fund. While there are no direct competitors to the product, investors should note that two transportation ETFs, namely iShares Transportation Average ETF ( IYT ) and SPDR S&P Transportation ETF ( XTN ) have weight in the airlines industry. While IYT puts about 45% of its weight in the airlines, air freight & logistics sectors, XTN places about one-fourth of the fund in them. 

We expect the newly filed product to cash in on the underlying sector’s allure and find a solid following among investors. Nonetheless, the two transportation ETFs could eat into the proposed fund’s asset base because of the formers’ diversified approach to the transportation sector. Still, investors solely eyeing the global aviation industry would be satisfied by the proposed JETS ETF. 

 

ETF News

ETF Investors Have Regret Following the Swiss National Bank’s Announcement

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MarketMuse update courtesy of Tom Lydon from ETF Trends. This update acts as a follow up from one of yesterday’s posts.

Thursday’s biggest financial market headlines came courtesy of the Swiss National Bank (SNB), which opted to drop the franc’s peg to the euro, a move that sent the Swiss currency soaring and Swiss stocks to one of their worst one-day performances on record.

The CurrencyShares Swiss Franc Trust (NYSEArca: FXF) easily Thursday’s top performing non-leveraged ETF with a gain of over 17% on volume that was nearly 34 times trailing three-month daily average. SNB’s decision to do away with the franc’s euro peg was a surprise, particularly because it conflicted with recent rhetoric from the central bank, which indicated SNB was looking to defend the EUR/CHF peg.

Forex traders and ETF investors alike were caught off-guard.

“Data from the Commodity Futures Trading Commission released on Friday showed net short positions of 24,171 contracts on the Swiss franc, the largest since June 2013. Adding in 662 short option contracts gives a combined position of 24,833 contracts or $3.5 billion at the current rate of around 0.90 franc to the dollar,” according to Reuters.

Regarding ETFs, the iShares MSCI Switzerland Capped ETF (NYSEArca: EWL), the largest U.S.-listed Switzerland ETF, lost almost $27 million in assets since the start of 2015 heading into Thursday while FXF was light by almost $5 million. The First Trust Switzerland AlphaDEX Fund (NYSEArca: FSZ), a smart beta spin on Switzerland ETFs, had not lost or taken in any money since the start of the new year.

Those numbers are not staggering, but fourth-quarter outflows from Switzerland ETF paint a better picture of investors missing out on Thursday’s Swissie surge. In the last three months of 2014, investors pulled nearly $198 million from EWL and $113.5 million from FSZ.

With gold prices languishing and the dollar surging, investors also did not stick around to wait for a franc rally and pulled almost $10 million from FXF. Of course it is with the benefit of hindsight and few if any traders could see a 17% one-day move coming for a currency ETF, but investors that left equity-based Switzerland ETFs missed out on EWL surging nearly 4% and FSZ climbing 3.7% Thursday.

Some former gold ETF investors also missed. The SPDR Gold Shares (NYSEArca:GLD) lost $3.2 billion in assets last year and has bled another $115 million to start 2015, but a sustained rally by the franc could ameliorate that situation.

On Thursday, GLD, the world’s largest gold ETF, climbed 2.5% on more than double the average daily volume to reclaim its 200-day moving average for the first time since September.

For the original article from ETF Trends, click here.

ETF News

Issuers Get Pickier Over Which ETFs to Launch

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MarketMuse update courtesy of ETF Trends’ Tom Lydon.  

In 2014, just over 200 new exchange traded products launched in the U.S., more than double the nearly 90 that closed, but even with launches continuing to easily outpace closures, some major ETF issuers are getting choosy about the new number of rookie products they bring to market.

For example, BlackRock (NYSE: BLK), the parent company of iShares, the world’s largest ETF sponsor, launched 29 new ETFs in 2014, a number that matches the ETFs shuttered by the firm, reports Victor Reklaitis for MarketWatch.

The bulk of iShares’ closures came by way of an August announcement declaring 18 closures. Ten of those 18 ETFs, all of which ceased trading in mid-October, were target date funds. In early 2014, iShares announced the closure of 10 ex-U.S. sector ETFs.

Some of the more successful ETFs launched by iShares last year include the $146.1 million iShares Core Dividend Growth ETF (NYSEArca: DGRO), the $206.2 millioniShares Core MSCI Europe ETF (NYSEArca: IEUR) and the $140.3 million iShares MSCI ACWI Low Carbon Target ETF (NYSEArca: CRBN).

Increased selectivity by issuers when it comes bring new ETFs could become a more prominent theme as the battle for investors’ assets intensifies. Simply put, many new ETFs struggle out of the gates and go months if not years with nary a glance from advisors and investors. As of late December, 92 of the ETFs launched last year had over $10 million in assets under management and none of 2014’s crop of new ETFs came within spitting distance of the over $1 billion accumulated by the First Trust Dorsey Wright Focus 5 ETF (NasdaqGM: FV). FV debuted last March and by November had over $1 billion in assets

There are more than 7,500 U.S. open-end mutual funds, MarketWatch reports, citing Morningstar data, implying there is room for the U.S. ETF industry to grow from the current area of about 1,700 products.

One thing is clear: Different issuers are taking different approaches to new ETFs. For example, Vanguard, the third-largest U.S. ETF issuer, did not bring a new ETF to market in 2014 but still managed to add $75.3 billion in new ETF assets, a total surpassed only by iShares. Earlier this month, Pennsylvania-based Vanguard said it expects to launch its first municipal bond ETF early in the second quarter.

First Trust, one of the fastest-growing U.S. ETF sponsors, launched 15 new products last year, including FV.

For the original article from ETF Trends, click here.

 

ETF News

New Equity ETF Hopes to Combat Volatility

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MarketMuse update courtesy of Nasdaq’s Len Zacks.

2015 has started out week for the US equity market but Direxion has a plan to change that.

After delivering handsome returns last year, the U.S. equity markets have started the year on a weak note.  Slumping crude oil prices, strong dollar and global growth concerns with Europe fighting deflation, Japan still struggling in a recession and China losing steam, are weighing upon the market sentiment, leading to increased market volatility.

As a result, low volatility funds are gaining immense popularity as they provide improved risk adjusted returns in a choppy market. Given the trend, Direxion has recently filed for a product focusing on this niche segment

Below, we have highlighted some of the details of the newly filed product.

Direxion Value Line Conservative Equity ETF

As per the SEC filing, the fund seeks to track the Value Line Conservative Equity Index. The index consists of roughly 170 U.S. stocks that have been selected using Value Line’s proprietary Safety Ranking. The ranking methodology measures the total risk of a stock and its capability to withstand an overall equity market downturn relative to the other stocks in the Value Line universe which consists of roughly 4,000 stocks.

The total risk or volatility of each stock is measured through its Price Stability Score and Financial Strength rating. The Price Stability score for a stock is based on a ranking of the standard deviation of weekly percentage changes in the price of the stock over the past five years.

For the Financial Strength rating, a number of balance sheet and income statement factors like the company’s long-term debt to total capital ratio, short-term debt and amount of cash on hand are reviewed to assign a ranking.

Sector-wise, consumer staples and health care form a large part of the index.

How Does it Fit in a Portfolio?

The product could be an interesting choice for investors seeking to avoid market volatility but remain invested in stocks.  Low volatility products have proven beneficial for investors given their superior risk adjusted returns.

These funds have gained immense popularity in the past few months given increased market volatility on the back of global growth concerns, slumping crude prices and worries related to the timing of interest rate hike in the U.S.

For the complete article on Nasdaq’s site, click here.

 

ETF News

Egypt to Allow ETF Trading for the First Time

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MarketMuse update courtesy of Reuters.

Egypt prepares for the first ETF to be traded on their stock exchange for the first time ever on Wednesday, January 14. They hope that this will help gain more foreign investors and boost cash flow. 

Egypt’s stock exchange will allow trading in Exchange Traded Funds (ETFs) for the first time on Wednesday, as part of efforts to encourage foreign investment and boost liquidity.

ETFs are typically funds that track equity indexes, though they can also track commodities and other assets, with component stocks usually represented in proportion to the size of their market capitalization.

ETFs are traded like a stock and can allow investors to diversify their risks and reduce transaction costs.

The introduction of ETFs in Egypt comes amid a flurry of takeovers and share issues on Egypt’s stock exchange, signalling resurgent interest from international investors in a market looking to restore confidence after the turmoil unleashed by a 2011 uprising which ousted leader Hosni Mubarak.

The main stock index rose about 30 percent in 2014 and trading volumes have rebounded above levels seen in 2010.

“We are working on offering new investment vehicles to investors and in the long run, these funds will help to create liquidity in the market,” Mohamed Omran, chairman of the Egyptian Exchange, told Reuters.

“The funds will help investors reduce risk by investing in the market as a whole.”

The introduction of ETFs will also allow for the emergence of market-makers in Egypt for the first time, potentially boosting liquidity.

Egypt’s Beltone Financial Holding, which specialises in brokerage, investment banking and private equity, won Egypt’s first licence to operate an ETF on the Egyptian Exchange in April.

Its ETF is being launched with an initial value of 10 million Egyptian pounds ($1.4 million), according to Alia Jumaa, head of investment for the new fund.

For the original article from Reuters, click here

ETF News, People Profiles

Steven Wallman’s Holistic Approach to Trading

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MarketMuse update courtesy of ETF.com’s Cinthia Murphy

Steven Wallman was a commissioner with the SEC in the mid-1990s. An authority on securities markets and trading, today he leads an ETF-centered online brokerage, Folio Investing. Wallman is also keen on seeing the SEC start using a thoughtful “holistic” method to evaluate the worthiness of new ETFs as opposed to a more case-by-case approach.

That could have far-reaching effects on the availability of innovative nontransparent actively managed wrappers, Wallman told ETF.com in a recent interview. He held up Eaton Vance and Precidian’s different experiences at SEC in the past few years as each pursues distinct nontransparent active ETFs as examples of a need for a new approach.

ETF.com: Both Eaton Vance and Precidian are looking to launch nontransparent exchange-traded products. They are different structures, but why do you think the SEC approved one and not the other? Is it all centered on their tradability?

Steven Wallman: The Eaton Vance one that has been approved, from what I’ve read, allows people to sort of bid off of the indicated NAV that will be changing on a 15-minute basis during the day. And then you would be bidding a basis point up or down off of that, depending on what you think the market and the securities are doing.

It does have an intraday element to it. Precidian’s was designed more as sort of the equivalent of a nontransparent but actively managed ETF that would allow for intraday trading. But the question is, allow it for what, on what basis? How do you make a decision?

What is the SEC is trying to protect against? What is it that it’s trying to permit? And what actually makes the most sense for it to be able to do? The lack of a holistic, clear outline with a proposal for how they would be addressing this is what seems to me to be missing. And in part, that’s why it’s taken so many years for this to develop and for ETFs, on the active side, to come to market.

It’s a little bit strange how the commission has addressed some of this. Its approach to these new products has been sort of piecemeal without the benefit of an overall theory guiding it.

ETF.com: Has this lack of a consistent approach been a big barrier to entry for active ETFs?

Wallman: It’s clearly been a significant barrier for active ETFs at the moment, and that is evidenced by the fact that there are several that have been attempted for many years and there still are very few of them.

With passive vehicles, that has been run to the ground a little bit more easily. By now, we have a more certain template and model for what would work at this point than for active.

On the other hand, remember that it took passive years to be able to come to market as well. At the beginning, there was no good mechanism that allowed it to slot in. You just had a framework that basically said, “Unless you fit into this one very particular kind of framework, nothing else is permitted unless the SEC provides a waiver.”

We’re in this sort of one-by-one-by-one analysis for all of these, and I think now—and it probably should have done so quite a while ago—the SEC ought to shift to a much more holistic view of what is the whole issue here and how do we resolve it, as opposed to, “This one looks OK; that one doesn’t look OK,” even if it’s hard for people to tell the difference.

ETF.com: Are these nontransparent structures more focused on issuer survival than on investor well-being, and maybe that is what the SEC is concerned about here? Are they just a result of mutual fund companies trying to find a spot in the ETF world?

Wallman: I don’t think so. A lot of the ETF providers at this point are mutual fund companies. Vanguard, for example, has a huge array of ETFs, and they’re certainly a well-known mutual fund company. You also have a number of providers of ETFs that are not mutual fund companies.

The proliferation of ETFs and the rise of them as a good vehicle for certain cohorts of investors to utilize is a good thing for the market. It is a new innovation—or it was a new innovation 25 years ago. It’s an increasingly used innovation.

The fact that there are providers of mutual funds who also want to come up with new vehicles is a good thing. So I don’t think any of this is about survival of the mutual fund industry.

For the complete interview from ETF.com, click here.

ETF News

Vanguard Files For The Company’s First Muni Bond ETF

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MarketMuse update courtesy of ETF Trends’ Tom Lydon’s 6 January story.

Vanguard, the third-largest U.S. issuer of exchange traded funds, has filed plans with the Securities and Exchange Commission to introduce the firm’s municipal bond ETF.

The Vanguard Tax-Exempt Bond Index Fund will be the firm’s first tax-exempt index fund and ETF. Pennsylvania-based Vanguard already has a substantial municipal bond footprint with about $140 billion in tax-exempt bond and money market funds, according to a statement issued by the firm.

Vanguard offers 12 actively managed municipal bond funds (five national, seven state-specific) and six tax-exempt money market funds (one national, five state-specific), according to the statement.

The Vanguard Tax-Exempt Bond Index Fund is expected to debut in the second quarter with three share classes – Investor Shares, Admiral Shares and ETF. The new ETF will have an annual expense ratio of 0.12%, well below the average annual fee of 0.49% on municipal bond ETFs, said Vanguard, citing Lipper data.

The statement did not include a ticker for the new ETF.

“For investors in high tax brackets, a high-quality, broadly diversified municipal bond fund or ETF can provide tax advantages as well as diversification from the risks of the equity market,” said Vanguard CEO Bill McNabb in the statement. “Vanguard is pleased to bring a low-cost index option to the municipal category as a complement to our lineup of low-cost actively managed tax-exempt bond funds.”

That jibes with Vanguard’s reputation for being one of the low-cost leaders in the ETF space. In December, Vanguard lowered fees on 12 of its equity-based ETFs, including 10 sector funds, moving the issuer into a tie with Fidelity for the least expensive sector ETFs.

Vanguard currently sponsors 13 fixed income ETFs, including the behemoth VanguardTotal Bond Market ETF (NYSEArca: BND). Home to nearly $24 billion in assets under management, BND was one of 2014’s top asset-gathering ETFs. Other Vanguard bond ETFs include the Vanguard Extended Duration Treasury ETF (NYSEArca: EDV) and the Vanguard Total International Bond ETF (NYSEArca: BNDX), two last year’s top performing bond funds.

Last year, investors poured a record $215.5 billion into Vanguard funds, including $75.3 billion into Vanguard ETFs. Including BND, four Vanguard ETFs were among the top 10 asset-gathering ETFs in 2014.

For the original story in ETF Trends, click here.

 

ETF News

Finally! Now You Know How to Play the Oil ETFs

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MarketMuse update courtesy of ValueWalk.

It’s the first (real) week back from holiday break, but the story is the same as it was before Christmas, and before Thanksgiving for that matter…. Crude Oil continues to fall like a lead oil filled balloon, falling below the $50 mark on Monday for the first time since 2009. It’s even gotten to the point of family and friends asking where we think Crude Oil will bottom at parties and dinners, getting our contrarian antennas perked up.

The million, or actually Trillion, dollar question is where will Crude finally find a bottom and bounce back? Fortune let us know recently that the $55 drop in Brent Oil prices represents about a Trillion dollars in annual savings.

Now, while some are no doubt betting on continued downside with the recent belles of the ball – the inverse oil ETFs and ETNs ($DTO) ($SCO) ($DWTI), the last of which is up a smooth 527% since July {past performance is not necessarily indicative of future results}. Others are no doubt positioning for the inevitable rebound in energy prices, thinking it is just a matter of when, not if. Crude Oil is back around $70 to $100 a barrel. And what a trade that would be. Consider a move back to just $75 a barrel, the very low end of where Crude spent the last 5 years, would be a 50% return from the current $50 level. It seems like that could happen nearly overnight without anyone really thinking much about it.

So how do you play a bounce in Oil?

Well, the most popular play, by size and volume ($1.2 Billion in Assets, $387 million changing hands daily), is no doubt the Oil ETF (USO). But is that really the best way to ‘play’ a bounce?

Consider that USO Is designed to track the “daily” movement of oil. What’s the matter with that? One would hope that the ETF closely matches the daily move of Oil, right? Well, yes and no. Yes if you are going to buy the ETF for one day, or even a couple of days; no if your investment thesis is oil prices will climb higher over an extended period of time. Because, and here’s where it gets tricky – USO’s long term price appreciation won’t match the sum of its daily price appreciations. How is that possible?

You see, the ETF works by buying futures contracts on Oil, and there are 12 different contracts in Crude Oil futures each year, you guessed it – one for every month. And while the so called ‘front month contract’ is trading near the number you see on the news every night ($50 yesterday), the further out contracts, such as 10 to 12 months from now, may already reflect the idea that Oil prices will be higher.

Indeed, the price for the December 2015 contract is $57, versus $50 for the front month. So there’s $7, or a 14% gain, already “built in” to the futures price. What’s that mean for the ETF investor? Well, if you are correct that Oil will rebound, and it does so, to the tune of rising 14%, or $7 per barrel, over the next 11 months; the ETF likely won’t appreciate 14% as well. It likely won’t move at all, because it will have to sell out of its expiring futures positions and buy new futures positions each month. This means it will essentially have to “pay” that $7 in what’s called “roll costs”.

This is why $USO has drastically underperformed the “spot price” of Oil over the past five years, with $USO having lost -39% while the spot price of Oil went UP 48%. It is like an option or insurance premium – a declining asset with all else held equal. Just look at what happened during the last big rally for energy prices between January 2009 and May 2011. That’s a 110% difference between what you thought was going to happen and what the ETF rewarded you with.

For the full article from ValueWalk, click here.

 

ETF News

The US’s Deep Freeze Gives Temporary Boost to Natural Gas ETFs

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MarktMuse update courtesy of extract from ETF Trends’ Tom Lydon.

After natural gas futures dipped below $3 for the first time in two years, the commodity and related exchange traded funds are warming up on cold weather next week, but any gains may be brief as temperatures could remain above normal for the rest of the month.

The United States Natural Gas Fund (NYSEArca: UNG) was up 1.4% Friday whileiPath Dow Jones-UBS Natural Gas Total Return Sub-Index ETN (NYSEArca: GAZ)was 1.0% higher. Over the past year, UNG declined 28.6% while GAZ fell 20.2%.

NYMEX natural gas futures surged in early trading Friday but settled just shy of $3 per million British thermal units.

Natural gas futures were heating up from a 27-month low on speculation that a cold snap could stoke demand for  heating fuel next week. According to Commodity Weather Group, “a sizable chunk of arctic air” will cover the Midwest, South and East next week, reports Naureen S. Malik for Bloomberg.

However, while temperatures will drop next week, the weather will likely warm up and continue to weigh on natural gas prices after next week.

While the cold outbreak “is occurring on the anniversary of last year’s polar vortex big event, we do not expect it to reach those levels,” Matt Rogers, president of Commodity Weather, said in a note. “The other big story is the warmer pattern shift for the 11-15 day,” raising temperatures up to seasonal norms across most of the lower 48 states from January 12 to 16.

Additionally, supply remains robust due to new hydraulic fracturing techniques in shale oil beds, further weighing on natural gas prices through the season.

“We don’t look for this rally to carry above the $3 mark in today’s session despite some possible cold updates to the temperature views,” energy-advisory firm Ritterbusch & Associates said, the Wall Street Journal reports. “Production has been running at a near-record clip.”

For Lydon’s full article on ETF Trends, click here.

ETF News

Record Amounts Flow Into Energy-Related ETFs

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MarketMuse update courtesy of extract from Bloomberg’s Jim Polson

Bargain-seeking investors have turned bullish on embattled energy stocks, plowing record amounts into the industry.

More than $3.13 billion went into exchange-traded funds holding stakes in Exxon Mobil Corp. (XOM), Schlumberger Ltd. (SLB)and other energy stocks this month, even as the price of oil fell 22 percent, according to data compiled by Bloomberg. That’s four times the average for the year and more than the prior record in December 2007, when oil was trading near $91 a barrel.

“There definitely seems to be evidence of investors seeking to bottom-fish this market and pre-position for 2015,” David Mazza, head of ETF research at State Street Corp., said in a phone interview. “Some investors we’ve spoken with don’t believe the negative picture on energy that’s become consensus.”

Investors are betting on a higher long-term price for crude oil. Brent, the global benchmark, has traded around $60 a barrel since mid-month, after dropping by half from its June high. A stabilization in futures prices since Dec. 15 has helped energy stocks rebound for the past two weeks.

Oil slipped to a five-year low of $56.74 in London. Brent futures have plunged 51 percent from their June high.

“Longer-term investors, two to three years from now, will look back on this and say, ‘God, that was a good buying opportunity,’” said Fadel Gheit, a New York-based energy analyst for Oppenheimer & Co. For short-term investors, “it’s not going to be very pretty for the next few months.”

ETFs are increasingly seen as a bellwether of investor sentiment because they allow broad bets across a sector with lower transaction costs than buying individual stocks. Year-to-date, energy ETFs have attracted $9.25 billion of new money, the most of any sector behind real estate funds and more than triple the same period in 2013.

For Jim Polson’s entire article from Bloomberg, click here

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Cumberland Advisors’ Kotok Talks 2014’s Market and Positive Outlook for 2015

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MarketsMuse is pleased to re-distribute below thoughts courtesy of David Kotok, Chairman and CIO of Cumberland Advisors, the ETF-centric RIA:

US markets hit successive new highs in 2014. The economic recovery seems to stay on track while gradually improving and increasing its rate of growth. Labor-force-related problems seem to be healing at an improving pace. Inflation appears under control. Interest rates remain extraordinarily low. The federal budget deficit continues to shrink and is approaching 2.5% of GDP (gross domestic product). The deficit may reach $400 billion in 2015. Note that it was $1.4 trillion at its annual run rate in the worst quarter of the Great Recession in 2009.

This combination of gradual improvement, low interest rates, low inflation, and rising profitability has led the stock market to an incredible and unexpected run of success. Most of Cumberland Advisors’ US ETF (exchange-traded fund) related separate accounts have been fully invested most of the time. The results speak for themselves. Cumberland Advisors’ clients are familiar with the actual outcome.

In 2015, we expect the stock market to confront less easy conditions. US economic growth rates are picking up.  That’s good for stocks.  There is only a minor threat of upward movement in inflation and the upward threat is still only a threat.  That’s good for stocks.  Interest rates cannot go any lower, and they may begin to work their way higher as the year progresses. But they are likely to remain very low.  That’s good for stocks.  We do not expect any recession in the US. That’s good for stocks.  We (the United States) are benefiting generally from the very low oil prices that are now spreading throughout the world. That’s good for most stocks (not energy).  Low energy prices should encourage more economic activity in the US as American households begin to raise their consumption levels. That’s good for stocks except for the energy sector.

Our outlook for 2015 and 2016 is positive but tempered. We do not expect the stock markets to continue to rally with the momentum that has been in place for the last two years. Double-digit returns year after year are unlikely to repeat in year three and are very rare for four successive years.

A more tempered US stock market outlook for the rest of the decade suggests something along the lines of a mid- to high-single-digit compounding rate. Whether that is 4% or 8% remains to be seen. A low compounding rate in single digits is an attractive investment return in a low-interest-rate bond climate. We expect bond interest rates to work their way slightly higher over time as the US economy continues to improve. Absent a shock or an inflation flare-up, rising interest rates will reflect better economic conditions. We do not expect interest rates to spike wildly higher.

We are bullish for the rest of the decade and anticipate a compounded single-digit rate of return for the US stock market.  A longer term target for US stocks at the end of the decade is 2600 to 3000 with end of decade estimated annualized earnings for the S&P 500 index between $160-$180.  We end this year nearly fully invested in our separately managed US market ETF accounts.  Our largest over weight positions are in two domestic industries, utilities and transportation.

For all of Cumberland Advisors’ commentary check out their website here and follow them on Twitter @CumberlandADV

 

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Investors’ Misuse and Abuse of ETFs

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MarketsMuse update courtesy of extract from 18 December edition of  Reuters, with reporting by James Saft

Here is the thing about investing: wherever you go, there you are.

Which is another way of saying that we carry our problems, weaknesses and foibles as investors around with us, no matter how we approach the discipline or what tools we use.

While the investment world is constantly creating new, opaque and high-cost ways of separating investors from a portion of their capital, avoiding the obvious land mines is far from a guarantee of success.

Because we are human, and as such unique mixtures of such winning attributes as overconfidence, risk-blindness and hyperactivity, we have the capacity to take even great investing ideas and turn them into losers.

Take exchange-traded funds, which surely must be one of the most investor-friendly innovations of the past 20 years. ETFs, and here I am talking about those which passively track an index, are just brilliant: they facilitate diversification while providing liquidity and all at a low cost. In theory ETFs are a tool which allow investors to overcome many of their most common errors, and as an investment vehicle they have surely contributed greatly to the fall in average fees.

Like a sharp knife in the hands of a careless child, however, index ETFs as used by most investors are powerful tools which do more harm than good.

That, at least, is the conclusion of one new study, which found that not only did ETFs, as used by actual investors, not improve performance but dragged returns lower by an economically significant amount.

The paper, by Utpal Bhattacharya of Hong Kong University of Science & Technology, Benjamin Loos and Andreas Hackethal of Goethe University and Steffen Meyer of Leibniz Universität, looked at outcomes for nearly 7,000 German investors between 2005 and 2010 who used index ETFs. The upshot: the average ETF investor sees his net raw return lowered by 2.1 percentage points annually, and with a lower risk-adjusted return as well. (here)

Not only that, but the ETF users managed to use ETFs in such a way as to make their portfolios less efficient, implying that they are not getting the diversification benefit that is one of the main points of index ETF investing. So how did these investors take a good tool and use it to nail their own feet to the floor? It wasn’t even so much that the investors used the wrong ETFs, picking the wrong asset class or over-paying in fees. Instead these investors lost more by playing, badly, at being

market-timers. Their fault was that they bought and sold at the wrong time, just like the human beings they are.

For the Saft’s entire article, click here

 

 

 

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SEC Probes ETF Pricing Structures; HY Bond ETFs and Other “Less Liquid” Products of Concern to Regulator

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MarketsMuse update courtesy of extract from 19 December edition of FT.com, with reporting by Tracy Alloway

Extreme movements in the prices of bonds, commodities and other assets have prompted regulators at the Federal Reserve Bank of New York to take a closer look at the inner workings of exchange traded funds.

Wall Street’s top regulator has been talking to the firms responsible for ensuring the smooth functioning of such ETFs as it seeks to gauge the resilience of the structures to sharp fluctuations

Two “authorized participants” aka “APs” [investment banks and other trading firms whose role includes administering the ETF creation and redemption processes] that were contacted by the New York Fed said the regulator was concerned that prices of ETF units might significantly diverge from the value of their underlying holdings, particularly if the funds tracked less liquid assets or if they experienced heavy redemption requests.

A spokesperson for the New York Fed declined to comment.

Authorized participants said ETFs had performed well even in the face of oscillations in the price of assets such as currencies, commodities and corporate bonds.

“ETFs have been a good tool for price discovery,” a senior trader at one of the largest authorized participants said. So many investors were using the structures to dart in and out of hard-to-trade assets that the ETFs had become a better representation of pricing than the underlying cash market, he said.

But relationships between prices and asset values have been volatile. Shares in the iShares iBoxx high-yield bond ETF recently traded at a discount of almost 1 per cent to net asset value before surging to a premium of 1.3 per cent last week.

The Market Vectors Russia ETF saw its discount to net asset value jump to 5.8 per cent earlier this month, before moving to a premium of 9.5 per cent last week. The SPDR S&P Russia ETF this month reported both the biggest discount and largest premium since the fund was started about four years ago.

ETF market-makers cautioned that discrepancies might occur because the asset values were calculated at specific times, whereas the shares traded continuously.

To continue reading, please visit FT.com

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Best ETFs for 2015 

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After yesterday’s post regarding 2014’s Best and Worst ETFs, NASDAQ has release a list of the 5 best ETFs to buy for 2015. Below are excerpts from the article. 

With the clock about to roll past 2014 and into the New Year, it’s time for investors to be looking ahead with regards to their portfolios. That can be a daunting task, however, as it’s difficult to predict exactly what will happen over the progression of a year.

ETFs are intraday tradable baskets of stocks or other assets that make playing various global trends — both short and long-term — easy. And as some trends are already beginning to emerge, we can use them to tweak our portfolios accordingly to maximize profits.

The iShares MSCI USA Minimum Volatility ETF

With regards to the United States, all signs point to sunny with a slight chance of recession.

For the most part, things are going pretty good. Job growth seems to be picking up, while lower gas prices have consumers dancing in the streets. The unfortunate thing is that falling oil prices have the potential to cripple one of the main drivers of the recent U.S. growth.

Add in the fact that the Fed’s loose monetary policy has pushed investors into riskier assets in order to find returns/yield and you have a recipe for increased volatility.

Which is why the iShares MSCI USA Minimum Volatility ETF (USMV) maybe a good bet.

USMV uses screens to kick out high-volatility stocks and capture the upside of the market. That also limits the downside as well as the “bounciness” associated with market movements. Currently, the $34 billion ETF holds 159 different stocks, including Becton, Dickinson and Co. (BDX) and Wal-Mart Stores, Inc. (WMT).

USMV’s underlying index has done a good job of fighting volatility and downside risk. Back in 2008, the broader MSCI USA index was down 37% while USMV was only down 26%.

While the chance of recession is small, it is building. At just 0.15% in expenses, USMV is a cheap way to fight that potential and is a one of the best ETFs to buy for 2015.

Vanguard FTSE Europe ETF

Despite the headwinds, both the Dow Jones Industrial Average and the S&P 500 are sitting at all-time highs. That doesn’t make them screaming buys at the current moment. But European equities just might be.

Currently, European stocks can be had for a 40% discount to their American counterparts. That in of itself is tantalizing. However, the real boost may come from various QE programs being enacted on the continent. That should boost asset prices in the near term.

The Vanguard FTSE Europe ETF (VGK) tracks the FTSE Developed Europe Index and includes both large and mid-cap stocks in Europe. Top country weights include the U.K., Switzerland and France.

All in all, VGK holds 528 different stocks. That makes VGK a prime play on Europe’s cheapness and potential growth in 2015.

Add in Vanguard’s commitment to running cheap funds — VGK only charges 0.12% in expenses — as well as the ETF’s 3.81% dividend yield and you have a great ETF pick for 2015.

For the rest of the list from NASDAQ, click here.

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New Year Brings Review of 2014’s Best and Worst ETFs

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Bloomberg’s Eric Balchunas reviewed the best and worst of ETFs in 2014. Below are excerpts from Balchunas’s article. The pace of new ETF launches has also picked up, and the 196 new offerings in 2014 is a 29 percent jump over 2013. There are now ETFs for about everything you can think of — and 1,000 more in registration with the Securities and Exchange Commission. The ETFs that did best in 2014 were tied to lower interest rates, sinking oil prices and a surging U.S. dollar. To come up with this year’s ETF Awards, Bloomberg senior ETF analyst Eric Balchunas considered performance, how much cash a fund attracted and how well an ETF was able to capitalize on trends.

Best/Worst U.S. Equity ETF

Best: The First Trust NYSE Arca Biotechnology ETF (FBT)

Biotech ETFs led a booming health care sector, and FBT led them all. It returned 47 percent, capping a five-year run that has it up 264 percent. FBT showed the upside of ETFs that give every stock an equal weight, rather than letting the biggest stocks dominate the portfolio. Such egalitarianism means the ETF can tilt toward smaller, more volatile stocks — stocks that typically lead a rally. FBT beat its rivals by five percentage points, and brought in $570 million in new cash.

Worst: The SPDR S&P Oil & Gas Exploration (XOP)

Okay, so there’s also a downside to weighting all of your portfolio stocks equally — the same stocks that lead a rally often fall the hardest when the music stops. The sharp drop in oil prices slammed the SPDR S&P Oil & Gas Exploration ETF — it lost 36 percent.

Best/Worst U.S. Fixed-Income ETF

Best: iShares 20+ Year Treasury Bond ETF (TLT)

TLT was a total pariah in 2014. A slew of pundits predicted that interest rates would rise and crush returns on long-term bond ETFs such as TLT. Instead, rates fell and TLT returned 27 percent. It became a cash magnet, attracting $3 billion. It was the only fixed-income ETF to return more than 20 percent in 2014, and to rake in more than $2 billion in cash.

Worst: AdvisorShares Peritus High Yield ETF (HYLD)

Bond ETFs joined equity ETFs like XOP in suffering a painful oilbath. The worst of them all: Energy-heavy AdvisorShares Peritus High Yield ETF lost 9 percent. HYLD’s freedom to pick whatever junk bonds and high-yielding equities it wants worked like a charm in 2013, when it was up 12 percent. This year? Not so much.

To see the complete list of the best and worst ETFs in 2014 click here.

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ETFs in Europe: What’s Next?: Continent’s First Corporate Share Buyback ETF Courtesy of Powershares

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Below extract courtesy of Wealth Manager Magazine

The Invesco subsidiary Powershares officially launched its European PowerShares Global Buyback Achievers Ucits on the London Stock Exchange on 28 October.

The ETF, which is the first of its kind to be available in Europe according to Morningstar, invests in companies which have bought back at least 5% of their own shares in the past twelve months.

It tracks the Nasdaq Global Buyback Achievers Net Total Return Index, comprising securities from the Nasdaq US Buyback Achievers Index, through full physical replication as well as the Nasdaq International Buyback Achievers Index.

Bryon Lake, head of Invesco Powershares said: ‘This new product offers an innovative yet simple factor-based way to invest in global equities. Through the underlying index, the PowerShares Global Buyback Achievers Ucits ETF provides access to a “smart beta” approach to investing in companies that return value by buying back shares.

He added: ‘Buybacks can be more tax efficient than dividends, and this new ETF offers a low-cost, transparent and liquid vehicle through which to access this strategy.’

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Brazilian ETFs take hit due to Moody’s Rating

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The iShares MSCI Brazil Capped ETF (NYSEArca: EWZ) and other Brazilian ETFs have been enjoying a mostly excellent 2014, but that ebullience has encountered some resistance in recent days. Investors’ willingness to stick by EWZ and Brazilian stocks in the run-up to next month’s national elections is being tested Tuesday after Moody’s Investors Service lowered its outlook on Brazil’s sovereign debt rating to negative from stable. Continue reading →