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rffrydr
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 Posted: Thu Apr 19, 2007 8:53 am Post subject: Indexing |
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To carry on a theme of mine the separation of value from what is valued: the full faith and credit in indexing is showing some fraying on the...core:
| Quote: | Fresh troubles are emerging in a number of exchange-traded funds, shedding light on the ways the increasingly popular investment tools can trip up investors.
ETFs, which are essentially mutual funds that trade on exchanges like shares of stock, were designed to match the performances of various market benchmarks, such as the Standard & Poor's 500-stock index. They still occupy a relatively small corner of the investment universe, but they have blossomed in the past few years, thanks to their low fees and tax advantages, attracting an increasing number of individual investors.
In recent months, however, some ETFs have begun diverging widely from the performance of the benchmarks they are supposed to follow. At the same time, several newer ETFs with short track records are failing to match the hypothetical rates of return they would have achieved in previous years if they had existed then.
Victoria Bay Asset Management's U.S. Oil Fund, one of the fastest- growing ETFs of the past year, has fallen more than 15 percentage points behind the oil price it was designed to track. In another case, a Claymore Securities ETF structured to track oil saw its share price fall when oil prices rose -- and vice versa -- the opposite of what was intended. That kind of divergence can hurt shareholder returns.
Though the exact reason for the disparity isn't clear, the performance of these oil-related funds has been hurt by the run-up in oil futures, which has increased the sums they need to shell out each month to roll over their futures contracts.
Greg Drake, a Claymore Securities executive, says occurrences like these are expected occasionally in the funds, though "it's not what we desire."
An official at Alameda, Calif.-based Victoria Bay declined to comment.
Such issues are arising in only a small number of ETFs, but they may mark a crucial shift in an investment sector long known for its predictable performance. At a time when ETFs are establishing themselves as a staple in Americans' portfolios, investors may need to consider that some new funds are coming to market with new risks and the potential to deliver unexpected results.
In less than three years, assets under management in ETFs have roughly doubled to more than $450 billion. About 110 new ETFs have been launched so far this year, gaining quickly on the total of about 150 launched for all of last year. By contrast, only about 50 distinct new conventional mutual funds have launched in 2007.
Hoping to capture more investor money, ETF providers are creating funds that slice up the market in increasingly narrow and unusual ways. IndexIQ Inc., Rye Brook, N.Y., recently filed with regulators to launch a family of 20 ETFs aimed at individual investors, including the IndexIQ Customer Loyalty Leaders Large Cap Fund, which would track companies with strong customer loyalty.
Adam Patti, chief executive of IndexIQ, says that intangible assets such as consumer loyalty can add substantial value to a company. "These products are not specialized, but fully diversified" across different company sizes and investing styles, he says.
Along with their lower costs and tax advantages over regular mutual funds, ETFs owe much of their popularity to the fact that they offer more frequent updates of their holdings and are easier to buy and sell because they trade all day in public markets. Some of the newer products, however, are straying from these advantages.
One recurring problem: Some newer ETFs are diverging from their hypothetical rates of return. The indexes on which ETFs are based are routinely "back tested" to see how they would have performed in previous years. That back-tested data is then often used to market the funds to investors.
Back-tested data for the WisdomTree High-Yielding Equity Index shows average annual returns outperforming the Russell 1000 Value Index for several time periods, including by more than three percentage points for the 10-year period ending in March. However, from June 2006 through the end of March, the ETF based on the WisdomTree Index trailed the Russell 1000 Value Index by more than 0.50 percentage point.
Other ETFs issued by New York-based WisdomTree Investments and PowerShares Capital Management of Wheaton, Ill., have fallen behind their back-tested data in similar ways.
Sixteen of the 20 ETFs launched by WisdomTree last June were outperforming their benchmarks as of the end of last month. "WisdomTree was happy with that performance," says Luciano Siracusano, the firm's director of research. He adds that "short time periods are not indicative of longer market cycles." The company's Web site states that "no representation is being made that any investment will achieve performance similar to those shown." PowerShares offers similar disclaimers.
ETF advocates say new funds like these are an important investment tool because they often give small investors access to markets or strategies that traditionally have been tricky to invest in, ranging from gold, oil and other commodities to international real estate. That's partly why Victoria Bay's U.S. Oil Fund ranks among the most successful new ETFs, amassing more than $900 million in assets since its inception last April.
The oil fund is designed to track the movements of light, sweet crude oil, a type of investment generally considered too cumbersome and complex for most individual investors. The fund's portfolio includes crude-oil futures contracts and other oil-related securities. However, since its inception, shares of the fund have declined more than 25%, while the oil price it is supposed to follow has fallen just 10%.
Victory Bay portfolio manager John Hyland points to regulatory filings about the product that explain such potential discrepancies in returns. Among other issues, the filings state that because the fund invests in a broad array of sophisticated futures contracts and other instruments, it can stray from its benchmark.
Two oil-related funds from Claymore, based in Lisle, Ill., have seen particularly striking discrepancies. The two funds -- the Claymore MACROshares Oil Up Tradeable Shares and Claymore MACROshares Oil Down Tradeable Shares -- let investors bet on oil prices rising or falling, respectively. But in recent months, their shares have sometimes moved in reverse of what they're supposed to. One day earlier this month when the relevant price of oil increased seven cents a barrel, the "Up" ETF's price dropped 25 cents.
The two funds' shares also frequently close at big premiums or discounts to the value of their underlying holdings. On some days this month, for instance, shares in the "Up" fund were priced more than 8% above the value of its assets. The "Down" shares traded more than 9% below their asset value.
These discrepancies highlight how tough it can be to design ETFs and related products like these for narrow or esoteric investments. "You never know what to expect with a new product," says Claymore's Mr. Drake. Overall, he says, the funds' underlying value has done "a fabulous job, compared to the alternatives, in tracking the price of oil."
Another emerging issue relates to taxes. Holders of ETFs generally have been able to avoid the capital-gains taxes that often plague investors in conventional mutual funds. That's because a conventional mutual fund often has to sell some of its holdings when investors want to leave the fund; if those holdings have increased in value since they were purchased, it may have a capital gain. By contrast, ETF shares change hands in the market; the underlying securities don't have to be sold off when an investor wants to sell out.
These days, however, more ETFs are making capital-gains distributions. About 6% of ETFs paid out capital gains to investors last year, compared with 3% in 2005, according to fund researcher Morningstar Inc. Among them was ProShares Ultra QQQ, which paid holders the equivalent of about 6% of its share price in gains last year, and the ProShares Ultra S&P500, which paid about 4%. The two funds seek to double the daily returns of the Nasdaq 100 Index and the S&P 500, respectively. To do that they buy not only the stocks in those indexes, but also futures and other derivatives, seeking to magnify their returns.
ProShares says the two ETFs could be "less tax efficient than plain- vanilla ETFs" due to their investment strategy. |
http://users2.wsj.com/lmda/do/checkLogin?mg=evo-wsj&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB117694959066675054.html%3Fmod%3Dtodays_us_nonsub_page_one
Turns out not as easy as 1,2,3. USO in particular is hit on that pesky "roll" yield again but the problems go deeper.
Every nook and crany of the world is worthy of a "market";
http://publiuspundit.com/2007/04/the_worlds_best_performing_sto.php
Every nickel an "income stream." Even that most steadfast yardstick of valuation, the price/earnings ratio has suffered the ultimate insult and been "inverted." It's far more common to hear of the "Earnings Yield" than the PE anymore. The same? Mathematically maybe, but as far as what it means, it's as different as the people on two sides of the globe. The ETF's themselves reveal this trend: short side is huge relative to longs. Mangager who could never be short and tired of taking short-term cap gains hits are harvesting dividends and living on the "streams." If it wasn't for the GOOG I might be tempted to say that all the world is a bond.
It's a cultural change on Wall Street of a generation weened on markets. Earlier times it was always "us and those others." Now it's just a matter of the numbers. But globalization we are reminded is sticky: build a factory here at X, build a factory there at X-100 and do the math. Nevermind that your 100000 new cellphones have just been ruined in the rain becuase there isn't any storage space at the airport because there aren't any port facilities because of the Monsoon every year because it's not.... Ask Nokia.
The Indexing Effect will ultimately come undone at last not from the outside but from within. As always, excess will be the driver. The simplicity of early ETFs have been transmorgraphied into strategies and hedges.
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Last edited by rffrydr on Thu Apr 19, 2007 8:00 pm; edited 1 time in total |
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rffrydr
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| Posted: Fri May 18, 2012 9:56 pm Post subject: |
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Apple's weight:
http://www.economist.com/node/21551065
| Quote: | | Around a third of all hedge funds own it, including big names like SAC Capital and Greenlight. Some have made very big bets. Many hedge funds that have done well in the past year owe much to this single position. |
| Quote: | | Some bank analysts have started to report America’s corporate earnings without Apple, because including the firm so skews results. Fourth-quarter earnings are expected to have risen by 6.7% from the prior year for companies in the S&P 500, but by a much more modest 3.6% if Apple is excluded, according to UBS. |
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rffrydr
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| Posted: Wed Apr 25, 2012 7:05 am Post subject: |
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Apple 18% of Nas 100.
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rffrydr
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| Posted: Tue Mar 06, 2012 3:11 pm Post subject: |
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| Quote: | ...A report out of Goldman yesterday indicated that medium-to-long term $VIX
futures are trading at higher prices currently than they were last fall with $VIX at 48!!
This is a ridiculous situation, which I believe is being caused to a certain extent by the public's voracious appetite for $VIX derivatives ETF's and ETN's (VXX, VXZ, TVIX, etc.). The managers of these funds and notes are buying $VIX futures to
satisfy the creation of the new shares. There has to be a better explanation than "traders are worried about volatility later this year and thus are paying up for protection." These futures are now priced so high that they won't even move up when $VIX rises to 30, day. What kind of protection is that? Are traders so stupid that they are really doing that? I don't think so (well, some may be). |
http://realmoney.thestreet.com/updates-and-conversations#sp-levels-roadm-20120306
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rffrydr
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| Posted: Thu Jan 26, 2012 8:25 am Post subject: |
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Large cap, small cap...so long as it catches mice:
...it doesn't.
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rffrydr
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| Posted: Tue Nov 29, 2011 7:21 am Post subject: |
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100 day arms is higher now than it was in march 09.
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rffrydr
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| Posted: Tue Oct 11, 2011 8:04 am Post subject: |
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rffrydr
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rffrydr
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| Posted: Fri Aug 19, 2011 9:50 am Post subject: |
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Funny, yesterday BAC was down over 7% and was registering as a Dow "gainer" on the index impact. 
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rffrydr
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| Posted: Thu Aug 18, 2011 7:35 am Post subject: |
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Europe's shorts being rolled onto our shoulders:
| Quote: | | Outside of the recession, the Financials short ban did not really trigger any response until today/tomorow (expiry day). – In short, People can’t roll their EuroStoxx shorts (expiry tomorrow), especially in the restricted stocks as regulator is saying they are New short positions, the same for the DAX components too & therefore, not allowable. – Then throw in the the fact that the SX5E/DAX Index traders (with non shortable Bank components) is distorting the ‘cash and carry arb’ traders calculus & as a result, the Regulators intention to ‘calm’ the mkt is causing the exact opposite. To summarize, all your index hedges are not as hedged as you thought they were prior to this expiry. (And to think SSR was SO 2008!) |
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rffrydr
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nodoodahs
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| Posted: Mon May 16, 2011 11:32 am Post subject: |
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Yeah, TIPS spreads have been lousy at guessing future CPI changes. Using the Five-Year, they missed worst low (by about 200 bps annualized) in mid-2003 and missed worst high (by about 70 bps annualized) in late 2005.
Beta on breakevens Vs actual realized is negative. Figure that!
Theoretically the market should price TIPS Vs. Ts at a "market prediction" inflation rate and should price the curve across some projected future "spot rate," but that ain't what really happens. Different players with different views and different methodologies expressing them through different vehicles = there is no "market consensus" (except as an anchoring point for discussion?).
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rffrydr
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rffrydr
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| Posted: Thu May 05, 2011 2:44 pm Post subject: |
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XOM hurt the gap-buyers but can bounce here off the 50dma, esp with a decent jobs number tomorrow. The market "knows" that this commodity sell-off is ultimately good news (leveraged URE down but .38% today) but its a long long way down to that 200dma for this heavy-hitter.... Throw in a fresh new tax-look for North Sea companies that has more than a little chance of making its way here and I don't why we couldn't work our way down there.
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rffrydr
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| Posted: Sun Mar 06, 2011 9:24 am Post subject: |
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The last true believers, columnists with years of their own words hanging heavy on their shoulders, give up on "Buy and Hold."
| Code: | Consider a retirement portfolio of $100,000. In the past, for someone age 40 with a time horizon of about 25 years until retirement, I would have recommended an investment of $90,000 in stocks (either shares of individual U.S. companies or mutual funds) and $10,000 in bonds (typically, in debt issued by the U.S. Treasury). Now, instead of a 90-10 split, the safety-net approach requires 50-50.
Morningstar, the research firm, maintains an excellent database, developed by the economist Roger Ibbotson and dating to 1926. Over this period, a diversified basket of U.S. large-cap stocks returned about 10 percent and intermediate-term Treasury bonds returned about 5 percent. So, if the future is like the past, we can expect a 90-10 portfolio to return about 9.5 percent, or $9,500 ($9,000 from the stock part and $500 from the bond part). A 50-50 portfolio, by contrast, would return $7,500 ($5,000 from stocks and $2,500 from bonds).
So the cost of switching to 50-50 - again, if the future is like the past - is about 2 percentage points a year. What do you get for such an insurance premium? |
http://www.washingtonpost.com/wp-dyn/content/article/2011/03/05/AR2011030503708.html?hpid=topnews
Maybe last to go will be the perils of commodities.
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