Displaying items by tag: ETFs

(New York)

You have heard it before, and while you might not want to, you need to hear it again. All signs point to the fact that ETFs will likely be the epicenter of the next big market blow up. Investors will be familiar with the argument that the “liquidity mismatch” between ETFs and underlying bonds is a big problem, but the reality is that this is also the case in stocks. While small caps and other less-liquid stocks pose a big threat to ETFs which track them, in a market downturn, even quite liquid shares might be set alight by forced panicked selling by ETFs. Bloomberg gives and an example “Imagine that one big investor in an ETF with, say, a 10 percent stake is forced to sell a large part its holding in a single day. There might not be ready buyers for such a large holding, causing the ETF to fall to a price below the value of the assets it owns. This price impact may be exaggerated, as ETF activity intensifies both upswings and downswings”.

FINSUM: The fact that there are also big risks in equities really opened our eyes. We knew about the bond liquidity issue, but the fact that it extends to both small and large cap equities is quite concerning. Then again, there is a fatalistic logic where this all makes sense: ETFs have been the big growth driver since the Crisis, so it makes sense they would be the epicenter of the next one.

(New York)

Whether investors like it or not, it appears a real trade war has begun. While the US-China spat is getting the most headlines, including President Trump enacting blockages to Chinese investment into the US, we are also putting tariffs on other major trading partners like Canada and the EU. With this new reality taking hold, here are four ETFs that will thrive in the trade war. The first two are the Financial Sector SPDR and the SPDR S&P Regional Banking ETF because Financials are a “screaming buy” according to BNY Mellon Investment Management. Bank revenues are very healthy and the sector is insulated from trade war. The final choice is the Invesco S&P SmallCap Industrials, which will prosper as the economy expands and whose constituents have much lower international exposure versus their larger cap peers.

FINSUM: These seem like well-thought and diversified choices. We are slightly nervous about financial stocks at the moment because of the yield curve, but small caps definitely seem like an excellent choice.

(New York)

All the press is on the growth of ETFs, but today some surprise data has come out—mutual fund inflows are outpacing ETFs this year, at least according to Pershing. So far this year mutual funds on Pershing’s platform have seen about $8 bn of inflows, while ETFs have seen just over $6 bn. The explanation for the trend, according to BNY Mellon Pershing is that “As advisors look to diversify their investment strategies to actively manage against emerging risks in the market, we are starting to see mutual fund inflows close the gap with ETFs”.

FINSUM: Active management and once-a-day liquidity do seem to give mutual funds an advantage in the risk avoidance department.

(New York)

One of the things the growing ETF markets lacks is many options regarding private equity, and with good reason. The returns of the sector are hard to reproduce with publicly traded stocks. But getting private equity returns can be difficult to attain anyway because of the challenges of investing in the sector, especially for investors who are not at the wealthiest end of the spectrum. However, there are two newish ETFs on the market, BUYN and BUY, which use an investing methodology developed at Harvard to try to replicate the returns of the private equity sector. The provider is SummerHaven, who comments about their funds that “We believe that these ETFs based on our private equity strategy indexes will provide investors with an opportunity to access returns comparable to an asset class that has traditionally only been available through private markets, with the added benefit of liquidity and transparent and without lockups, vintage risk, investment minimums or takeover premiums. These ETFs will allow both retail and institutional investors an opportunity to access private equity strategy returns at substantially lower fees”.

FINSUM: On paper these sound like an interesting option, but only time will tell if the strategy actually achieves what it says. The ETFs are especially unproven because the Harvard paper which underpins the strategy was only published last year.

(Washington)

Brokers who want to publish more of their own research will now find it easier. For the last several years, publishing research on individual funds has been a complicated and risky endeavor for brokers as rules meant some research work could be seen as a sales material, subjecting it to stricter scrutiny. The SEC is harmonizing rules to allow brokers to publish research on ETFs, mutual funds, registered closed-end funds, and business development companies under the same rules that govern other types of research.

FINSUM: This delineation had existed too long and we think this is a good change of rules.