Author archive: ETF Radar Newsdesk
Vanguard Calls for Responsibility in Developing New ETFs
(FT. LAUDERDALE) Vanguard Chief Investment Officer Gus Sauter challenged the exchange-traded fund (ETF) industry to be responsible in developing new products and called for greater efforts to educate investors about ETFs.
The advice perspective and planning that today’s advisor provides is far more valuable than a buy, sell, or hold call. During a speech at the “Inside ETFs” conference, Sauter said the ETF industry has been characterized by “growth and innovation.” From 2000 to 2010, assets in ETFs grew by about 30% per year. By comparison, traditional mutual funds grew by about 5% annually over the same time. Globally, ETFs now hold roughly $1.5 trillion in investor assets.
Sauter said that the rapid growth of ETFs has been largely good news for investors, providing them with greater access to diversified, low-cost index funds, as well as for advisors, providing them with simple, flexible investment tools for building well-constructed portfolios for their clients. However, Sauter noted that ETFs have been blamed for a wide range of problems, from creating the May 2010 Flash Crash to contributing to ongoing market volatility. Sauter encouraged ETF providers and investment advisors to play the role of an educator when it comes to ETFs. “I believe that as providers of ETFs and as distributors of ETFs, we have a responsibility to make sure the investing public is as informed about ETFs as it can be,” he said.
Sauter also discussed the concept of “advisor’s alpha.” Traditionally, the value proposition for many advisors has been based on their investment acumen and prospects for delivering higher returns than those of the markets. But, Sauter said, no matter how skilled the advisor, the path to better investment results may not lie with the ability to pick investments or strategies. Instead, advisors should consider a new value proposition based on alternative skills and expertise. The advice perspective and planning that today’s advisor provides is far more valuable than a buy, sell, or hold call, Sauter said.
DetailsChi-X Global Expands to Asia-Pacific
(TOKIO/SYDNEY) Alternative trading venue operator Chi-X Global Holdings is making early inroads in Australia and has markedly increased its trading volume in Japan.
On the island nation, Chi-X Japan, a wholly owned subsidiary of Chi-X Global, competes primarily with the Tokyo Stock Exchange (TSE) and the Osaka Securities Exchange (OSE). The two established exchanges are combining effective January 1, 2013 and will be known tentatively as the Japan Exchange Group. Though it still handles on average less than 3 percent of Japan’s trading, Chi-X Japan numbers have shot up significantly since the beginning of the year. During the last three months of 2011, Chi-X Japan traded stock worth 1,453,274 million yen compared to 934,449 yen for the first quarter, a 50.4 percent increase. Volume in the fourth quarter exceeded 2.4 billion shares, a 48.9 percent increase from the first quarter. The company executed 2,590,332 trades in the fourth quarter as opposed to 1,040,675 trades in the first. On its best trading day, December 14, Chi-X Japan accounted for 3.9 percent of the volume in the Nikkei 225. Chi-Japan has also had an over 10% market share in certain symbols throughout the year, says Beth Haines, head of global marketing for Chi-X Global.
Chi-X Australia, which began trading in Australia on November 8, 2011, also is on the upswing. During November, it traded $757 million worth of Australia stock, giving it nearly 1 percent of overall market volume. Chi-X Australia currently uses Australian Securities Exchange (ASX) Clear and Settlement facilities, but intends to switch to a third party offering, the company says. Chi-X Global Holdings CEO Tal Cohen has said the trading company intends to look for new expansion opportunities in the Asia Pacific region. It currently operates a Pan Asian dark pool, Chi-East, with the Singapore Exchange (SQX). Chi-East supports trading of 3,264 securities including all Hong Kong main-board listed shares.
Read the full article here.
DetailsETF Milestone: SPY Reached $100 billion Market Cap
(NEW YORK CITY) The flagship exchange-traded fund for the S&P 500, SPDR 500, has just made headlines by surpassing the $100 billion market cap mark. The move was hailed as yet another sign that the ETF industry has come of age. But like a Time Magazine cover story, this headline may be a contrarian indicator for the market. On Friday January 20, $1.31 billion in new money entered this ETF, suggesting that many investors are comfortable buying the market again. This was a very large inflow, and raised some eyebrows. Who is doing all the buying and why? My question is, should prudent investors be selling when everyone else is buying?
The rule of prudent investing is to buy when everyone else is selling and sell when everyone else is buying. According to my observations, investors are not only buying, but they are unusually complacent about risk. This is dangerous on many levels. I’m especially concerned that a reversion to “Buy and Hold” strategies seems to be taking place yet again. This seems to happen at least once a year. The market improves for a few months and investors stop respecting the risks. They shift their money into equities after the easy money has already been made. Then they start sitting on their hands while hoping for the best.
According to my observations, that is exactly what has been happening lately. Those investors who were too afraid to buy when everyone else was selling (in the summer) are now chasing the market higher, and buying at what I consider to be a relative peak. Instead of squatting on an ETF like SPY, my recommendation is that investors adopt a more proactive strategy. If the S&P 500 is your focus, use ProShares UltraShort S&P 500 (the double short ETF for the S&P 500) and ProShares Ultra S&P 500 (the double long ETF for the S&P 500) to accomplish this goal. Buy SSO when everyone else is selling, sell it when everyone else is buying. Then consider buying SDS when everyone is buying, sell it when everyone is selling. Repeat this simple process every year. That strategy doesn’t make sense for you. But consider yourself warned: The inflows of new money into SPY and the headlines that make everyone feel warm and fuzzy may turn out to be a contrarian indicator. It surely is a sign that “everyone” is buying and I consider it a sell signal.
Thoughts by Thomas Kee, President and CEO of Stock Traders Daily, and the author of “Buy and Hold is Dead.”
DetailsFINRA Alert: Email Hackers Stealing Investor Funds
(NEW YORK CITY) Fraudsters gain access to email accounts and then email instructions to the firm to transfer money from brokerage accounts, FINRA says. The Financial Industry Regulatory Authority issued an Investor Alert on Thursday warning investors that email hacking is on the rise, and that they should immediately contact their brokerage firm or financial institutions if they suspect their accounts have been compromised.
FINRA says that it issued the alert, “Email Hack Attack? Be Sure to Notify Brokerage Firms and Other Financial Institutions,” because it has been receiving an “increasing number of reports involving investor funds being stolen by fraudsters who first gain access to the investor’s email account and then email instructions to the firm to transfer money out of their brokerage account.”
The alert warns investors about the potential financial consequences that follow an email account being hacked and provides tips for safeguarding their assets, and links to a joint fraud alert issued by the FBI, Financial Services Information Sharing and Analysis Center (FS-ISAC) and Internet Crime Complaint Center (I3C) that describes a similar trend in which hacked email accounts are being used to facilitate wire transfers.
DetailsWho Wants To Buy ETF Securities?
Another source with significant knowledge of ETF Securities says that while its business model may be attractive to those wanting to make an acquisition, now is not the best time for the ETF house to be mulling a sale. “A lot of feedback we have received from the market is that people are not interested,” says the Ireland-based ETF executive. “It is probably not the right time for people. The macro-economic view is not helping them; neither is Esma’s [upcoming] review of ETFs. “People are not going to plough $1bn into it right now.” The low level of interest in ETF Securities comes as little surprise to some.
Respondents to an Ignites Europe poll indicated last month that ETF Securities will struggle to find a buyer, with 67 per cent saying interest in the firm will be small. “I think that bank deleveraging is not helpful when someone wants to sell a financial activity at this time,” says Aurel BGC analyst Tangi Le Liboux. Shiv Taneja, managing director at Cerulli Associates, also predicted last month that there would not be great interest in acquiring the ETF provider. He said: “Who would want to buy it? Will it be one of the big four global players? I’m not sure why they would be interested. They are probably not in the game.” ETF Securities would not divulge the level of interest shown in the firm since it was put up for sale last month.
A spokesperson for the ETF provider says: “As a matter of policy we cannot comment on corporate activity. There has been a lot of speculation, but there is nothing we can say.”
DetailsMexican Exchange Woos High-Frequency Traders
(MEXICO CITY) The Bolsa Mexicana de Valores will introduce faster trading technology within the next months due to attract more high-frequency traders, Global Finance Magazine reports. BMV says the new multimarket, multiasset trading engine, which was developed in-house, will be able to handle more than 200,000 messages per second. Also starting in 2012, the exchange will introduce midpoint “hidden” order book trading, which it says is ideal for institutional investors looking to trade large blocks anonymously.
The second-largest exchange in Latin America following Brazil, BMV could eventually join MILA, a new exchange that aims to integrate stock trading in Chile, Colombia and Peru. “By successfully improving upon our operative rules to better comply with international market standards, BMV is now better equipped to provide global investors with more-efficient trading and connectivity to Mexico,” says Luis Téllez, president and CEO of BMV Group. The exchange already provides direct market access, high-speed co-location services and FIX Protocol, a messaging standard, for order routing and market data.
Meanwhile, Direct Edge, a New Jersey stock exchange, says it plans to open a new electronic platform in Brazil. Direct Edge Brazil, to be based in Rio de Janeiro, is expected to launch in the fourth quarter of 2012. Earlier this year, BATS Global Markets—the US stock exchanges company, holding 11.5% US equity markets share—and Claritas, a Brazilian asset manager, announced plans to open an exchange in Brazil.
DetailsLyxor Launched Four Commodity ETFs On Xetra
(FRANKFURT) Deutsche Börse continues to expand its XTF segment for exchange-traded index funds with four new Lyxor commodity index ETFs tradable in the XTF segment.
The Lyxor ETF S&P GSCI Inverse Agriculture & Livestock 1 Month Forward (LYX0ML) and Lyxor ETF S&P GSCI Inverse Industrial Metals 1 Month Forward ETF (LYX0MN) offer investors their first opportunity to track the inverse performance of baskets of commodities from the agricultural and livestock sector and the industrial metals sector. The positive performance of the same sectors can be tracked by means of the two Lyxor ETFs, S&P GSCI Agriculture & Livestock 3 Month Forward (LYX0MM) and S&P GSCI Industrial Metals 3 Month Forward (LYX0MP). The product offering in Deutsche Börse’s XTF segment currently comprises a total of 912 exchange-listed index funds, while the average monthly trading volume stands at €16 billion. The inverse products have a TER of 0.40%, the long-only products’ TER is 0.35%
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Banks’ Dual Role In ETFs In Jeopardy
The Sweet, Short Life of Synthetic ETFs
(NEW YORK CITY/LONDON/FRANKFURT) You’ve heard of structured products. These largely were (and are) complex securities based on lots of streams of cash in underlying loans whose flows were not well predicted. There was a credit crisis associated with them in 2008. Now come “synthetic” exchange-traded funds, where interest-rate swaps and other derivative products are used to replicate the performance of a securities index.
Only synthetic ETFs are likely to disappear almost as fast as they arrived. The European Securities and Markets Authority this year is expected to introduce new rules that get tougher on the collateral required for synthetic ETFs. That will, according to researcher Celent, make them “costlier and less attractive to asset managers and investors alike.” That may not matter much in the United States. While this country is by far the largest market for exchange-traded funds, investment pools here are more interested in so-called “physical” ETFs. In such funds, there is investment in actual physical products such as stocks, bonds or commodities.
Synthetic ETFS have not made much of a dent here, amounting to about 3% of the market in the United States. They have not fared much better in Asia, where they account for 11% of assets placed in ETFs. But in Europe, they’ve been hugely popular. By Celent’s calculations, their share of the overall European ETF market rose from around 21% in 2005 to more than 45% of the value of funds in 2011.
Read the full article here.
DetailsSouth Korea’s Mirae To List ETF Series in Hong Kong
(HONG KONG) According to the FT, South Korea’s Mirae Asset Global Investment is launching seven exchange traded funds in Hong Kong mainly focused on Asia-Pacific investments. The rollouts, scheduled to list on January 27, are part of Mirae’s Tiger ETF family and track subsets of the S&P Global Broad Market Index. They include the Emerging Asia Consumer, Global Consumer Brands, Asia Ex-JANZ Financials, Asia Ex-JANZ Industrials, Asia Ex-JANZ Energy, Asia ex-JANZ IT and Asia Ex-Janz Materials funds.All seven ETFs are expected to charge total expense ratios of 0.75 per cent annually, according to prospectuses filed with Hong Kong Exchanges and Clearing. Mirae launched its first ETF in Hong Kong, the Tiger Kopsi 200, a year ago, when it promised to follow up with further rollouts.
The asset manager also disclosed plans late last year to expand into China’s ETF market via a proposed joint venture.
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