Tag Archives: United States Oil Fund

How Savvy Hedge Funds Exploit ETF Products-Supposedly

While equities markets have zig-zagged since late summer with lots of volatility,  leading to pretty much no change in major indices since late August, news media outlets have put their cross hairs on the ETF industry, which has been battered with criticism consequent to out-0f-context pricing that has riddled opening bell markets during recent spikes in volatility.  CNBC pundits have invited an assortment of geniuses to explain, defend or attack ETFs for days, including 30 minutes dedicated to the topic mid-day yesterday.  The industry print publications have been repurposing each other’s copy with similar themes for days, and the SEC and other alphabet agencies are purportedly ‘investigating’ the ETF industry as a consequence of the recent disruptions.

For equities market experts who are fluent in exchange-traded funds, which are nothing more placeholders for bespoke basket trading strategies–you know that the notion of disruptions in pricing of the cash product aka the ETF could easily happen whenever there is a dislocation in the underlying constituents. Its a caveat emptor type of product. But, somehow, this simple concept has been lost on everyone, except of course by ‘savvy hedge fund managers’..and what a surprise, one HF name now being mentioned for exploiting ETF products is none other than Steve Cohen.

Here’s an excerpt from today’s WSJ “Traders Seek Ways to Benefit From ETFs’ Woes…In some cases, gains come at expense of individual investors”….–which is arguably best suited for college freshman taking elementary classes. According to one trader interviewed by the MarketsMuse Curator, “If there is any SEC-certified RIA or any institutional investor who doesn’t understand this product and the related nuances [and believes the WSJ article was informative], your license should be stripped.”

Here’s an excerpt from today’s WSJ story by Rob Copeland and Bradley Hope Continue reading

Junk Bond ETFs: SOS for HY Sector ($USO, $XOP, $JNK, $HYG)

etf-logo-finalBelow extract is courtesy of Oct 13 edition of ETFtrends.com and senior editor Todd Shriber

The United States Oil Fund (NYSEArca: USO) is off 6.4% in the past month as West Texas Intermediate, the U.S. benchmark oil contract, ominously descents to $80 per barrel.

Oil’s slide has wrought havoc for futures-based ETFs, such as USO, as well as scores of equity-bae funds with energy sector exposure. After a 9.5% third-quarter loss, was once the top-performing sector in the S&P 500 earlier this year has now turned into one of the worst groups. [Dour View on Energy ETFs]

Of the 25 worst-performing exchange traded funds over the past month, 12 are equity-based energy funds. However, weakness in the energy sector could be problematic for some an asset class some investors may not be overlooking as a victim of energy’s slide: High-yield bonds and the corresponding ETFs.

Booming production at the Eagle Ford Shale and other shale formations has helped make Texas the envy of large state economies. That same theme has also been viewed as one of the more favorable long-term catalysts for ETFs ranging from the SPDR S&P Oil & Gas Exploration & Production ETF (NYSEArca: XOP) to the Market Vectors Unconventional Oil & Gas ETF (NYSEArca: FRAK), but oil’s decline is threatening producers ability to profitably tap North American shale plays. [Fracking ETFs Foiled by Slumping Oil Prices]

“Texas is the anchor to shale production, employment growth, positive real estate trends, and overall positive moral. With Crude Oil at or below the cost of production for many project, the State with the highest economic multiple needs to contract,” said Rareview Macro founder Neil Azous in a research note.

But there’s more, including the threat falling oil prices pose to the high-yield bond market. Continue reading