Two New Exotic Products from the CBOE
(Oct 2012)
The CBOE has begun the offering process on two new and highly innovative volatility-related products that could have broad implications for the exchange traded products market and index investing in general.
The new S&P 500 Variance Futures are futures contracts on the realized variance of the S&P 500 index. This is in contrast with VIX futures, which trade on the impliedvolatility of the S&P 500; however, according to a CBOE press release, the ability to combine the two may have motivated...
As New ETFs Come and Go, Big Ones Remain Big
(Sep 2012)
A recent Seeking Alpha article argues that with six new ETFs coming into the market and 18 being closed or redeemed, the past August signaled the beginning of a consolidation process in the ETF industry. There are good reasons to believe the author is right: with ETF issuers rolling out more and more ETFs each month, those having failed to catch investors' eyes quick enough are bound to disappear with the ever-intensifying competition. On the other hand, it also got us curious: what about...
ETFs in Mutual Funds: a Raw Deal?
(Aug 2012)
Ian Salisbury at SmartMoney raises an interesting point:
The whole point of actively run funds, their proponents say, is that a living, breathing fund manager has a better chance of sussing out great investment opportunities than an exchange-traded fund, which just blindly tracks an index. Indeed, that's one of the reasons actively managed funds have higher fees than ETFs -- to pay for all that expert guidance.
So it might come as a shock to some investors that the top holdings of several...
SEC Investor Bulletin on ETFs
(Aug 2012)
The SEC recently released an Investor Bulletin on ETFs which provides background information about ETFs in general and defines several terms which may be confusing to investors. ETFs can be complex and risky investments, as they allow nearly anyone to purchase portfolios which would typically only be suitable for sophisticated investors or traders.
Some commentators were not satisfied with the Bulletin, particularly its lack of new guidelines related to leveraged and inverse products. Paul...
Many ETF Issuers Consolidating Offerings
(Aug 2012)
As inflows to ETFs have exploded over the past few years, many issuers expanded their lineup of funds to take advantage of the increased investor interest. Some have tried to compete with established funds by creating funds with very similar exposure, while others have offered highly specific investment strategies in an attempt to capture a niche market.
In general the ETF market has exhibited a 'winner take all' pattern whereby the oldest and largest funds attract by far the most investor...
Direxion to Close Several Leveraged ETFs
(Aug 2012)
Direxion Shares ETF Trust announced last week that -- upon recommendation of the trust's advisor Rafferty Asset Management, LLC -- nine daily leveraged and inverse Exchange Traded Funds will be liquidated and shares will no longer be open for purchase as of early next month. From the announcement,
Due to the Funds' inability to attract sufficient investment assets, Rafferty believes they cannot continue to conduct their business and operations in an economically efficient manner. As a result,...
Mutual Fund and ETF Issuers Competing on Fees
(Aug 2012)
In March, we posted a graph of the returns and fees of the 25 largest funds by net assets and called attention to the striking difference in fees between funds offered by the Vanguard Group and those offered by American Funds. While both had very similar 5-year annualized total returns, the Vanguard funds had significantly lower fees.
Today the Wall Street Journal ran an article about how Vanguard's funds have attracted net inflows of $452 billion from January 2008 to June 2012, while...
ETFs are Finding Their Way into 401(k) Plans
(Aug 2012)
In a recent blog post we discussed how mutual fund fees can drastically reduce funds available for retirement (see "401(k) Fees Can Drastically Reduce Nest Egg"). We cited a paper from the Center for Retirement Research that studied a typical 401(k) plan's investment costs, which including advertising fees, administration fees, asset management fees, and trading costs total 1-2% of assets annually. The paper proposed boosting the returns of 401(k) plans by investing in passively managed and...
FINRA Issues Warning on ETNs
(Jul 2012)
The Financial Industry Regulatory Authority (FINRA) recently issued an Investor Alert regarding the risks of exchange-traded notes (ETNs).
ETNs are a type of unsecured debt instrument typically issued by banks and other financial institutions. Similar to its close cousin the exchange-traded fund (ETF), ETNs track the returns of a specified asset class--often an index. However, unlike ETFs, ETNs do not hold actual assets tracked by the underlying index. This means investors in ETNs can suffer...
