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Strike Price

Add One More Options Exchange To Your Menu-Its About Rebates, Silly!

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MarketsMuse options market update courtesy of extract from our friends at MarketsMedia LLC and their profile of yet another proposed options exchange with yet another “rebate” scheme intended to capture market share in the very competitive world of order routing.

International Securities Exchange will have its ISE Mercury exchange ready for trading by the end of the second quarter, though the launch remains subject to approval by the U.S. Securities and Exchange Commission.

New York-based ISE is the ‘s flagship ISE options exchange has market share of about 10.5%, 3rd-most of 12 U.S. options exchanges, while its Gemini exchange, launched in August 2013, has a 3.1% share, according to the OCC.

Gary Katz, ISE
Gary Katz, ISE

ISE has said Gemini is differentiated by offering transaction rebates to liquidity providers and prioritizing orders based on price, rather than prioritizing orders based on price and time. Mercury is expected to have its own differentiated market structure, though details have yet to be specified.

“We look at our exchanges as a group because they’re intended to work together,” said ISE Chief Executive Officer Gary Katz. “They address certain segments of the market, and offer pricing to attract different types of customers, whether they be professionals or priority customers. This strategy is working well in a super-competitive environment.

For the full story from MarketsMedia, 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

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, Fixed Income

New Rules: SEC Set to Level Playing Field for ETF Issuers

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Are you beginning to wonder why there is an avalanche of news stories profiling corporate bond ETFs? As we’ve posted here at MarketsMuse.com, one good reason might be rising concerns that when interest rates tick up and bond prices tick down, there could be a rush to the exits on the part of investment managers seeking to sell their corporate bond ETFs (or looking to sell select ETFs so as to hedge portfolio exposure in underlying issues held by these managers). Reuters’ Jessica Toonkel and Ashley Lau touch on that topic in recent story profiling a plan on the part of the SEC to “level the playing field” for newer firms entering the ETF Issuer club.

Here’s the extract:

By Jessica Toonkel and Ashley Lau

Reuters – The U.S. Securities and Exchange Commission may strip Vanguard Group, BlackRock Inc and State Street Corp, the oldest and biggest providers of exchange-traded funds, of an advantage they hold over newer rivals in how they assemble the shares of their funds, said sources familiar with the SEC.

etf-issuer-sec-level-playing-fieldsBut BlackRock, Vanguard and a few others, who were among the first to apply with the SEC to create ETFs, are allowed greater leeway: if they need a difficult-to-find security to create shares of their funds, they are permitted to use a similar security – not necessarily the same one – in the fund. This greater flexibility makes it easier and cheaper to run the older funds, and harder for newer entrants into the market such as Northern Trust, Van Eck Global and Charles Schwab Corp to compete.

The agency’s tentative plan – still in its early stages – would affect how companies manage their portfolios in illiquid markets, such as bonds. It may result in allowing the likes of Schwab to compete better with their older rivals, as well as manage their existing bond products at a lower cost.

The agency’s tentative plan – still in its early stages – would affect how companies manage their portfolios in illiquid markets, such as bonds. It may result in allowing the likes of Schwab to compete better with their older rivals, as well as manage their existing bond products at a lower cost.

For the full story from Reuters’ Jessica Toonkel and Ashley Lau, please click here

ETF News

Leveraged ETFs Chapter 12: Levered and Lightly Levered: Which Direxion To Choose?

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MarketsMuse update courtesy of extract from Olly Ludwig’s ETF.com profile of Direxion Shares’ latest levered product. Continuing in the direction of embracing RIAs, Direxion is hoping the latest incarnation will further innovate and provide investment advisors with a new tool. Here’s the opening from ETF.com’s profile….

ETF_OllyLudwig100x100
Olly Ludwig, ETF.com

Just when you thought that the leveraged ETF niche has been carved out and accounted for, New York-based Direxion Shares has come out with what it calls “lightly levered” ETFs that have 1.25X exposure.

To hear Direxion President Brian Jacobs speak to this new ripple in the world of leveraged ETFs, the company aims to give investors a more easily managed investment tool than the 2X and 3X ETFs that have ruled the leveraged roost so far. But, no less, Jacobs told ETF.com that Direxion is looking to reinvent the leveraged ETF for an advisory channel increasingly focused on asset allocation in portfolio construction.

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

 

ETF News, Fixed Income, People Profiles

Bond Guru Gundlach Launches Actively-Traded Bond ETF

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

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

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

Partnership With SSgA

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

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

Fixed Income, Global Macro Strategy

And The Winner of “World’s Fastest Growing Asset Class” Is…

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Below is courtesy of Feb 23 commentary from “Quigley’s Corner”, aka debt capital market observations from Mischler Financial Group’s Head of Fixed Income Syndicate, Ron Quigley. Mischler Financial Group is also an award winner; a panel of industry judges assembled by financial industry publication Wall Street Letter voted to award the firm “WSL 2015 Award for Best Research/BrokerDealer.”

The Big Four Central Banks as the World’s Fastest Growing Asset Class

Ron Quigley, Mischler Financial Group
Ron Quigley, Mischler Financial Group

I had a wonderful conversation over dinner this weekend with a highly intellectual and personable Russian player in our markets.  We discussed Greece and the additional overtime round of “kick-the-can” that postpones pain by four more months.  But what seemed even more compelling was the notion of the Big Four Central Banks as the world’s fastest growing “asset class.”  (The Fed, the ECB, BOJ and PBoC).  Deutsche Bank illustrated in a recent research piece, the staggering numbers of Big Four Central Bank purchases.  The Central Banks have clearly become an asset class all its own.  It’s right up there the with cumulative total of U.S. pension funds!  Digest that for a second readers!  As my friend wrote to me: Continue reading →

ETF News

J.P. Morgan War On Hacking Boosts ETF $ HACK

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MarketMuse update courtesy of Yahoo Finance from ETF Trends. 

Earlier in the week, MarketMuse profiled cyber security ETFs recent boost and today, Brokerdealer.com profiled how J.P. Morgan’s war on cyber security is costing bankers’ jobs, so it only seemed fitting that MarketMuse combine to two subjects for today’s MarketMuse post. Since the threat of cyber security doesn’t seem to be going away anytime soon, J.P. Morgan is spending more money on cyber security protection and less money investors’ salaries resulting in the lowest banker hiring rate in recent years and growing cyber security ETFs.   

In what has become an almost daily affair in recent weeks, the PureFunds ISE Cyber Security ETF (HACK) is hitting record highs again Thursday and doing so on strong volume.

HACK, the first exchange traded fund dedicated to the cyber security industry, is up 1% today on volume that is already 36% above the daily average. As has been the case with HACK over its brief trading history (the ETF debuted in November), the catalysts for Thursday upside are easy to identify.

Namely, a Bloomberg article detailing J.P. Morgan Chase’s (JPM) commitment to bolstering its cyber security through increased spending and hiring of former military members. The bank was victimized by a cyber security breach in June 2014.

Given HACK’s penchant for responding favorably to such news items (see the controversy surrounding “The Interview” and the ETF’s reaction to the recent Anthem Blue Cross hack), it is not a stretch to say that if HACK was around in June, it would have soared in the days following news of the J.P. Morgan hack. [Anthem Hack Lifts Cyber Security ETF]

HACK did not exist in June 2014, but J.P. Morgan is having a favorable impact on the ETF. In October 2014, J.P. Morgan Chase (JPM) CEO Jamie Dimon said the banking giant will likely double its cyber security spending to $500 million within the next five years.

Important to HACK, Dimon is making good on that promise. J.P. Morgan’s security operation has 1,000 staffers, double the size of the comparable unit at Google (GOOG), according to Bloomberg. Add to that, J.P. Morgan is far from the only major financial services that is expected to increase cyber security spending in the coming years.

Citigroup’s (NYSE: C) cyber security budget jumped to $300 million at the end of last year while Wells Fargo (WFC) spends roughly $250 million a year on cybersecurity and has increased staffing in the area by 50%, according to the Wall Street Journal.

Increased cyber security spending by financial services firms is seen as a boon for companies such as FireEye (FEYE), Palo Alto Networks (PANW) and Japan’s Trend Micro. All three are members of HACK’s portfolio with FIreEye and Palo Alto Networks combining for 9.7% of the ETF’s weight.

Earlier this week, HACK surged after Russia’s Kaspersky Lab, a major cyber security firm, said a group of hackers have stolen as much as $1 billion from over 100 banks in 30 countries since late 2013.

Investors are buying into the thesis that increased cyber security spending bodes well for HACK’s longer-term potential. The ETF that the fund is now home to $231 million in assets under management, confirming HACK’s place on the list of most successful ETFs to debut in 2014. Impressively, HACK’s ascent to $231 million in AUM means the ETF has more than doubled in size over the past six weeks after topping $100 million in assets in early January. The ETF debuted in November.

For the original article, click here.

ETF News

Take A Drag Or Sip Out Of These Industries: Smoke and Alcohol ETFs Are Hot

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MarketMuse update is courtesy of Bloomberg’s Justin Fox. It is very difficult to invest stocks for long term, humans’ interests are always changing and that affects the stock market. Bloomberg’s Justin Fox suggests that people should invest in human behaviors such as the tobacco and alcohol industries, such as the tobacco sector big name, Philip Morris International Inc., PM or popular alcohol ETF,  Constellation Brands Inc., STZ. He explains that unless these products are banned, humans will always have an interest.

It would be really cool to know which industries are going to thrive and grow and create jobs in the future. It’s also really hard to figure that out ahead of time. If you’re just interested in which industries will deliver the best stock-market returns, though, history seems to point to an easy shortcut — invest in companies that sell addictive stuff.

I learned this dubious lesson by reading, in quick succession, two big new reports: the Brookings Institution’s analysis of the 50 “Advanced Industries” that are supposed to drive job and income growth in the U.S., and Credit Suisse’s annual “Global Investment Returns Yearbook.” The Brookings report tries to look into the future by measuring investment in technological progress by industry — and although most of the 50 advanced industries it identifies are what you would expect, there are some surprises. In the 2015 Credit Suisse yearbook, meanwhile, Elroy Dimson, Paul Marsh and Mike Staunton of London Business School examine 115 years of stock-market returns by industry, and while they document a lot of technological upheaval, the two biggest winners for investors turn out to be decidedly low tech.

An advanced industry, by Brookings’ accounting, is one “in which R&D spending per worker reaches the top 20 percent of all industries and the share of workers with significant STEM knowledge exceeds the national average.” (STEM = science, technology, engineering and math. And R&D = research and development. But you probably knew that.) There’s lots of research showing that technological change drives economic growth, and R&D spending and STEM knowledge are supposed to be proxies for future technological change.

I don’t know of any obviously better proxies, but the results show the difficulty of any such accounting. The list of the very biggest R&D spenders isn’t particularly surprising:-1x-1

Dig deeper into the advanced industries list, though, and you soon come across industries that don’t seem all that advanced: railroad rolling stock, foundries, petroleum and coal products, metal-ore mining. Are these secret hotbeds of technological change that should command more attention? Probably not. One old-school industry, motor-vehicle manufacturing, does spend a ton on R&D ($48,461 per worker), but those others made the list mainly because there just aren’t that many industries in the U.S. that invest in R&D at all. To get to 50, you have to include a bunch of industries with per-worker spending of less than $5,000 a year. (No. 50, in case you’re wondering, is wireless-telecommunication carriers — which spent just $455 per worker in 2009.)

This isn’t necessarily a problem for the U.S. economy. One thing you’ll notice if you spend any time with the North American Industry Classification System is that it’s backward-looking. Older parts of the economy are divided into lots and lots of industries; newer ones aren’t. So you get railroad rolling-stock manufacturing, which employed 25,200 people in 2013 and generated $3.6 billion in output, counted as an industry on the same level as computer-systems design, which employed 1.7 million people and generated $246 billion.

Yet it’s these newer industries that generate the growth — at least, they have over the past 115 years. In 1900, according to the Credit Suisse yearbook, railroads accounted for 63 percent of stock-market value in the U.S. Now they’re less than 1 percent, and 62 percent of U.S. stock-market value is in industries that were small or nonexistent in 1900. The largest industries by market cap now are technology, oil and gas, banking and health care.

We’re all supposed to believe that past performance is no guarantee of future results. But given human nature, it seems reasonable to expect tobacco and alcohol to continue to do well — unless tobacco is completely banned, of course. Picking the next hot industry is a much harder task, yet it is a much more important one.

For the entire article, click here.

 

 

 

Fixed Income, Global Macro Strategy

$AAPL Swiss Bond Deal-Slicing Through the Jibber Jabber With a Rareview

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MarketsMuse update profiling Apple, Inc. ($AAPL) Swiss bond issuance is courtesy of extract from a.m. edition of Rareview Macro LLC’s “Sight Beyond Sight.”

The commentary on Apple Inc. (symbol: AAPL) and Swiss franc (CHF) below is certainly a rare view, simply because most professionals are still trying to decipher the impact of this morning’s Swiss bond deal.

Neil Azous, Rareview Macro
Neil Azous, Rareview Macro

Given the focus on the world’s largest company and Switzerland in the aftermath of the shift in central bank policy in January, one would think there would be a lot more discussion about the debt offering described below. It is not happening. That is not because professionals or the media are not interested in the deal. It is, instead, largely because this offering is intellectually challenging to first analyze and second, to report on.

Apple Inc.: To Sell CHF750M Bonds in 2-Tranche Offering; Scheduled To Price Today.
o Tranche 1: CHF500m 11/2024 at MS +27bps area
o Tranche 2: CHF250m 15Y at MS +37bps area
o Lead managers: CS, GS
So let’s analyze this together through our lens. Continue reading →

Fixed Income, Global Macro Strategy

Fixed Income Guru Says This About Interest Rate Outlook-

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ron quigley
Ron Quigley, Mischler Financial Group

MarketsMuse fixed income fix for Feb 5 is courtesy of Industry Veteran and debt capital markets guru Ron Quigley, Managing Director and Head of Fixed Income Syndicate for Mischler Financial Group, the sell-side’s first and foremost investment bank/institutional brokerage boutique that is owned and operated by service-disabled veterans.  Mr. Quigley is also the author of “Quigley’s Corner”, a daily debt capital market commentary distributed to 1000+ Fortune treasurers, investment managers and public plan sponsors.  Mischler Financial Group is the winner of the 5th Annual Wall Street Letter Award for “Best Broker-Dealer/Research”

The Guy-in-the-Corner’s Take on Interest Rates (Feb 4 Quigley’s Corner)

So, I was asked by a Senior Managing Editor of an anonymous multi-billion dollar global financial news operation for my thoughts on interest rates. When I began my response to him, it just seemed to continue as there are so many factors that influence that discussion. My response turned out to be a feature unto itself so without further ado, I thought I’d feature it in today’s “QC.”

As concerns your question about how recent jumbo deals (think “Apple”) have raised speculation of interest rates rising, there is a POV out there claiming issuers are quick to print in anticipation of higher rate action. I, however, lean the other way…….FAR the other way and here’s why:

I have always been a proponent of “lower-for-longer”. Yellen added language in her last minutes flagging the EU as a potential impact on keeping U.S. rates lower. In the prior minutes, she didn’t mention the EU at all (which I thought was egregious not to at least mention the worst and most impactful economic story on our planet).

o On any given day a slew of news would be headliners in their own right. Aside from MENA unrest and the dramatic ISIS killings and impact in the world’s most sensitive hotbed – MENA – there are myriad factors that can all impact our rate environment:

o The Swiss National Bank’s action to remove its cap with the euro is a red flag or bad sign to the markets. It means the Swiss (unknown for surprises and bastions of stability) do not like what they see in on the horizon for for the EU. Did someone say “currency wars?” Remember history and NEVER forget it. We are dealing with severe currency volatility between the USD, EURO, YEN et al. These are reminders of the economic dislocation circa the 1930s……and we know what that led to. Continue reading →

ETF News

Mutual Funds Issuer Hoping to Enter the ETF Ring

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MarketMuse update courtesy of ETF Trends’ Tom Lydon

American Funds, one of the largest mutual funds issuer, are waiting for the SEC to approve an application for the issuer to enter the ETF industry. 

Capital Group Cos., the parent company of American Funds, submitted an application for ETFs to the SEC a year ago. A notice from the SEC indicates approval of American Funds’ ETF foray appears likely though there is still time for opponents to request an SEC hearing, though such a hearing is unlikely, reports Trevor Hunnicutt for InvestmentNews.

California-based American Funds has $1.2 trillion in assets under management, or more than half the current AUM tally for the U.S. ETF industry. However, ETFs are the fastest-growing corner of the asset management industry, underscoring the desire of mutual fund companies to become involved with products that institutional investors and advisors are increasingly adopting.

While it took nearly two decades for the ETF industry to reach $2 trillion in assets, it will not need nearly as long to get to $5 trillion, according to a new report by PwC. The PwC repots says the global ETF industry will reach $5 trillion in combined AUM by 2020.

News of American Funds potentially entering the ETF business represents a reversal from the company’s previous stance on ETFs. The company has been a strident supporter of active management at a time when data indicate many active managers consistently fail to beat their benchmarks.

In September 2013, Capital Group published a study that “argued that its stock-picking mutual funds outperformed their benchmark indexes in the majority of almost 30,000 periods examined over the past 80 years. That included 57 percent of one-year stretches, 67 percent of 5-year periods and 83 percent of 20-year ranges. The Capital Group study examined 17 of the company’s mutual funds that invest in equities or both equities and bonds. It measured their performance over every one-, three-, five-, 10-, 20- and 30-year period, on a rolling monthly basis, from Dec. 31, 1933, through Dec. 31, 2012.”

Still, “only about 13% of actively managed, large-company stock funds posted returns above that of the S&P 500 for 2014,” the Wall Street Journal reports.

Although the SEC notice did not specify whether American Funds will issue active or passive ETFs, the firm’s reputation for active management implies the company would favor actively managed ETFs, a still small, but fast-growing segment of the ETF business. Some industry observers also see actively managed ETFs being a key driver of ETF industry growth in the coming years. For the week ending Jan. 16, U.S.-listed actively managed ETFs had a combined $17.24 billion in AUM with nearly half that total allocated to PIMCO and First Trust ETFs, according to AdvisorShares data.

While that is just a fraction of the overall U.S. ETF industry, increased demand for active ETFs and the potential for a more favorable regulatory environment could make actively managed ETFs a $500 billion asset class by 2020, according to a report by publishedSEI Investments last year.

 

ETF News, Global Macro Strategy, Strike Price

Global Macro ETF: A Rareview- Look No Further and Look Down Under $MVMVE

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MarketsMuse global macro trading insight courtesy of extract from 4 Feb edition of Rareview Macro LLC’s “Sight Beyond Sight” with reference to $MVE and $MVMVE

Neil Azous, Rareview Macro
Neil Azous, Rareview Macro

There are a lot of moving parts overnight, including the continuing debate on whether crude oil has bottomed or not. But if we had to focus on just one part of the narrative it would be Australia – the tentacles of which stretch out all the way to basic resources, yield, beta, deflation, and sentiment.

Now before dismissing any read through from this antipodean nation as not as relevant as other indicators, we would argue that what is happening there may well have more meaningful ramifications for global risk assets than most realize.

Firstly, the Market Vectors Australia Junior Energy & Mining Index (symbol: MVMVE) is showing the largest positive risk-adjusted return across regions and assets for the second day in a row.

By way of background, MVMVE covers the largest and most liquid Australian and offshore small-caps generating 50%+ of their revenues from energy & mining and listed in Australia. This basket of securities is not only highly geared to capex, utilities, infrastructure, and engineering but it is the poster child for Australia-Asia commodity speculation. Put another way, it has been the worst-of-the-worst and a favorite proxy to watch for those who hold the dogmatic view that China and Australia are both zeros.

We do not want to overemphasize the importance of just one index, so we are highlighting it more as a starting point than anything else. It is not uncommon for this index to show up on our equity monitor but it is rare for it to take the leadership across all regions and assets, and very rare for that to happen on back-to-back days. For that reason, it has prompted us to do some further analysis on that food chain.

Model Portfolio Update – Increased S&P 500 (SPY) Short Position Continue reading →

Global Macro Strategy, People Profiles

Global Macro Czar Paul Singer Says This About Buying Govt Debt: “Nuts to You!”

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Elliott Management Founder Says It’s ‘Nutty’ to Hold Government Debt

Below MarketsMuse extract courtesy of FinAlternatives.com’s afternoon edition (which is courtesy of coverage from Bloomberg LP’s Kelly Bit) is a beauty for those who follow the musings of this global macro trading titan…and the comments are consistent with what makes Paul Singer, well, Paul Singer..

By Kelly Bit (Bloomberg) — Paul Singer, the billionaire founder of Elliott Management Corp., said government policy has encouraged traders to take massive concentrated positions in “fantastically” overpriced markets and that the government bonds of developed countries are at unsustainably high prices.

“Today’s trading levels of stocks and bonds reflect ‘thumb on the scale’ valuations driven by persistent and massive government asset purchases and zero percent (or lower!) short- term policy rates, as well as an essentially unlimited tolerance for risk,” Elliott wrote in the firm’s fourth-quarter letter dated Jan. 30, a copy of which was obtained by Bloomberg News. Continue reading →

ETF News

A Little Known ETF, Recon Capital, Comes Out Big in Its First Year

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MarketMuse update courtesy of ETF Trends, Tom Lydon. Tom Lydon highlights Recon Capital ETF that follows a covered call strategy successful first year. 

A little unknown exchange traded fund that follows a covered call strategy has generated robust dividend yields over its first year.

The Recon Capital NASDAQ-100 Covered Call ETF (NasdaqGM: QYLD), which began trading on December 12, 2013, has provided a distribution yield of 10.4% in 2014, according to a press release.

QYLD provides a covered-call strategy that targets Nasdaq-100 securities. Additionally, for those who rely on regular income payments, the ETF provides monthly distributions.

The covered-call options strategy allows an investor to hold a long position in an asset while simultaneously writing, or selling, call options on the same asset. Traders would typically employ a covered-call strategy when they have a neutral view of the markets over the short-term and just bank on income generation from the option premium.

In a flat market condition, the trader would use the buy-write strategy to generate a premium on the option. If shares fall, the option expires worthless and one still keeps the premiums on the options. However, the strategy can cap the upside of a potential rally – the trader keeps the premium generated but any gains beyond the strike price will not be realized.

During last year’s rally, QYLD underperformed the broader market, rising 3.6% over the past year. Nevertheless, the ETF somewhat made up the difference through its robust income generation on option premiums.

The monthly options premiums also provided a buffer from market volatility and helped hedge traditional investment allocations. The covered-call ETF strategy may act as a decent alternative investment strategy to a traditional equity and fixed-income portfolio, especially in the environment ahead.

“Unlike many fixed income investments, QYLD faces no headwinds from rising interest rates, nor is it susceptible to duration risk,” Kevin R. Kelly, Managing Partner of Recon Capital, said in the press release. “Rather, QYLD seeks to provide investors with a low volatility, non-leveraged, tax-efficient product that pays out a monthly income, instead of making distributions by quarter or on an annual basis. We are proud to round out 2014 – and the first year of QYLD trading — with a 10.4 percent yield for our investors, particularly as the 30 Year Treasury sits below 2.75 percent.”

 

Fixed Income, Tech Talk

Here We Go Again: OpenBondX Proposes Launch of Another Electronic Bond Trading Platform

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While contemplating today’s news release profiling the proposed launch of the latest corporate bond electronic trading platform “OpenBondX,” MarketsMuse senior editors respectfully borrow Yogi Berra’s best line  ““It’s like déjà vu all over again.” But for those too young to remember that most famous Yankee, we’ll toss you a softball: “Here we go, yet one more hat thrown in to the ring of electronifying the corporate bond market. We’ve almost lost count as to the number of initiatives that aspire to change the dynamics of buying and selling corporate bonds within the institutional marketplace, but the good news is this group is apparently not deterred by the number that have tried and failed to crack the cultural egg typical to those focused on fixed income trading.”

OpenBondX (OBX), an Alternative Trading System (ATS) upstart, unveiled plans to revamp its electronic bond trading in Q1 2015 with its new systems launch for both non-traditional and traditional providers.

The platform offers liquidity access via bond markets in the company’s first multi-tiered system. OBX’s ATS system targets both buy and sell-side participants, given the acute need for a platform that bridges institutional bond traders and natural liquidity suppliers in tandem.

At present, the landscape of corporate bond traders has changed due to shifting regulatory requirements and capital rules that has led to the mitigation of inventories by approximately 70% since 2008, according to GreySpark Partners’ estimates. The firm estimates that in 2014, buy-side firms held 96% to 99% of the U.S. corporate bond inventory in 2014.

According to OBX cofounder and CEO Alistair Brown in a recent statement on the platform, “every facet of OpenBondX and its technology have been built from the ground up to encourage providers to contribute liquidity and safely expose orders to the most aggressive pricing available, all under absolute anonymity.”

“By automating the bond markets as such and attracting liquidity from non-traditional providers, we believe our ATS will drive true two-way markets and significantly reduce trading costs,” he added.

Liquidity Fragmentation

The primary draw of OBX’s platform is its ambition to unlock fragmented liquidity, which aims to stymie information leakage and negative pricing issues that has become endemic in fixed income markets.

Helping to that end is a robust array of internal risk controls to aid market participants. As such, real-time utilities such as value-at-risk (VAR) validation on executed trades and open orders, aggregate value traded, duplicate order check and user access controls are afforded.

OBX has revealed a launch date for Q1 2015, with fully compatible trading for all US corporate bonds.

 

People Profiles, Strike Price, Tech Talk

The 1st Regulated Bitcoin Bourse? Frmr Goldman Sachs Algo Trader Pitches LedgerX as a Regulated Exchange

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MarketsMuse.com update courtesy of extracts from today’s edition of Traders Magazine.

Yet another coin is being tossed into the fountain of Bitcoin dreams and wishes. The latest aspirant and first to file a full-blown registration for a “Bitcoin Bourse”with the CFTC is “LedgerX”, a company led by former 6-pack broker-dealer and MIT Alumni Paul Chou, who was most recently a Goldman Sachs trader.

According to the filings, LedgerX hopes to become a fully-regulated derivatives exchange clearing house. While at Goldman, Chou was responsible for developing, trading and risk managing algorithmic equity trading strategies for U.S. and Japanese markets. Also, he developed a set of cross-asset strategies and devised a method to unify and optimize the trade flow across hundreds of trading algorithms. Prior to Goldman, Chou delivered trading and spread-risk tracking tools on projects for Citadel Investment Group and Morgan Stanley.

Chou, who serves as chief executive officer of LedgerX, is designing the exchange and currently has filed registration papers, bringing the bourse one step closer to reality. LedgerX’s registration, filed with the CFTC, is open for public comment until Friday, January 30th. On December 15th, the CTFC requested comments on the LedgerX submission.

If approved by the CFTC, LedgerX would be the first federally-regulated Bitcoin options platform and clearing house to list and clear fully-collateralized, physically-settled Bitcoin options for the institutional market. LedgerX has also applied for registration with the CFTC as a swap execution facility and as a derivatives clearing organization on September 29, 2014.

LedgerX is backed by several high profile investors such as Google Ventures and LightSpeed Ventures. Also, Jim Newsome, former chairman of the CFTC and former chief executive of NYMEX, and Tom Lewis, former CEO of both Ameritrade and Green Exchange, currently sit on the LedgerX board of directors.

Simultaneously, to build a Bitcoin derivatives market, he is bringing together corporations seeking to hedge their Bitcoin exposure and financial institutions searching for trading and investing opportunities in Bitcoin.

According to Chou, more than 80,000 entities accept Bitcoin, including brand names such as Dell, Expedia and PayPal.