Tag Archives: exchange-traded funds

ETF News

Hedged Vs. Unhedged International Currency ETFs

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MarketMuse blog update courtesy of CNBC. With investing overseas being so dangerous right now, because of enormous moves in currency, buying stocks overseas—including ETFs, why are people so keen on doing it. CNBC reporter, Bob Pisani’s ask the question:

Why doesn’t everyone buy hedged international ETFs when they want international exposure, rather than unhedged ETFs?

There are several reasons:

1) Until recently, it was almost impossible for the average investor to do so. There simply were no ETFs that enabled an investor to hedge out currency. A professional could hedge, of course, but at considerable cost.

Now that more hedged ETF products are becoming available, investors are taking note. In fact, the biggest European ETF is now a hedged product, the WisdomTree International Hedged, which recently surpassed its biggest unhedged rival, the Vanguard European ETF.

2) There was not a huge demand for such a product because currency moves like we have seen in euro this year (down 5 percent against the dollar) are very rare. Oh sure, maybe if you were investing in Argentina, but not the euro, not the yen. Most years did not involve anywhere near such dramatic moves.

This year, for example, the yen has barely moved against the dollar, so the difference between a hedged Japan ETF and an unhedged Japan ETF is very small:

That was not the case last year, when there was an enormous move in the yen versus the dollar, and investors made the DXJ the hottest ETF in years.

For the entire article from CNBC’s Bob Pisani’s story “Why currency-hedged ETFs are hot”, click here.

ETF News

Investors Seek ETF To Protect Against The Great Wall Of China’s Crumble

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MarketMuse blog update is courtesy of Business Times’ article “China slowdown concern spurs record option hedges on ETF” . The update profiles the largest US exchange-traded fund tracking China’s mainland market reaching its highest since the ETF was created. An excerpt from Business Times is below. 

Investors are rushing to buy protection against declines in Chinese stocks amid concern an economic slowdown will undermine their world-beating rally.

Demand to hedge against future losses on the largest US exchange-traded fund tracking China’s mainland market climbed to the highest since the ETF was created in November 2013, according to data compiled by Bloomberg. The buying pushed the ratio of bearish to bullish contracts to a five-month high on March 11 as investors pulled $34 million from the fund in a second week of outflows.

The bets underscore growing investor skepticism that the Shanghai Composite Index can sustain its advance after rising 39 per cent since October against a backdrop of monetary easing and weaker-than-estimated economic data. The central bank has cut interest rates twice in four months to revive an economy expanding at its slowest pace in 24 years, helping fuel gains in the so-called A-share market.

“There’ll be some pull-back,” Chang Liu, a London-based China economist at Capital Economics Ltd, said by phone on March 12. His firm predicts a decline of about 11 per cent from last week’s close on the Shanghai gauge by the end of 2015.

“GDP growth will be slower, the property market remains weak and overcapacity is still an issue.”

Purchases of so-called puts, or options to sell the US$1 billion Deutsche Bank’s X-trackers Harvest CSI 300 China A- Shares ETF, has jumped fourfold to an all-time high of 44,760 contracts last week from a January low. The open interest on options to buy the ETF, or calls, increased 45 per cent during the period to 52,924, also a record.

For the entire article from the Business Times, click here.

ETF News, Tech Talk

Mr Robot: Tom Dorsey’s ETF Uses Computers To Outperform Humans

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MarketMuse update is courtesy of BloombergBusiness’s Anthony Effinger and Eric Balchunas’s 15 March article, “Funds Run by Robots Now Account for $400 Billion” profiles self proclaimed money manager, Tom Dorsey’s key to  a successful portfolio just takes pressing a button. 

Few people have profited more from the so-called smart-beta craze than Tom Dorsey. A new exchange-traded fund that he runs using a century-old charting methods took in $1.2 billion last year. Then, in January, he sold his 22-person investment firm, Dorsey, Wright & Associates, to Nasdaq OMX Group for $225 million.

Dorsey calls himself a money manager, Bloomberg Markets will report in its April issue, but his methods are more robot designer. He says so himself, proudly. If Dorsey and his team got abducted from their Richmond, Virginia, office by aliens, their algorithms could keep picking investments for the firm’s new money magnet, the First Trust Dorsey Wright Focus 5 ETF, forever.

“Once a quarter, we press a button,’’ Dorsey says. The Focus 5 algorithm then generates a list of investments, and First Trust Portfolios, his partner company, executes them. Otherwise, they don’t meddle with the robot. “We just need someone to press the button.’’

That, for Dorsey, is the essence of smart beta, or strategic beta, or scientific beta, or factor-based investing, or fundamental indexing, depending on which Ph.D. is talking. (Many smart-beta funds are designed by finance geeks.) It’s index investing with key twists, all of them rules-based, with no active management required. Most smart-beta funds track custom indexes. Some are simple variants of the Standard & Poor’s 500 Index and do what they say on the box. Others are hand-crafted and small batch, made by people with little more than a stock-filtering system and a dream.

For the entire article from BloombergBusiness, click here.

ETF News

Investors Reach For Euro ETFs as the US Dollar Recovers

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MarketMuse update courtesy of MarketWatch’s 12 March article, “Dollar surge has investors scrambling for a piece of this European ETF”. From the National Swiss Bank’s huge announcement in January to Greece’s continued demise, the European market has seen better days. While the US market continues to recover, the US dollar has almost completely recovered to the being equivalent with the Euro which is making investor grab at Euro ETFs. 

Back in 2008, $1.60 bought one euro EURUSD, -1.10% Fast forward to today, and the U.S. dollar is surging toward parity with the hobbled currency. Just a few more ticks to go.

Of course, the huge currency shake-up is bad news for U.S. exporters but it’s great for investors in the WisdomTree Europe Hedged Equity fund HEDJ, +0.19% And they are throwing gobs of money at it. Read: 4 stock plays that are attracting investor dollars this year.

In the past year alone, $12 billion has flowed into the fund, a more than tenfold increase. The ETF is now the biggest covering Europe with almost $14 billion in assets, according to ETF Database. That’s enough to displace the Vanguard FTSE Europe giant VGK, -0.85% as the region’s top dog.

Olly Ludwig, managing editor for ETF.com, points out that the dollar’s rise has turned a neutral investment into a world beater.

“There’s an elegant mirror-like quality to the chart that isolates the currency factor rather cleanly,” Ludwig said. “Were it not for the currency hedge, HEDJ would be about flat.”

Investors have obviously been taking notice, and currency-hedged ETFs, in general, have seen spikes in asset growth. Ludwig pointed out that, on Monday alone, HEDJ and the WisdomTree Japan Hedged Equity fund DXJ, -0.39% combined to attract $1 billion. In a single day.

For the entire article from MarketWatch, click here.

ETF News

Following Slashing ETF Prices, State Street To Shutdown Three ETFs

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MarketMuse update profiles the the second oldest financial institution in the United States, State Street’s plans to shut down three ETFs after what has been a very difficult year for them. The shutdowns are due to what they call “limited market demand”. With more of an update, an excerpt from InvestmentNews’ Trevor Hunnicutt’s story, “State Street to close three ETFs that attracted little investor interest” from 10 March , is below. 

The announced closure of the ETFs, including one municipal-bond fund in partnership with Nuveen Investments Inc., comes five weeks after the ETF pioneer slashed prices on nearly a third of its funds and while the firm faces outflows in its flagship fund.

State Street, who manages the first-to-market “SPDR” ETFs, will shut its S&P Mortgage Finance ETF (KME), S&P Small Cap Emerging Asia Pacific ETF (GMFS) and SPDR Nuveen S&P VRDO Municipal Bond ETF (VRD), according to a statement Monday. The funds are each at least three years old, but none hold more than $6 million in assets.

State Street, whose money managing arm is also known as SSGA, has $441 billion in U.S. ETF assets, third behind BlackRock Inc.’s iShares and the Vanguard Group Inc. The firm is perhaps best known for its SPDR S&P 500 ETF (SPY), which is commonly recognized as the first ETF traded in the U.S. as well as the most widely traded. That fund has lost $26 billion to investor redemptions this year, according to Morningstar Inc. estimates. State Street, whose index-tracking fund is used widely by tactical traders and institutions along with advisers, has said those flows are cyclical.

Meanwhile, the firm also has tried to expand its lineup to more profitable mutual funds and partnerships on ETFs with Nuveen and DoubleLine Capital’s Jeffrey Gundlach to attract assets into other product lines.

For the entire article from InvestmentNews, click here.

Tech Talk

Trading Titan Point72 Gets to the Point: Big Data

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MarketMuse update courtesy of Bloomberg Business profiles investment firm, Point72 Asset Management, expands its jobs to hire more employees in order to collect and analyze data. 

Steven Cohen’s investment firm is looking for an edge in public data.

Point72 Asset Management, the successor to Cohen’s hedge fund SAC Capital Advisors, has hired about 30 employees since the start of last year to build computer models that collect publicly available data and analyze it for patterns, according to two people with knowledge of the matter.

The hires are part of a project to expand quantitative investing, dubbed Aperio, that’s spearheaded by President Doug Haynes, said Mark Herr, a spokesman for the Stamford, Connecticut-based firm. Point72 is in the process of hiring a manager to oversee the strategy, he said, declining to comment on the number of professionals the firm has brought in so far.

Cohen, whose SAC Capital shut down last year and paid a record fine to settle charges of insider trading, joins Ray Dalio’s Bridgewater Associates in pushing into computer-driven investing, an area dominated by a handful of big firms such as the $25 billion Renaissance Technologies and the $24 billion Two Sigma. The money managers are seeking to take advantage of advances in computing power and data availability to analyze large amounts of information.

“Data used to come to you in a trickle and today it comes in torrents,” Herr said. “The amount of publicly accessible data can now be compared to a fire hose of information. People who can read the signals most accurately and analyze them are the ones who will generate returns.”

For the entire article, click here.

ETF News

Financial Sector ETFs-This Expert Says…

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MarketsMuse ETF update courtesy of mid-day clip from CNBC Squawk Box 10 March, with exchange-traded fund expert guest, Eric Mustin, VP of ETF Trading Solutions for WallachBeth Capital..Editor Note: “Out of the mouths of babes..we won’t challenge any market opinions, especially ones that might be appear contrary in the face of a falling market…we will say this rising star is one bright ‘whipper snapper’…

ETF News

BlackRock Slashes Investing Cost Creating ETF War

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MarketMuse update profiles BlackRock’s huge slash in investing cuts to cause pressure on rival is courtesy of Reuters’ Simon Jessop 10 March story “1-British ETF price war heats up with BlackRock FTSE 100 fee cut”

BlackRock, the world’s largest asset manager, has slashed the cost of investing in Britain’s oldest FTSE 100 exchange-traded fund, ratcheting up the pressure on rival providers such as Vanguard.

Demand for exchange-traded funds (ETFs) has surged in recent years as a result of often anaemic returns from more actively managed funds.

BlackRock said on Tuesday that it would now charge 7 pence a year per 100 pounds invested in its ETF that pays out dividend income, down from 40 pence previously, to make it the cheapest such tracker on the market. Both Vanguard and Deutsche Bank charge 9 pence, it said.

“It really doesn’t leave much more room to fall, but I don’t think the price war has ended,” said Adam Laird, head of ETFs at fund supermarket Hargreaves Lansdown. “In the U.S., you can get mainstream ETFs with fees as low as 0.03 percent.”

However, he said he expected rival providers to wait and see if clients switched their money before responding.

The iShares FTSE 100 UCITS ETF (Dist) fund was the first ETF to launch on the London Stock Exchange in 2000 and currently holds 3.8 billion pounds ($5.7 billion) of assets under management.

To read the entire story on how BlackRock is starting a war with its competitors from Reuters, click here.

ETF News

Apple’s Latest Move Could Hurt Investors

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MarketMuse blog update courtesy of InvestmentNews. With the anticipation of tech giant, Apple’s launch event today and last week’s announcement of  Apple joining the DOW, there is a lot to be excited about. However, InvestmentNews’ Jeff Benjamin points out how it could hurt investors. 

Investors and advisers who own shares of Apple Inc. (AAPL) cheered the news that it will soon be in the granddaddy of all stock indexes. But in all the hoopla, they may miss the fact that their portfolios could become overexposed to the tech giant.

On March 19, Apple is slated to replace AT&T Inc. (T) in the 119-year-old Dow Jones Industrial Average. The news sent Apple shares up $1.05, or 0.83%, to $127.46, in afternoon trading Friday as the Dow tumbled 1.44%.

As investible indexes go, the Dow is far from the most popular, but $12.5 billion of assets are invested in the SPDR Dow Jones Industrial Average ETF. And DIA soon will include the tech giant, joining the S&P 500 and a plethora of mutual funds and exchange-traded funds that already own it.

Apple, which started paying a dividend three years ago, is a Top 10 holding in a dozen dividend-focused ETFs that include Vanguard High Dividend Yield (VYM) and Wisdom Tree Total Dividend (DTD), as well as the Russell 1000 Index through iShares Russell 1000 (IWB) and iShares Russell 1000 Growth (IWF).

“There are probably some people who own the S&P and the Dow, and now they will own Apple in both indexes,” Mr. Rosenbluth said. “But, obviously, Apple is not the only stock held in multiple indexes.”

For the entire article from InvestmentNews, click here. 

ETF News

California-based Lattice Jumps Into ETF Issuer Role with Three Fresh Products

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MarketsMuse update profiling Lattice Strategies roll-out of three new exchange-traded fund products is courtesy of extract from Zacks.com.. Here’s the snippet:

San Francisco-based investment management firm – Lattice Strategies – which believes that disciplined, intentional and systematic allocation of risks is the most influential contributor to long-term growth of capital, has recently forayed into the ETF world with three new products.

The products – Lattice U.S. Equity Strategy ETF (ROUS), Lattice Emerging Markets Strategy ETF (ROAM) and Lattice Developed Markets (ex-US) Strategy ETF (RODM) –charge 35 basis points, 65 basis points and 50 basis points respectively.

ROUS in Focus

ROUS tracks the investment results of the Lattice Risk-Optimized U.S. Equity Strategy Index to provide exposure to U.S. equities. The index seeks to improve returns by improving the factor-attributes of the portfolio along the dimensions of value, quality, and momentum. Also, the constituents of the index are risk-and factor-adjusted twice annually and also screened for liquidity.

Moreover, the index seeks to reduce concentration risk in large and mega cap stocks by diversifying well across individual stocks. This strategy ensures that none of the individual holdings have more than 1.5% exposure in the fund and the top ten holdings form just 10.47% of total fund assets. Currently, Best Buy, Kroger and Valero are the top three holdings in the fund.

Sector-wise, Financials dominates the fund with 19.3% allocations, closely followed by Technology, Consumer Discretionary, Healthcare and Industrials, each with double-digit exposure The fund is likely to face competition from a number of large-cap value ETFs. iShares Russell 1000 Value Index Fund (IWD) with an asset base of $26.3 billion and Vanguard Value ETF (VTV) with an asset base of $18.3 billion are some the popular products in the space.

To continue reading the story from Zacks.com, please click here

ETF News, People Profiles

What’s Next? Celeb Investment-Manager Licenses NextShares in Bid to Join Actively-Managed ETF Craze: Gabelli

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MarketsMuse update courtesy of below extract from Institutional Investor’s profile of Mario Gabelli and his investment vehicle GAMCO’s foray into the actively-managed ETF fracas.

InstitutionalInvestor (1)Now that exchange-traded funds are a better fit for active managers, Mario Gabelli is signing on. The seasoned investor — who eschews index funds — says he can’t afford to miss out on ETFs any more than he can ignore social media.

Gabelli, 72, remains a staunch advocate of actively managed funds. He’s a regular and outspoken commentator on raucous stock-picking shows like CNBC’s Halftime Report, on which he recently said he “took a dumb pill” by not buying Netflix stock at a fraction of its current price. (Shares in the Los Gatos, California–based online movie and TV streaming provider closed at $474.91 on February 27, up 39 percent since January 12.)

Although investors’ love affair with ETFs has so far been part of a bigger move to indexing strategies, active managers are thinking about how to leverage these products’ tax, cost and other advantages. Last year U.S. investors sent more money to passive funds than active ones for all equity categories, according to Chicago-based research firm Morningstar. In fact, active U.S. equity experienced outflows for ten months in 2014, even as its passive counterpart saw inflows for 11 months.

Gabelli, the founder, chairman and CEO of $47.5 billion, publicly traded GAMCO Investors, isn’t reinventing the ETF wheel to get into the business. His Rye, New York–based firm is licensing NextShares’ ETFs. Offered by Navigate Fund Solutions, a subsidiary of Boston-based Eaton Vance Management, the NextShares funds protect the confidentiality of portfolio information.

Traditional ETF portfolios are completely transparent to the market, not a concern for index trackers. But active managers don’t want to broadcast their unique securities picks on a daily basis, giving others a chance to profit from the information. For example, if traders know that GAMCO is building a position in a certain stock — say, Twentieth Century Fox Film Corp. — they can buy shares and drive up the price. “We do small-cap, nanocap, microcap investing,” Gabelli says. “We don’t want our portfolio exposed daily. It defeats what we do — to provide incremental valued-added.”

Part of Gabelli’s motivation for licensing NextShares is to make his active funds as low cost as possible. The tax efficiency of exchange-traded products is particularly appealing because traditional fund investors get treated unfairly, he says. When real estate investors sell a property and roll the proceeds into a new investment, they don’t pay tax. Fund investors pay tax on capital gains distributions even if they reinvest the money in the fund. But through so-called in-kind redemptions, ETFs can remove stocks that have significantly increased in value and could trigger large capital gains taxes.

“We have research,” Gabelli says. “While the rest of the world is going the other way, we’ll get an advantage. Now we have an outlet for that in a nontransparent ETF.”

For the full story from II, please click here

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

Nuveen, Now Under TIAA-CREF Umbrella Takes On ETF Issuers..Again

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Nuveen, known as one of the exchange-traded-fund industry’s first pioneers is back, and now they’re loaded for bear with a fresh angle courtesy of parent company TIAA-CREF.

Courtesy of InvestmentNew.com, here’s the long and the short of the Nuveen’s reincarnation:

investmentnews.com logo Nuveen Investments Inc. is rebooting a campaign that may culminate in the firm offering its own ETFs for the first time, 15 years after it pioneered, then dropped, efforts to bring the first bond exchange-traded funds to market.

Nuveen’s about-face, disclosed last Friday in filings with securities regulators, comes as a stampede of adviser-facing asset management firms without ETFs rush to capitalize on the fast growth in that market, which now manages $2 trillion in the U.S.

But unlike some of its peers that are joining the stampede for the first time, Nuveen was an early pioneer of the structure. It first asked for permission to offer index-based ETFs in 2000, at the time developing proposals for what could have been the very first bond ETFs. Both areas now enjoy tremendous popularity, a boon to BlackRock Inc., the Vanguard Group Inc. and State Street Corp., among other firms.

But Nuveen shuttered its ETF unit in 2002, facing pressure to focus on businesses that could make more money, according to ETFs for the Long Run, a 2008 book on the industry’s history by Lawrence Carrel.

Greg Bottjer, a Nuveen executive who leads product development for the firm’s retail mutual funds, said the firm is exploring the possibility of adding to its product set, which includes mutual funds and some ETFs run in collaboration with State Street.

“The active ETF market is much further advanced,” Mr. Bottjer said. “There’s a lot more familiarity, comfort and exposure to active ETFs, and there are some large active asset management firms out there doing this. The momentum is really there today compared to where it was over 10 years ago.”

TIAA-CREFcompleted its acquisition of Chicago-based Nuveen in October, merging two companies with distinct cultures but a common goal to increase their sales among advisers. ETFs may be key to doing that as the investments have been a popular option deployed in accounts on which investors pay a fee to their adviser, in part because of their perceived cost advantages.

If the regulatory process matches that of previous applicants, it could take several months or longer for Nuveen to get an approval, and Nuveen is under no obligation to produce the funds once it gets the go-ahead. But an approval would give the firm an advantage over competitors who haven’t gone through the process.

There were 14 applications for new brands in the space last year, according to a database

No ETF issuer has been given permission yet to build actively managed ETFs that do not disclose underlying holdings regularly, but Eaton Vance Corp. recently won approval for a mutual fund-ETF hybrid called NextShares that would enjoy that ability.

To read the full article from InvestmentNews, please click here

ETF News, Fixed Income

Investors Use of Corporate Bond ETFs On The Rise

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MarketsMuse.com blog update courtesy of press release from Tabb Group and profiles new research report focused on institutional investors’ growing use of corporate bond ETFs.

NEW YORK & LONDON–(BUSINESS WIRE)–In new research examining accelerating growth in the corporate bond exchange-traded fund (ETF) market, which has seen assets under management (AuM) rise more than $90 billion from 2009 to 2014, a nine-fold increase in aggregate and an annual 42% compound growth rate, TABB Group says bond ETFs can help institutional investors manage investment flows, enhance returns and limit transaction costs in the current liquidity environment.

“This is a way to achieve market beta while the single-name search process carries on.”

Regulatory burdens of the Volcker Rule, Basel III and the Liquidity Coverage Ratio (LCR) have handicapped large banks and altered their secondary market-making businesses, forcing them to change the manner in which they provide liquidity to investors, wreaking havoc on the process of building and expanding portfolios. Institutional investors navigating this new landscape need to leverage every tool available, say Anthony Perrotta, a TABB principal, head of fixed income research and research analyst Colby Jenkins, co-authors of “Bond Market Entropy: Bringing Order to the Cash Bond Crisis,” which is why they have been embracing the corporate bond market.

“Bid/ask spreads for large bond ETFs are substantially more stable than their underlying cash bonds,” says Perrotta. They’re also being used as a means of exchanging credit risk during times of stress in the underlying market.”

According to Jenkins, “A 5-10% liquidity sleeve in corporate bond ETFs that tracks to a diversified portfolio of bonds is becoming a popular tool among asset managers to efficiently manage their investment flows.” In the past two years, he says, large single-name portfolio managers have begun utilizing ETFs as a means to smooth out their exposure during redemption periods. Alternatively, they are using ETFs to gain interim exposure to the market when receiving an investment inflow from a client such as a pension fund, insurance company or other long-term oriented investor. Instead of waiting some elongated period of time to find the appropriate cash bonds, they turn to ETF shares that correspond to their core portfolio. “This is a way to achieve market beta while the single-name search process carries on.”

Although 60% of the corporate bond notional trading activity in the second half of 2014 took place in just 8% of the CUSIPs traded, there are more than 260 bond ETFs available to investors today, up from 62 in 2008, a 326% increase. And despite regulatory approval and entrenched pre-ETF investment mandates being the two greatest barriers currently to institutional corporate bond ETF adoption, “a larger pool of National Association of Insurance Commissioners (NAIC) credit-rated bond ETFs that have unique economic advantages over non-rated bond ETFs, such as more lenient risk-based capital requirements, will be a key stepping stone to the next threshold of institutional adoption,” Perrotta says.

Continue reading →

ETF News, People Profiles

How One Smart Prop Shop is Trading Oil ETFs

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MarketsMuse blog update courtesy of extract from 27 Feb story from ETF.com’s Elisabeth Kashner and her profile of prop trading firm Virtu, the high-frequency (HFT)“Virtu’s HFT Way To Play Crazy Oil Market”

 

Elisabeth Kashner, ETF.com
Elisabeth Kashner, ETF.com

Would you ever sell something to yourself and pay someone else to be the middleman? Nobody’s that dumb, right?

Virtu, the high-frequency trading firm (HFT) of the type profiled in “Flash Boys,” did just that, to the tune of $32 million.

High-frequency traders are perhaps the most sophisticated players on Wall Street. Some might be scoundrels, but they’re not fools. That’s why their recent trades in oil futures-based ETFs are so fascinating.

Like hedge funds and mutual funds, HFT firms keep their portfolios under wraps, except when the Securities and Exchange Commission requires disclosure.

Virtu’s most recent form 13F, the Securities and Exchange Commission’s quarterly holdings report, revealed a $46 million position in United States Oil (USO | B-100) at the close of business on Dec. 31, 2014. USO buys front-month oil futures. By the end of 2014, with oil prices at a 10-year low, USO shares had taken a beating, as you can see in the chart below.   Continue reading →

ETF News, Fixed Income

Corporate Bond ETFs and Liquidity: A Looming Black Swan or Extended Contango?

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MarketsMuse update inspired by yesterday’s column by Tom Lydon/ETFtrends.com and smacks at the heart of what certain “bomb throwers” believe could be a Black Swan event, albeit an event that may not be driven by a global crisis or surprise economic event. The event in question will, in theory, take place when interest rates start ticking up (and underlying corporate bond prices tick down) and institutional bond fund managers find themselves trying to figure out whether to simply suffer from mark-downs (and performance) or to continue collecting coupons until the issues they hold mature.

MM Editor Note: Since most folks know that bond managers are akin to lemmings (no disrespect intended!) and typically follow each other like blind mice, given the massive size of the corporate market place, a potential avalanche could take place when everyone runs for the exit if rates tick up and simultaneously, the economy starts to slow. Wall Street dealers are certainly not going to be available to catch those falling knives, simply because new regulations have put a crimp in the capital they can commit to warehousing positions. Worse still, its easy to envision one very long contango event, where the cash ETF trades at a discount to the value of the underlying bonds, simply because one won’t be able to sell those underlying bonds in any type of material size.

Here’s an opening extract from Tom Lydon’s piece “Liquidity Concerns In Corporate Bond ETFs”: Continue reading →

ETF News

Cancer Treatment ETF Surges In Past Few Days

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MarketMuse update courtesy of extract from Todd Shriber’s latest piece at ETFTrends. 

ETFTrends-logoShares of Pharmacyclics (NasdaqGS: PCYC), a maker of cancer treatments, surged nearly 17% Wednesday, extending a run that has seen the stock surge 80.1% this year, on news that the California-based company is mulling a sale.

Citing unidentified sources, Bloombergreports that Dow component Johnson & Johnson (NYSE: JNJ)and Swiss pharma giant Novartis (NYSE: NVS) could be among the suitors for Pharmacyclics. Multiple suitors for the company could prove to be a boon for the First Trust NYSE Arca Biotechnology Index Fund (NYSEArca: FBT), one of a scant number of exchange traded funds that have decent exposure toPharmacyclics.

Shares of FBT climbed 1.9% Wednesday on volume that was more than 25% above the three-month trailing average thanks in part to the ETF’s nearly 4.1% weight to Pharmacyclics. The stock was FBT’s third-largest holding as of Feb. 24, helping the ETF join 24 other healthcare funds among the 195 ETFs that hit all-time highs yesterday.

Where things get interesting for Pharmacyclics, and as a result, FBT, is how much of a premium a suitor will pay. Pharmacyclics closed Wednesday with a market value of $16.6 billion. Sources told Bloomberg the company could fetch $17 billion to $18 billion. The Financial Times reported Pharmacyclics could command $19 billion.

For the entire article from ETFtrends.com, please click here

ETF News

China ETFs Seeming More Like The Year Of The Bear

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MarketMuse update courtesy of ETFTrends’ Todd Shriber looking at China related ETFs. 

In the Chinese zodiac, 2015 is the year of the goat, but a popular exchange traded fund tracking China’s onshore equities is getting bearish treatment.

The Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (NYSEArca: ASHR), the largest U.S-listed A-shares ETF, had 6.3% of its shares outstanding sold short as of Feb. 23, reports Belinda Cao forBloomberg.

ASHR surged 51.3% last year, making it one of 2014’s best-performing non-leveraged ETFs. That performance was better than quadruple the showing by the iShares China Large-Cap ETF (NYSEArca: FXI), the largest U.S.-listed China ETF. However, the 2014 A-shares rally has those stocks looking richly valued relative to their Hong Kong-listed counterparts, encouraging traders to up bearish bets on ASHR.

“The number of shares borrowed and sold short to profit from a decline in Deutsche Bank’s A-share ETF was 1.8 million on Feb. 23. That’s close to the record of 2.4 million, or 8.2 percent of total shares outstanding, reached Feb. 13,” Bloomberg reports, citing Markit data.

However, another catalyst could be encouraging the increased bearish bets on ASHR. On Jan. 21, Deutsche Asset & Wealth Management (DAWM) was forced to limit creations of new shares in ASHR because increased demand for the ETF was forcing the fund o bump up against their respective Renminbi Qualified Foreign Institutional Investor (RQFII), which allows the funds to purchase A-shares equities. 

Creation limits often lead to ETFs, particularly those with exposure to markets that are closed during the U.S. trading day, trading at premiums to net asset value. Professional traders then look to profit from the gap between the ETF’s market price and lower NAV by shorting the ETF. Since the start of 2015, ASHR has traded at a premium to its NAV in 26 days, according to DAWM data.

Although the most recently announced creation limit for ASHR has not yet been lifted, it should be noted the ETF was affected by the same scenario twice in 2014 and DAWM was quick to get ASHR’s RQFII limit increased.

With ASHR’s 2014 surge, some money managers now prefer H-shares to A-shares, but that means they are also missing out on a notable rally in A-shares small-caps.

The Deutsche X-trackers Harvest CSI 500 China A-Shares Small Cap Fund (NYSEArca: ASHS), which was subject to a second creation limit last November, is up 12.1% this year. ASHS tracks the CSI 500 Index of Shanghai- and Shenzhen-listed small-caps.

The Market Vectors ChinaAMC SME-ChiNext ETF (NYSEArca: CNXT), the younger of the two A-shares small-cap ETFs, has surged 23.7% year-to-date, making it 2015’s top-performing non-leveraged ETF. CNXT, which is heavily allocated to mid-caps, tracks the SME-ChiNext 100 (SZ399611), which provides exposure to the 100 most liquid mid- and small-cap stocks that trade on the Small and Medium Enterprise (SME) Board and the ChiNext Board of the Shenzhen Stock Exchange (SZSE).