Funds Hub
Money managers under the microscope
LIPPER: Are ETFs in trouble?
By Detlef Glow, Head of EMEA Research at Thomson Reuters fund research firm Lipper. The views expressed are his own.
Exchange traded funds (ETFs) have found themselves under ever more scrutiny from regulators and market participants this year and expectations are that new rules for the sector are just a matter of time.
It’s tempting to think of ETFs as unwilling victims of new regulation, but to my mind, ETFs have much to gain.
The point is that it isn’t just regulators who are seeking improved transparency on fund holdings and on the use of derivatives by mutual funds, crucially it is end-investors too. And once the fog has cleared, they might come to see ETFs — with daily published portfolios and clearer statements on the use of derivatives in general — as a role model for all kinds of mutual funds.
The discussion surrounding ETFs could leave you with the feeling that they are unregulated products; that fund promoters can go wild when creating new products and with the use of derivatives in the portfolios. In reality though, ETFs follow the same local and/or international legislation of any other mutual fund; the EU UCITS regime for example.
So, why all the fuss around ETFs? In my opinion, there is nothing uniquely wrong with these products as they are using the same tools and techniques used by other funds under the UCITS regime. Some authorities, however, have raised questions as ETFs grow in popularity among professional investors. A deeper look into the questions posed shows that the points made by the critics are not only applicable to ETFs, but to any mutual fund.
CONCERN
Morning Line-up: Accusations, higher profits and ETFs
News and views on the asset management industry from Reuters and elsewhere:
Funds accuse banks of manipulation – FT
Morning Line-up: Japanese ETFs, UK non-doms, Swiss hedge fund
News and views on the asset management industry from Reuters and elsewhere:
U.S. investors place record wager on Japanese funds – New York Times
UK wealth industry relief at new rules on non-doms – Reuters
Morning Line-Up: London taxes, Glencore’s IPO, emerging market ETFs
News and views on the asset management industry from Reuters and elsewhere:
Hedge funds told to accept higher London taxes – FT
from Reuters Money:
Actively managed ETFs and other wrinkles
The following is an edited excerpt from Never Buy Another Stock Again: The Investing Portfolio that Will Preserve Your Wealth and Your Sanity, written by David Gaffen, who is the Reuters markets editor. It was printed with permission of FT Press, an imprint of Pearson.
One of the biggest growth industries in finance right now is in exchange-traded funds, and further growth in ETFs appears likely to come from several places.
Sector or country-specific ETFs and actively managed ETFs are likely to continue to be a growth area, along with perhaps a combination of the two (an actively managed ETF focusing on small-cap stocks, for instance).
The most popular sector ETFs are in natural resources and technology, although State Street, which sponsors the SPDRs ETF, has S&P sector ETFs for nine of the ten S&P sectors (telecommunications is the lone exception—it’s folded into another area); new ones continue to crop up.
For professional investors attempting to beat the market, they’re an ideal vehicle because they carry a relatively low cost and have tax efficiency, as David Kotok of Cumberland Advisors has pointed out. But John Bogle, in his book “The Little Book of Common-Sense Investing,” quoted (anonymously) a chief investment officer at an ETF company cautioning against “pin-pointed” bets on sectors, because they “still involve nearly as much risk as concentrated stock picks.” But that doesn’t mean they’re going to stop growing.
Like mutual funds, tech stocks, tech funds, and other hot investments that dominated the landscape for a time, the ETF world is turning into its own “app economy,” as Nicholas Colas, chief market strategist at BNY ConvergEx Group, puts it. This, by itself, is not necessarily a bad thing, but with more choices comes more confusion.
Another area where one can expect a growth spurt is in actively managed ETFs, first introduced by investor Harry Dent with his Dent Fund through AdvisorShares, which is now marketing other new actively managed exchange-traded funds. And so ETFs are starting to come full circle: While this is still designed for the same kind of tax efficiency and liquidity offered as most ETFs, now investors have the (supposed) benefit of active management—but the higher expenses to boot.
Steer clear of the free lunch, says Noster
Diversification is meant to be the only free lunch in investing.
But according to hedge fund Noster Capital, with most markets looking toppy and with problems ahead, it’s not necessarily one that investors would be wise to tuck into.
“This is not the time to be invested in broad ETFs or in very diversified funds, because the indexes will likely not do much in aggregate,” it says in its end of year letter.
“We feel that most asset classes are currently approaching untenable levels, and while they could certainly grow dearer for some time to come, in most cases we have long passed the level where investors are being adequately remunerated for the risks they are taking.”
Markets are likely to be range-bound for the next 3-5 years, meaning that just buying and holding stocks might not be the best approach, says Noster.
“The likely way to succeed in the years ahead is to be very selective and tactical about what one owns, to be ready to sell if assets approach fair value and, most importantly of all, to be protected and retain liquidity so that one can take advantage of opportunities that will transpire when any of the myriad things that could (and will) go wrong, do.”
This current rally continued for longer than I expected -similar to what happened after I began my warnings in early 2007 but the fun didn’t start until mid 2007.
It’s now extremely overextended and the very overdue correction actually started last week IMO.
FX market and gold/silver have already given the signal and these warnings should not be ignored.
stockmarket618.wordpress.com
Morning Line-Up: 2010 returns, expert networks, ETFs
News and views on the asset management industry from Reuters and elsewhere:
Hedge funds offered weak returns in 2010 – Reuters
Hedge fund scandal shakes expert network industry – International Business Times
ETFs try to outdo money funds – WSJ
from Reuters Money:
The year’s best and worst ETFs
The best investments often don't have the highest returns. I know this is heresy to most, yet mass behavior can be a siren song.
About this time every year, we gaze intently at our portfolios, hoping against hope that we did something right. Sometimes we get lucky.
Two years ago, we didn't even want to open the envelope containing the bad tidings of the market meltdown. I kept my mutual fund statements sealed that year.
This year, there's some palpably good news to spread around, although it doesn't necessarily involve the best-performing investments.
Unfortunately, those who noted and invested in the best performers in ETFs recently are doing exactly the wrong thing. They are loading up in overheated funds when the general consensus is that this is the right thing to do. As previous market manias have proven, "the lemming effect" is something that millions of investors routinely forget or ignore.
Case in point are the sizzling returns of the most-popular ETFs this year. The iShares Gold Trust (IAU), with a three-year return of almost 20 percent (year-to-date as of Dec. 13), was one of the darlings of the precious metals crowd. The SPDR Gold Shares (GLD), iShares Silver Trust (SLV) and Powershares DB Precious Metals ETF (DBP) were not far behind.
As economic klaxons sound alerts about the troubled Euro and Dollar, investors have herded into precious metals with abandon. The SPDR Gold Shares fund alone has grown to more than $54 billion in assets.
Morning Line-Up: Rich desert hedgies, Calpers seeks cash injection
News and views on the fund industry from Reuters and elsewhere:
Hedge funds rely less on the rich - Reuters
UK platform reforms inconsistent with RDR, says Cofunds - Fund Strategy
Calpers asks for more money - Reuters
Investors prefer ETFs to index funds - Fund Strategy
Morning line-up
Hedge fund stories from the past 24 hours from Reuters and elsewhere:
Will ETFs replace hedge funds?…. No – Seeking Alpha
Hintze the Prince’s philanthropist – Bloomberg
Hedgies to top stocks, bonds in 2010 – Reuters
Calpers probes hedge fund advisors – LA Times
Managed futures on the rack – Reuters
