Tag Archives: exchange-traded-products

ETF News

BrokerDealers Balk and Walk From Top ETF Adviser

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wsjlogoF-Squared Investments Receives Wells Notice From SEC, and Brokers Back Away

Extract courtesy of WSJ and reporter Chris Dieterich and Corrie Dreibusch

Three large brokerage firms are distancing themselves from money manager F-Squared Investments Inc., amid regulatory scrutiny of whether the firm overstated its track record.

RBC Wealth Management and Raymond James Financial Inc. RJF +0.28% have set limits on how much new business its advisers can conduct with F-Squared, according to people familiar with the policies. Wells Fargo Advisors has put the firm on “watch,” essentially a caution to advisers who either have invested or are considering investing clients’ money with the firm, people familiar with the matter say.

F-Squared, which oversees $27.7 billion, said in a filing submitted Friday that it had received a so-called Wells notice from the Securities and Exchange Commission indicating the commission is considering bringing a civil case against the company. The SEC notice isn’t a formal allegation of wrongdoing and gives the company a chance to respond.

Late last year, the firm told clients it was being investigated by the SEC, and earlier this year the company said the regulator’s investigation found the firm’s historical returns overstated performance. F-Squared said it has “taken significant steps in recent years to improve its controls to ensure that these sorts of problems will not recur,” a spokesman for F-Squared told The Wall Street Journal on Wednesday. Continue reading →

ETF News, Strike Price

China To Add ETF Options to Menu of Shanghai Exchange Listed Products

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Below extract courtesy of Futures & Options World Aug 11 article by William Mitting  FOW_logo_-_The_Global_Derivatives_Magazine

 

ETF options could be launched in China as soon as this month as the country gears up for the full launch of options trading, a leading lawyer has said.

China is undergoing a widespread reform of its financial markets as it seeks to build Shanghai as a global financial centre and develop its capital markets.

The launch of options is seen as a key step in that development and the country’s main derivatives exchanges have been running mock trading since 2012.

Natasha Xie, a partner at the JunHe law firm and a key figure in the local derivatives market, said that some Chinese observers believe that ETF options could be launched this month.

In a recent press conference, Dang Ge, the press secretary of the China Securities Regulatory Commission, said that ETF options will be launched on the Shanghai Stock Exchange (SSE) imminently. Continue reading →

ETF News

BlackRock CEO Roils ETF Audience: “Leveraged ETFs Can Blow-Up The Industry”

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reuters logo

Courtesy of Reuters News

May 28 (Reuters) – BlackRock Inc Chief Executive Larry Fink said on Wednesday that leveraged exchange-traded funds contain structural problems that could “blow up” the whole industry one day.

Fink runs a company that oversees more than $4 trillion in client assets, including nearly $1 trillion in ETF assets.

“We’d never do one (a leveraged ETF),” Fink said at Deutsche Bank investment conference in New York. “They have a structural problem that could blow up the whole industry one day.” (Reporting By Tim McLaughlin; Editing by David Gregorio)

 

ETF News, Global Macro Strategy

ETF Adoption Continues at Brisk Pace

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marketsmedia logo  Excerpt courtesy of MarketsMedia

Providers of ETFs and mutual funds are using targeted marketing approaches to match the right products with the right customers.

With ETFs use climbing among active investors, both retail and institutional, packagers of ETFs view the product as a low-cost vehicle for investors to access alternative strategies such as those employed by hedge funds, many of which act as sub-advisers for the ETFs.

ETF use among registered investment advisors (RIAs) has grown nearly 27% annually over the past 5 years, according to research firm Cerulli Associates anticipates this growth to continue.

“The allocation to ETFs among RIAs grew 48% from 2011 to 2012,” said Kenton Shirk, associate director at Cerulli. “The RIA channel is an extremely attractive opportunity for asset managers.”

ETFs gained popularity as a cost-effective method to achieve diversification, but with increased adoption they have evolved to cover a wide variety of investment strategies.

“ETFs provide an easy way for managers to offer out products to alternative investors,” said David Beth, president and chief operating officer at WallachBeth Capital. “The ETF wrapper is very easy and transparent.”

davidbethmm
David Beth, President / COO WallachBeth Capital

Fund manager Direxion offers leveraged and inverse ETFs for active traders looking to execute short-term trading strategies.

“We consider ourselves a provider of alternative investment strategies,” said Andy O’Rourke, Direxion’s chief marketing officer. “We also have a few strategy-based non-leveraged ETFs that they have rules-based indexes, such as KNOW, which is an ETF that tracks the buying activity of corporate insiders on the secondary market.”

Direxion recently unveil a marketing campaign designed to inform experienced active traders about the potential benefits of the firm’s 3X leveraged ETFs. A departure from simply highlighting the flexibility of trading in either direction, the marketing campaign’s 60-second television commercial invites active traders to join “The Fellowship of the Bold.” Continue reading →

ETF News

Study Finds 22% Rise in Demand for ETFs

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wsjlogoCourtesy of the Wall Street Journal online edition

One in Ten Investors Now Hold at Least 50 Percent of their Portfolios in ETFs

MarketsMuse Editor: We caveat with: below study conducted by brokerage platform Charles Schwab & Co. , which offers its own ‘branded’ ETF products in cooperation with it issuer partners–and also maintains relationships with “preferred liquidity providers” in which Schwab receives payment for directing their customers’ ETF orders to said “liquidity providers.”

 

For a growing number of investors, exchange-traded funds (ETFs) are being embraced as a mainstay of a diversified portfolio. According to the 2013 ETF Investor Study by Charles Schwab, half of respondents plan to increase their ETF holdings over the next year — a 22 percent increase over those who said the same in 2012. Nearly one in ten investors (nine percent) now hold 50 percent or more of their portfolios in ETFs, more than double the four percent seen last year. Cost and fees continue to be critical factors when making ETF buying decisions, but topping expense ratios and trade commissions is the concern among investors that ETFs could contain hidden fees.

“Demand is up across the board, and investors who own ETFs appear to be more interested in the product than ever,” said Beth Flynn, vice president of ETF platform management at Charles Schwab. “We’re seeing less discussion of ‘if’ and more about ‘how’ investors will buy and use ETFs. We’re seeing an upward shift in sophistication among ETF investors, and a hunger to learn more.”

The 2013 ETF Investor Study by Charles Schwab is an online survey of more than 1,000 individual investors between the ages of 25-75 with at least $25,000 in investable assets and who have purchased ETFs in the past two years and/or are considering purchasing ETFs in the next two years. Similar surveys were conducted in 2012 and 2011, and certain questions were repeated in 2013 for benchmark purposes.  For the full article, please click here

ETF News, Tech Talk

Follow-On: Major Exchange Slug Fest in Battle for ETFs

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tradersmag Courtesy of Tom Steinert-Threlkeld

Nasdaq, NYSE and BATS are slugging it out with incentives, new order types and a new exchange to resuscitate trading in ETFs…

Once it worked. Now, not so much.

For years, the Nasdaq Stock Market designated a single market maker for each exchange-traded product. Later, the BATS Exchange treated exchanged-traded products no differently than other equities. No special treatment for trading in ETFs.

Meanwhile, NYSE Arca created lead market makers and gave them premium rebates for trading in exchange-traded funds, and gave other market makers rebates as well.

Both models worked fine, as institutional and retail investors pulled out of mutual funds that invested in stocks and rushed in droves into exchange-traded funds that also held baskets of stocks-and could be traded like them, too.

Only about 82 million shares of ETFs were traded in an average day in 2004, accounting for 2.15 percent of consolidated volume. By 2008-at the height of the credit crisis-that had surged to 1.1 billion shares and 12.5 percent of all trading. By 2011, the 1.2 billion shares traded every day in exchange-traded products of all kinds accounted for 15.4 percent of all trading.

Then, the hammer dropped. Daily volume fell 22.0 percent last year, to 941,000 shares a day. And the share of trading went down to 14.3 percent, by Rosenblatt Securities’ count.

The bloom was off the boom-even as investors keep pouring money into the funds, adding another $16.6 billion into North American ETFs in the first quarter of 2013, with $1.4 trillion invested all told in ETFs, in the United States.

“Investing in ETFs is continuing to increase. It’s just happening in places other than the secondary markets, like NYSE Arca or Nasdaq or BATS,” said Laura Morrison, senior vice president for global indices and exchange-traded products at NYSE Euronext.

For the full article courtesy of TradersMagazine, please click here

ETF News, Tech Talk

PSX to Re-Launch as ETP Market in May

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tradersmagCourtesy of Tom Steiner-Threlkeld

Nasdaq OMX Group said it expects the re-launch of its PSX exchange as an exchange-traded fund marketplace to take place in May.

Final approval of the refashioning the “price size exchange” as a “price time” exchange focused on exchange-traded products must come from the Securities and Exchange Commission.

The exchange operator hopes to encourage trading in a wider variety of ETPs by created two types of market participants — Registered Market Maker and PSX Supplemental Liquidity Providers — which will take ”affirmative quoting” obligations.

PSX also intends to create competition among market makers, by offering the largest rebate to a Lead Market Maker. Other registered market makers can compete for that designation and while making markets in ETPs receive rebates, at a lower level.

Rebates to liquidity providers can be as high as $.0028 per added share, according to a PSX pricing page. Fees to remove liquidity start at $0.0030 per .

”PSX is a key piece of our larger strategy to better service the ETP industry with a platform designed to incent high-quality liquidity, market incentive programs and ETP-specific functionality.” said Eric Noll, Executive Vice President of Transaction Services U.S. and U.K. at Nasdaq OMX, in a statement Monday.

The relaunch of PSX will create a second market that is focused on ETPs. NYSE Euronext’s Arca exchange currently operates as an ETF-focused exchange. NYSE Arca has both the largest market share in exchange-traded trading among national exchanges and 93 percent of ETP listings.

The move comes roughly 2 1/2 years after PSX was created as a Price Size Exchange that would give priority to the size of an order over the speed of arrival.

Nasdaq OMX CEO Robert Greifeld at the time called this the “most fundamental change in market structure” since the launch of the all-electronic Nasdaq Stock Market itself in 1971.

But the idea that “size matters’’ never took hold. In February, PSX accounted for three-fourths of one percent of total equities trading in the United States.  For the entire story from TradersMagazine, please click here

ETF News, Tech Talk

Nasdaq OMX Plan: Convert PSX Exchange to ETF Exchange

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Csecurities technology monitorourtesy of Tom-Steinert-Threkeld

Nasdaq OMX Group plans to re-launch its PSX exchange as a “better trading venue” for exchange-traded funds, notes and other related products, as early as next month.

The exchange will execute trades in all National Market System securities, but will give special incentives to retail and institutional investors to participate as well as special benefits to firms that register as market makers, committing to make continuous two-sided quotes on exchange-traded products.

Neither a filing with the Securities and Exchange Commission nor a Nasdaq official with its Transaction Services division describe the incentives that will be given to investors to place orders on PSX nor the benefits that will be provided market makers.

“The unique features that will make PSX compelling we can’t go into today,’’ the Transaction Services executive said Tuesday afternoon. “We are keeping that under our hats for a couple weeks.”

Nasdaq OMX PHLX, the formal name of the exchange, filed a document dated March 8, 2013, describing its plan to changeover PSX to an exchange that “in all material respects” has rules for handling buy and sell orders that mirror those at Nasdaq OMX’s other two exchanges.

These are the Nasdaq Stock Market, which handles about 16.5 percent of all equities trading in the United States, and Nasdaq BX, which has as its differentiating factor the payment of rebates to market participants who remove liquidity from its market.

The move to match rules among all three Nasdaq exchanges means that orders at PSX will be handled in what is known as price-time priority. This favors the speed at which orders arrive. Continue reading →

ETF News

Franklin Templeton Planning First ETF, IndexIQ Files For Two US Equity Funds

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etfdb images Courtesy of Carolyn Pairitz

While the U.S. markets continue their bull run to baffle even the best investors on Wall Street, the ETF market has started to take off in the last two weeks, with a number of new funds entering the space. After the slow down of new funds since mid-January, the solid economic data being released from around the world has helped issuers recognize that now is a great time for new funds. For some institutions its their first time venturing into the industry, while others are just adding to their army, as both Vanguard and IndexIQ have  filed interesting proposals with the SEC [see ETF Database Launch Center].

California-based mutual fund firm, Franklin Templeton has filed for their very first ETF to meet the growing needs of their investors:

  • Franklin Short Duration Government ETF: This actively-managed ETF will own U.S.-issued debt, ranging from Treasuries to mortgage-backed securities to create a shorter duration portfolio of bonds. Focusing on shorter duration bonds could prove to be a very popular investment theory, as many investors are starting to hedge their funds against the eventual rise in U.S. interest rates.
IndexIQhas laid the groundwork for two new domestic equity ETFs focused on driving growth and innovation:
  • IQ Fastest Growing Companies ETF: This ETF will invest in 50 quickly growing U.S. companies, to be determined by a number of factors including sales, net income, cash flow growth and total return. This strategic exposure to companies that not only currently have high growth indicators but also have featured high returns in the past, may interest investors who are looking for a bit of a riskier play on the U.S. equities market.
  • IQ Innovation Leaders ETF: Using a rule-based proprietary benchmark, this ETF is intended to invest in 100 companies that are seen as innovative based on their sales growth, research and development of assets and expenses, along with retained earnings growth. Another requirement of inclusion, these growing firms need to have a market cap of at least $300 and be a U.S. firm.
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 →