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virtu says no to corporate bond etf market-making
ETF News, Fixed Income, Tech Talk

Virtu Says NO to Corporate Bond ETF Market-Making

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Virtu Says NO to Corporate Bond ETF risk-taking; Top Market-Maker Opines “Unable to Hedge ETF Constituents Due To Limited Liqudity”

During the better part of three years, MarketsMuse Fixed Income curators have often pointed to concerns expressed by market professionals who argue that the unfettered growth of corporate bond ETFs are masking the inevitable likelihood that once interest rates begin to rise, buy side fund managers fearful of mark-downs in their corporate bond positions will push the ‘sell button’ en masse to limit the P&L hit. Those in the camp expressing such concerns, which includes Virtu Financial, one of the most successful electronic market-makers in the industry, believe that such a mass exodus will wreak havoc on the now $8.4 trillion US corporate bond ecosystem* (*data according to Sifma), where new issuance for 2016 has just surpassed 1 Trillion dollars, and is a marketplace that since 2011 alone, has grown nearly 50% in terms of notional value and number of outstanding issues.

Per one senior market risk expert familiar with the thinking at Virtu, “Their’s isn’t simply a view typically attributed to academics, who have increasingly warned and have been equally derided by ETF lobbyists for suggesting a secondary market meltdown in corporate bond ETF products is inevitable when rates rise. Instead, Virtu has concluded that for those who make a business of ‘taking the other side’ of corporate bond exchange-traded funds, whether investment grade (e.g $LQD) or high yield themed (e.g $HYG), will find themselves playing a game of musical chairs, but there will be no chairs available for anyone when the music stops and traders will find themselves unable to find any liquidity in the respective ETF underlying constituents.”

Below opening excerpt from mainstream media outlet Bloomberg LP and reported by Bloomberg reporter Annie Massa:

One of the world’s largest electronic market makers won’t touch increasingly popular corporate bond ETF products because the underlying securities are too hard to trade.

Although New York-based Virtu Financial Inc. buys and sells everything from stocks to government bonds and futures on more than 235 exchanges around the world, it shuns products linked to corporate bonds like the $15 billion iShares iBoxx $ High Yield Corporate Bond ETF. The reason, according to Chief Executive Officer Doug Cifu, is that it’s too hard for Virtu to precisely hedge the trades.

“It’s definitely concerning you don’t have full and unfettered access to the underlying,” Cifu said, speaking at a Security Traders Association conference in Washington on Thursday. “That’s troubling.”

During the fourth quarter of 2015, TABB Group interviewed key US corporate bond market participants across buy-side, sell-side and specialized trade service providers.Across all segments covered within the survey, participants’ responses reflected dim expectations for liquidity available in the US corporate bond market for 2016. Apart from the threat of a “large scale macro crisis,” the most serious threat that participants identified was the ongoing decline in immediacy (balance sheet) provided by dealers.

Worldwide assets in bond ETFs have surged in recent years, jumping fivefold since January 2010 to about $600 billion, according to data compiled by Bloomberg. About 88 million shares of fixed-income ETFs have traded daily in the U.S. during the past 30 days, according to data compiled by Bloomberg.

Other market makers including Citadel Securities and Susquehanna do trade the ETFs, but Virtu’s absence is notable given how dominant the company is in other areas. Cifu said Virtu does trade ETFs containing U.S. Treasuries, including the ProShares UltraShort 20+ Year Treasury.

To read a Bloomberg Markets profile of Virtu, click here.

Virtu’s strategy involves arbitraging price difference in related assets, quickly entering and exiting the positions. With fixed-income ETFs, the company is concerned it can’t get access to the related bonds fast enough. Market makers with longer trading time frames may be less reluctant. Virtu’s line of thinking echoes worries elsewhere in the industry. Shares of the funds are often easier to trade than their underlying bonds, potentially posing a risk if there’s a sudden rush for the exit.

To continue reading, please click here

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ETF News, Tech Talk

CME Launches Tool To Compare ETF Pricing vs Futures

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(Traders Magazine)-CME Group, the US derivatives exchange, has launched an online tool to allow investors to compare the costs of futures against exchange-traded funds, as some ETF issuers have claimed the funds are now cheaper to use.

Last month the CME launched the Total Cost Analysis tool to allow investors to compare the all-in costs of replicating the S&P 500 by trading equity index futures versus ETFs, and intends to expand the tool to other indexes.

Tim McCourt, global head of equity products at CME Group, told Markets Media: “The online tool gives customers the flexibility to compare costs for specific variables such as commissions, trade size and time period.”

The tool focuses on three different components of the total cost of trading – transaction costs, implementation costs and holding costs. McCourt claimed that for an active trader on a short time horizon, futures are overwhelmingly cheaper on a total cost of trading basis, which includes both fees and market impact but in certain circumstances, over different time periods, this could change.

Source, the European ETF issuer, had issued a paper in April, “ETFs vs Futures”, which said futures have become more expensive due to bank regulation while ETFs have become cheaper due to increased competition. The paper said that futures costs have been cheaper recently, this is expected to change. “We expect that, as volatility reduces, the usual imbalance between buyers and sellers in the futures markets will resume and futures costs will return to the levels we saw between 2013 and 2015,” said the report.

In addition Source said futures are particularly expensive relative to ETFs at the December roll as banks have less risk appetite at the financial year-end. “For investors planning to hold an exposure over the December-March period, it may make sense to buy ETFs instead of futures,” added Source.

To continue reading, please click here

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ETF News

ETF and ETP: Now a $3 Trillion Industry

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Back in the day, when “trillion dollar” was a phrase not even contemplated by film writers, and barely envisioned by financial industry wonks (other than in context of US government deficit), and when even being a billionaire was limited to a universe of less than two dozen people, (e.g. Warren Buffett and Bill Gates 25 years ago), few would have predicted that a category of financial vehicle known as exchanged-traded products (ETP), with a sub-sect comprised of exchanged-traded fund (ETF) would become mainstream. Well, ETPs and ETFs are so mainstream now, assets invested in these products have surpassed $3trillion in each of the past two years.

(Traders Magazine) Assets invested in Exchange traded funds and ETPs listed globally have broken through the $3 trillion milestone for the second time at the end of Q1. At the end of May 2015 the assets in ETFs/ETPs listed globally first exceeded the $3 trillion milestone.

During March 2016, ETFs/ETPs listed globally gathered $45.30 in net new assets, according to research from ETFGI, a London-based market research firm. This marks the 26th consecutive month of net inflows. The Global ETF/ETP industry had 6,240 ETFs/ETPs, with 12,042 listings, assets of $3.07 trillion, from 277 providers listed on 64 exchanges in 51 countries, according to preliminary data from ETFGI’s March 2016 global ETF and ETP industry insights report.

“U.S. equities rebounded in March ending the month up 7 percent. Emerging markets and Developed ex US markets also had a strong March ending up 12.5 percent and 7.2 percent respectively. Based on comments from the Fed there is a growing belief that interest rates will be held lower for longer than previously anticipated. The European Central Bank cut rates and announced additional stimulus will begin in April, accelerating the rate of bond purchases from 60 to 80 billion euros per month,” according to Deborah Fuhr, managing partner at ETFGI.

Some ETF numbers, via ETFGI:

In March 2016, ETFs/ETPs saw net inflows of $45.30 Bn. Equity ETFs/ETPs gathered the largest net inflows with $26.30 Bn, followed by fixed income ETFs/ETPs with $14.80 Bn, and commodity  ETFs/ETPs with $2.42 Bn.

In March 2016, 71 new ETFs/ETPs were launched by 27 providers and 30 ETFs/ETPs were closed.

iShares gathered the largest net ETF/ETP inflows in March with US$20.97 Bn, followed by Vanguard with US$9.74 Bn and SPDR ETFs with US$6.25 Bn in net inflows.

YTD, iShares gathered the largest net ETF/ETP inflows YTD with US$24.54 Bn, followed by Vanguard with US$17.82 Bn and SPDR ETFs with US$8.78 Bn net inflows.

S&P Dow Jones has the largest amount of ETF/ETP assets tracking its benchmarks with 27.5 percent market share; MSCI is second with 14.6% market share, followed by FTSERussell with 12.4 percent market share.

Keep reading Traders Magazine story via this link

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ETF News, Global Macro Strategy

European ETFs Displace Futures Products

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(MarketsMedia) European ETFs and ETPs have gathered record net new assets in the first 11 months of this year, in many cases using as a displace to futures products. ETF Issuer BlackRock expects the size of Europe’s exchange-traded product market to double over the next three to four years.

ETFs/ETPs listed in Europe had gathered $72.6bn in net new assets at the end of last month, 18% above the record set at the same time last year, according to consultancy ETFGI’s Global ETF and ETP insights report.  ETFGI said in the report: “This marks the 14th consecutive month of positive net inflows.”

Source, the European ETF issuer, estimated that $100bn of assets have been switched globally into ETFs from futures over the last two years as ETF fees have fallen. Source added that investors who switch out of futures contracts into ETFs during the quarterly ‘roll’ this December could make record savings of 30 to 50 basis points on an annualised basis. December stock market futures expire on the 18th and investors would typically roll in the week leading up to this expiry date.

So far this year equity ETFs gathered the largest net inflows of $42.3bn, followed by fixed income with $24.9bn and then commodities with $1.2bn.

BlackRock’s ETF arm, iShares gathered the largest net inflows of $28.7bn in Europe in the year-to-date followed by Deutsche Bank’s db x/db ETC with $10.3bn. In third place was Societe Generale’s Lyxor AM with $8.6bn.

Robert Kapito, president of BlackRock, said this month that the asset manager remains very optimistic on its organic growth opportunities given secular tailwinds in ETFs and solid performance in active equity according to an analyst note from Goldman Sachs. Kapito presented at the Goldman Sachs US Financial Services Conference in New York on December 8.

The analysts said: “BlackRock expects the ETF industry to double over the next three to four years driven by an increasing number of uses for ETFs, specifically as an alternative to futures, increased adoption by broker-dealers to hedge risk and portfolio precision instruments.”

For the full story from MarketsMedia, please click here

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ETF News

ETF Fees-BlackRock Leads Race To Zero

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Unless you are Rip Van Winkle, you don’t need to be a MarketsMuse to know that the primary value proposition put forth by the ETF industry has always been: “Lower Fees Vs. Mutual Funds!” Yes, the secondary ‘advantage’ is “liquidity,” given that investors can move in and out of exchange-traded-funds throughout the trading day, whereas mutual funds are priced on an end-of day basis.

Well, Issuers of exchange-traded funds are now eating their own lunches, as competing Issuers are now pursuing a “race-to-zero” path when it comes to administration fees—adding a further crimp to the mutual fund industry’s marketing complex—which is being rocked by allegations from PIMCO’s former top honcho Bill Gross who has alleged in a recent lawsuit that PIMCO’s administrative fees are equal to the management fees the firm charges (but, that’s another story!)

Courtesy of today’s column by WSJ’s Daisy Maxey ETF Fees: “The Arms Race to Nothing”, the story at hand is worth two in the bush…here’s an excerpt:

 

Daisy Maxey, WSJ
Daisy Maxey, WSJ

BlackRock Inc. exchange-traded fund can now claim the title of the lowest-cost stock exchange-traded fund—but it probably won’t have that distinction to itself for long.

BlackRock, the largest global provider of ETFs, on Tuesday cut fees on seven of its iShares Core ETFs. That included trimming the annual expenses of the $2.7 billion iShares Core S&P Total U.S. Stock Market ETF to 0.03% of assets from 0.07%, bumping a pair of Charles Schwab Corp. ETFs from the lowest-cost spot.

Within hours, Schwab vowed to match the cut on its $4.9 billion Schwab U.S. Large-Cap ETF, which currently has expenses of 0.04%.

“Our intention has always been to be the price leader in the ETF space, and we’re going to maintain that,” said a spokesman for Schwab, who didn’t give an exact time frame for the company’s planned move.

Low fees have been one of the big attractions of ETFs and providers have competed fiercely to whittle down their charges by additional hundredths of a percentage point. The latest cuts by BlackRock are being viewed as a challenge to Vanguard Group, the No. 2 in ETF assets, as well as a sign of the success of BlackRock’s iShares Core ETF lineup, launched three years ago.

The giants of the ETF business are BlackRock, with $818 billion in U.S. ETF assets under management; Vanguard, at $479 billion; and State Street Global Advisors, the asset-management business of State Street Corp. , at $418 billion, according to Thomson Reuters Lipper. Schwab is a distant No. 7, with $38 billion in U.S. ETF assets, according to Thomson Reuters Lipper.

BlackRock’s iShares Core ETFs, which now number 20, are marketed as simple and low-cost portfolio building blocks.

The lineup has grown to $160 billion in assets as of Sept. 30, according to BlackRock.

For the full story from WSJ, click here

ETF News

ETF Sec Lending: Red Flags Being Raised

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Sec Lending is a big business for Wall Street and through the big banks, institutional investors are lending out more bonds and accepting increasing amounts of non-cash securities — including exchange traded funds — as collateral, according to a recent report spotlighted by MarketsMuse editors courtesy of a.m. story from FT.com. But the practice is raising concerns among some investors some of whom are particularly concerned about the practice of ETFs accepting other ETFs as collateral.

The trends for more bond lending and less cash collateral were picked up in the latest report from the International Securities Lending Association (ISLA), published on August 27. It said the €1.8tn securities lending industry had continued to move towards sovereign debt, with 39 per cent of securities on loan being made up of government debt, up from 35 per cent a year earlier. Of the €718bn worth of government bonds on loan, 72 per cent is taken in return for non-cash collateral, up from 61 per cent 12 months before.

Among those institutions feeding the increased desire to borrow securities is iShares, the world’s largest ETF provider in terms of assets under management, which is owned by BlackRock. It recently scrapped the 50 per cent limit on securities lending for ETFs domiciled in Europe that it had imposed in 2012.

In a statement published in July, iShares said it had decided to scrap the limit to “ensure clients can benefit from additional securities lending returns in funds where there is more borrowing demand”.

But scrutiny of just one US Treasuries ETF reveals some decisions — over collateral — that investors might find surprising. In the 12 months to the end of June 2015, the $1.8bn iShares $ Treasury Bond 7-10yr Ucits ETF (IBTM), had lent out on average 47.48 per cent of its assets under management, generating a 12 month return of 0.09 per cent.

iShares’ online information about this fund states that acceptable collateral includes “selected ETF units”, which last week included 10 iShares ETFs, including ones tracking US property and Chinese and Australian equities.

Andrew Jamieson, global head of broker dealer relationships for iShares, insists the policy of using ETFs as collateral is “nothing new” and that ETFs “are a viable and liquid collateral type as part of a broad range of assets that you can use”.

Ben Seager-Scott, director, investment strategy at Tilney Bestinvest, says he is “deeply concerned” by the securities lending programme at iShares and accused the provider of poor communication.

There’s no conflict of interest and there’s no cannibalisation

And Peter Sleep, senior portfolio manager at Seven Investment Management, questions iShares’ use of a Chinese equity ETF as collateral in a government bond fund. “What happens if you have a China ETF? Maybe it’s liquid, maybe it isn’t. What happens if China suspends trading on its stock market again?”

For the full story from FT.com, please click here

ETF News

Saudi Arabia ETF Readies For A Gusher

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MarketsMuse ETF update profiles a soon-to-launch Saudi Arabia-flavored ETF courtesy of iShares, and concurrent with the Kingdom opening up its equity trading pipeline for global access.. Below extract courtesy of ETF.com snapshot by Olly Ludwig

The iShares MSCI Saudi Arabia Capped ETF appears to be nearing launch, perhaps as early as mid-June, the date the Saudi stock market is set to open to foreign investors. That long-awaited market opening was a prerequisite to the launch of the fund, the first of its kind.

It is, again, the first stand-alone fund focused exclusively on Saudi Arabia, although both Van Eck’s Market Vectors and Global X have Saudi Arabia funds in registration. A possibly underappreciated aspect of the oil-rich country is that many of its energy-related firms won’t be accessible to investors, as most of the energy holdings are firmly controlled by the Saudi royal family.

Still, the Saudi market is estimated to have total market capitalization of $530 billion, or twice as big as the market value of Israel’s Tel Aviv exchange. The Saudi market will officially be open to foreigners on June 15. That move was widely expected to be accompanied by the launch of ETFs like this one from iShares.

The underlying index is a free-float-adjusted market-capitalization-weighted index with a capping methodology applied to issuer weights. It is designed such that no single issuer of a component exceeds 2 percent of the underlying index weight, and all issuers with a weight above 5 percent don’t exceed 50 percent of the underlying index weight.

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

ETF News, Tech Talk

BATS is Best For ETFs..Thanks to BlackRock

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BATS Global Markets now is the leading U.S. marketplace for exchange traded funds (ETFs), executing 26.1 percent of all ETF trading in May.

MarketsMuse ETF and Tech Talk depts merge to provide following update, courtesy of James Dornbrook Kansas City Business Journal

On Thursday, the Lenexa-based stock exchange welcomed the 22nd ETF to be listed on its trading platform, the iShares Convertible Bond ETF (BATS: ICVT), an indexed bond fund that operates as a subset of the Barclays U.S. Convertibles Cash Pay Bonds Index. The index measures the performance of the U.S. dollar-denominated convertible bond market, which consists of bonds that a holder can convert into a specified number of shares of common stock of the issuing company. The bonds typically are used by companies with low credit ratings but huge growth potential.

More than half of the ETFs listed on BATS are from BlackRock Inc.’s (NYSE: BLK) iShares Exchange Traded Funds business. So the relationship with iShares has been key to BATS growth in listings for ETFs.

BATS excels at listing ETFs because offering companies are more interested in getting access to the liquidity BATS excels at offering than they are in buying marketing services, where the New York Stock Exchange and Nasdaq have a commanding advantage.

In addition to being the No. 1 ETF trading platform in the United States, BATS is also the No. 2 trader in overall U.S. equities, with a 21.2 percent market share in May.

ETF News, Fixed Income

BlackRock New Bond ETF To Trade Like Common Stock

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BlackRock is the world’s largest asset manager with over $4.59 trillion in assets under management. iShares is a section of BlackRock that is in control of hundreds of ETFs. As noted on iShares page and continued to ring true today, Many people are turning to ETFs for diversified, low-cost and tax efficient investing. ETFs can be a powerful addition to your investment portfolio.

MarketMuse blog update is courtesy of the New York Times’ Landon Thomas Jr. with an extract from Thomas’s article, “BlackRock’s New Breed of Exchange-Traded Bond Fund Prizes Stability Over Swagger“

While he may not live the life of a swaggering bond market pro, Mr. Radell, a bond manager at the fund giant BlackRock, is challenging a strategy that has rewarded some of his flashier peers: the pursuit of high-risk, high-return investments.

The weapon that Mr. Radell will be using is a new variety of exchange-traded fund, or E.T.F., which tracks an index of stocks or bonds but trades like a common stock, allowing investors to jump in and out.

For years now, these funds have been a hit with passive investors. Now, BlackRock is introducing a new breed of bond E.T.F. that aims to blend the best of active investing (security selection) with index investing (cost and consistency).

Scott Radell has been with BlackRock since 2003 and currently is in charge of more than 80 ETFs for BlackRock’s iShares. 

To read the entire article on the new bond ETF from BlackRock found in the New York Times, click here.

ETF News

State Street Slashes SPDR ETF Fees; Issuers In A Race to Zero? Nah..

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MarketsMuse blog update courtesy of extract from news report by Reuters’ Ashley Lau

State Street Corp said on Tuesday it has slashed management fees on 41 of its SPDR exchange-traded funds, joining major ETF providers BlackRock Inc and Vanguard in their efforts to lower fees as price competition heats up.

The price cuts at State Street, which affect a range of international and domestic equity and bond funds, come at a time when cost has become an increasingly important factor for ETF providers. Vanguard, which recently surpassed State Street to become the No. 2 U.S. ETF provider, has been winning assets with its razor-thin fees.

With the new price reductions, State Street’s SPDR Barclays Aggregate Bond ETF, for example, now has an expense ratio of 0.1 percent, down from 0.21 percent. That brings the fund closer to the range of the Vanguard Total Bond Market ETF and the iShares Core U.S. Aggregate Bond ETF, which both have an expense ratio of 0.08 percent.

State Street said the fee reductions are part of an ongoing review process “to identify improvements that are beneficial to investors.”

“Competitive pricing is a core benefit to the SPDR ETF value proposition,” said James Ross, global head of SPDR ETFs at State Street Global Advisors, the company’s asset management business.

ETF assets have been flowing into Vanguard, long a leader in low fees. It increased its U.S. market share to 21.3 percent at the end of 2014, more than doubling its market share since 2008.

BlackRock, the largest ETF provider, has also been expanding its “iShares Core” lineup of low-cost ETFs, a program it started in October 2012 to compete with cheaper funds offered by other providers. The company said on Monday it would extend a partial fee waiver of annual management fees on certain iShares funds in Canada. (Reporting by Ashley Lau; Editing by Dan Grebler)

 

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.

 

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ETF News

SEC SmackDown of Non-Transparent ETFs-No Secret Sauces!

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In an effort to reign in a powerful campaign to launch secret sauce ETFs that have no business being used by ordinary investors, the SEC scored a smackdown on the creation of non-transparent ETFs in a recent ruling that blocks plans by ETF giant BlackRock as well as Precidian Investments to issue ETFs’ whose underlying constituents would otherwise be, well, non-transparent.

The topic of non-transparent ETFs has been a focus of several MarketsMuse articles in recent months. As reported last week by Bloomberg LP, The U.S. Securities and Exchange Commission rejected plans by BlackRock Inc. and Precidian Investments to open a new type of exchange-traded fund that wouldn’t disclose holdings daily, setting back efforts to bring more actively managed ETFs to market.

The SEC, in preliminary decisions announced yesterday, denied BlackRock’s September 2011 and Precidian’s January 2013 requests for exemptive relief from the Investment Company Act of 1940. The move puts on hold plans by the firms to start the first non-transparent ETFs.

The Precidian proposal falls “far short of providing a suitable alternative to the arbitrage activity in ETF shares that is crucial to helping keep the market price of current ETF shares at or close” to its net asset value, Kevin O’Neill, a deputy secretary at the SEC, wrote in the letter.

The ruling hinders plans by asset managers to sell funds run by traditional stock-picking managers in an ETF package. Firms including Capital Group Cos. have asked for similar regulatory approval as they seek to expand offerings in the fastest-growing product in the asset-management industry.

Money managers have been discouraged from introducing active ETFs, which combine security selection with the intraday trading and some of the cost-saving features of traditional ETFs, because the SEC’s requirement for daily disclosure of holdings would make it easy for competitors to copy, and traders to anticipate, a manager’s portfolio changes.

‘Not Surprised’

“We want to work with the SEC — we believe it’s part of the process,” Daniel McCabe, Precidian’s chief executive officer, said in a telephone interview. “We’re not surprised by the fact that they have questions, but questions can be answered.”

ETF providers must disclose holdings every day to enable market makers to execute trades that keep the share price in line with the underlying value of the fund’s assets. Firms including BlackRock, Precidian and Guggenheim Partners LLC proposed structures that they say would allow the funds to remain priced in line with assets, without revealing specific positions.

T. Rowe Price Group Inc. in Baltimore and Boston’s Eaton Vance Corp. are also among fund firms seeking SEC approval for non-transparent active ETFs. None of the applications has been approved.

“We are still pursuing our own proposal to offer non-transparent active ETFs,” Heather McDonold, a spokeswoman for T. Rowe, said in a telephone interview.

Commercial Opportunity

Melissa Garville, a spokeswoman for New York-based BlackRock, and Ivy McLemore, a spokesman for Guggenheim, declined to comment. Robyn Tice, a spokeswoman for Eaton Vance, and Elizabeth Bartlett for State Street Corp. didn’t immediately respond to an e-mail and telephone messages seeking comment.

BlackRock was one of the first U.S. fund managers to ask the SEC for approval, after spending three years crafting the product. Their leading role in seeking approval for a non-transparent active ETF has spurred excitement within asset management for the product’s prospects, according to Todd Rosenbluth, director of mutual-fund and ETF research at S&P Capital IQ in New York.

Mark Wiedman, BlackRock’s global head of its iShares ETF unit, said in May that the firm was confident the products would work, “but we don’t actually think it will be much of a commercial opportunity.”

For the full story from Bloomberg reporter Mary Childs, please click here

ETF News, People Profiles

Euro ETF firm backed by ex-iShares leader Kranefuss launches first fund

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investmentnews logoBelow extract courtesy of Investmentnews.com and Trevor Hunnicutt

An ambitious European ETF firm backed by former iShares leader Lee Kranefuss charged into the U.S. Tuesday, launching its first fund and throwing down the gauntlet to a “stale” industry.

Lee Kranefuss (Bloomberg News Photo)
Lee Kranefuss (Bloomberg News Photo)

The firm, Source, is the seventh largest in Europe’s smaller ETF industry and 23rd globally. As it enters the United States, Source will be competing for assets with an increasingly entrenched group of three providers — iShares (owned by BlackRock Inc.), the Vanguard Group Inc. and State Street Corp. — and dozens of smaller players.

While at iShares before it was acquired by BlackRock in 2009, Mr. Kranefuss, Source’s executive chairman, led the firm’s efforts to popularize the concept of cheaply trading entire markets over exchanges much like a stock, the core concept of the original exchange-traded funds. The industry managed tens of billions in the early 2000s; today, it’s a $2.7 trillion business.

Mr. Kranefuss, who built iShares into a $300 billion business between 2000 and 2009, today calls the industry “rather stale,” arguing a newcomer needs to shake things up. Continue reading →

ETF News, Tech Talk

Bats Lands BlackRock To Start European ETF Exchange;New Regional Bourse Seeks to End ‘Fragmentation’ in Market

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wsjlogoCourtesy of WSJ reporters Tim Cave and Sarah Krouse                                                                

Bats Chi-X Europe, the region’s largest equities trading platform, has been endorsed by BlackRock Inc. BLK -1.77% for its new exchange-traded fund platform.

From next month, the fledgling stock exchange will list two of BlackRock’s iShares ETFs as secondary listings: the iShares MSCI Emerging Markets Ucits ETF andiShares MSCI World Minimum Volatility MINV.LN -0.11% Ucits ETF.

BlackRock is the first to list ETFs on Bats Chi-X Europe, which received a stock exchange license from the UK’s Financial Conduct Authority in May. Until now Bats has been a secondary equities trading venue, but the exchange license allows it to diversify into primary listings for companies, derivatives products and ETFs.

Trading in European ETFs is highly fragmented, with issuers forced to list their products across a number of different exchanges. In Switzerland, for example, issuers are not permitted to market their products in the country without a local listing.

Bats is attempting to solve the issue of “fragmentation, transparency and liquidity” by creating a pan-European ETF listing venue, according to Mark Hemsley, chief executive of Bats Chi-X Europe, which is operated by BATS Global Markets, Inc. Continue reading →

ETF News

iShares Launches “Contango-Free” Futures-Based ETF: $CMDT

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indexuniverseCourtesy of Olly Ludwig/IndexUniverse

iShares, the world’s largest purveyor of ETFs, on Friday is launching a futures-based commodities ETF designed to minimize contango and maximize backwardation—a follow-on to “GSG,” a first-generation fund it launched about five years ago that doesn’t target contango. The new fund’s benchmark currently includes 20 commodities.

The iShares Dow Jones-UBS Roll Select Commodity Index Trust ETF (NYSEArca: CMDT) will be based on the contango-killing Dow Jones-UBS Roll Select Commodity Index Total Return. iShares’ latest filing with the Securities and Exchange Commission detailing the fund said the fund has a sponsor’s fee of 0.75 percent, or $75 for each $10,000 invested.

CMDT, which first went into registration in December 2011, is the latest in a growing field of contango-targeting broad-based commodities funds that includes the $6.29 billion PowerShares DB Commodity Index Tracking Fund (NYSEArca: DBC) and the $495 million United States Commodity Index Fund (NYSEArca: USCI). USCI has an annual management fee of 1.03 percent, while DBC’s is 0.93 percent, or $93 for each $10,000 invested.

ETF News, People Profiles

ETFs Are Duking It Out Over Fees

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By LIAM PLEVEN

Exchange-traded funds have lured many investors away from mutual funds by offering lower fees. But increasingly, some ETFs are also using fees to compete with other ETFs.

In a handful of high-profile cases, particularly in commodities and stocks, investors can choose between two ETFs that are virtually identical except for their fees. Gold bugs, for instance, can buy into a bar of bullion by holding shares in either SPDR Gold Shares GLD +3.88% or iShares Gold Trust IAU +3.94% . But the SPDR fund charges 0.4% of assets a year in fees, compared with the iShares fund’s 0.25%.

Disparities like that point to the rising importance of price as a distinguishing factor in what has become a crowded and confusing ETF marketplace for many individual investors. It isn’t clear yet how effective the tactic will be in the long run—there may be good reasons in some cases for investors to stick with or buy a higher-priced fund. But it seems to hold promise as a marketing tool.

ETF News, People Profiles

Fidelity Snags State Street ETF Czar: Rumors Abound

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In a “if you can’t beat ’em, poach ’em” moment, mutual fund monster Fidelity Investments has apparently thrown in the towel and will finally focus on running their own actively-managed sector-specific ETFs. At least that’s the obvious conclusion being drawn by industry watchers after news of Fidelity, which still only offers one house-branded ETF, announced the hiring of former employee Tony Rochte, who left Fidelity after four years in 2000 to seek his fortunes in the wild west days of ETF pioneering.

The widely-respected Rochte spent his next six years at BlackRock’s bootcamp carrying the iShares flag, and the most recent six years as Senior MD over at State Street Global, where he helped the second largest ETF issuer become, well, the second largest ETF issuer.

Anthony Rochte

According to InvestmentNews:With Mr. Rochte’s background in ETFs and his new role running a division focused on sector investments, it seems like a no-brainer to some that Fidelity would re-launch those strategies as active ETFs.

“It would be a logical next step,” said Robert Goldsborough, an ETF analyst at Morningstar Inc. “Given that the sector funds already exist and they’re popular with advisers, it would make a tremendous amount of sense to move that competency over to ETFs.”  Duh!

ETF News, People Profiles

BlackRock Bulks Up in Europe: Expanding “ETP Education” Campaign

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However much the use of ETF and ETP products in Euro-Land continues to grow,  Global ETF Issuer iShares knows that it can grow faster and bigger.

Consistent with parent company BlackRock Inc.’s focus on staying in front of the pack, and as reported by IndexUniverseEU staff, iShares has recently introduced a “due diligence tool” aimed at helping professional investors obtain granular information about its European exchange-traded products.

According to iShares’ head of EMEA sales, David Gardner, “Our new “Know Your ETP” tool offers a robust framework, and clear standardised processes by which institutional investors can arrive an informed decision more effectively.”

On an objective note, ETF industry veteran Mike McCoy, a senior member of ETF liquidity aggregator WallachBeth Capital, who recently landed on the docks of London to help launch his firm’s new Euro ETF execution desk (in joint-venture with UK-based brokerage NSBO), said, “BlackRock certainly knows that the ‘educating your customer rule’ is integral to the evolution of ETF embracement. As quickly as the market is growing, its critical to maintain the education momentum with the spectrum of investors, however sophisticated they might be.”

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