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State Street Global Advisors-ETF SNAPSHOT: JULY 2010
August 10, 2010--As of July 31, 2010, 917 ETFs — with assets totaling approximately $822BN — were managed by 33 ETF managers. ETF industry assets rose $50BN for the month — up 6.5%.
Year-to-date, ETF assets have increased $46BN, or 6.0%.
STATE STREET HIGHLIGHTS, JULY 2010
br>SPDR® Barclays Capital High Yield Bond ETF [JNK] surpassed $5BN in assets in July, fueled by inflows of more than $628MM in July and $1.6BN year-to-date.1 JNK trades 2,313,977 shares per day (20 Day Avg.) and has an average daily volume of more than $91MM dollars — making it the most liquid high yield bond ETF. JNK has had the highest inflows of any high yield bond ETF YTD.
ASSET CLASSES OVERALL
The S&P 500® Index bounced back in July, returning 7.1%, while the MSCI EAFE Index and MSCI Emerging Markets Index rose 9.5% and 8.4%, respectively. US Bonds advanced with the Barclays U.S. Treasury Index gaining 0.7% and the Barclays U.S. Aggregate Index climbing 1.1%. For Commodities, the S&P® GSCI Index returned 5.6% in July.
The International and Size categories had the largest increases in AUM.
The Commodity category saw the largest decline in assets, dropping $3.7BN, or 4.7%.
SIZE/STYLE
Large Cap had the largest increase in assets, up $6.7BN followed by Small Cap with $3.3BN.
AllCap - Value was the only category with a decline in assets for the month, down $2MM.
SECTOR
All Sector categories saw increases in assets in July with the exception of Materials, down $436MM, or 3.6%.
Energy and REITs led asset increases, gaining $1.2BN and $1.3BN, respectively.
For more information, including research and statistics, please visit www.spdrs.com.
Source: State Street Global Advisor
Plunge in May Highlighted Concerns With ETF Trading
August 10, 2010--The May 6 stock market plunge in the U.S. exposed hazards in the use of exchange-traded funds during periods of volatility, ETF sponsors such as State Street Global Advisors’ James Ross said at a panel today in New York.
Investors using the funds should avoid the market when it is gyrating if they can, said Ross, a senior managing director at the unit of Boston-based State Street Corp. ETFs made up 70 percent of securities with trades on May 6 that were canceled due to excessive declines, a study by federal regulators found.
Ross said losses may have been worsened for ETF and stock investors by the use of market orders, or requests to buy or sell a security at any available price. About $862 billion was erased from U.S. equity values in less than 20 minutes on May 6 as dozens of ETFs and companies such as Accenture Plc fell as much as 99 percent.
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Source: Business Week
Treasury Assistant Secretary for Financial Institutions Michael S. Barr-Implementing the Dodd-Frank Act to End Too Big To Fail
Remarks at the Chicago Club on Next Steps on Financial Reform
August 10, 2010--Last month, President Obama signed into law a comprehensive set of reforms to our financial system that will lay a firm foundation for growth and prosperity in the years ahead.
Last week in Charlotte, I focused on getting the balance right on consumer protection while fostering innovation and growth. Today I want to focus on the task of ending "too- big-to-fail."
The Dodd-Frank reforms will help to make sure that risks taken by banks do not threaten the health of the economy as a whole. These reforms require the largest financial firms to build up their capital and liquidity buffers, constrain their relative size, and place restrictions on their riskiest financial activities. These reforms bring transparency to the shadow banking system and fully regulate our derivatives markets. And these reforms create a mechanism for the government to shut down failing financial firms without putting taxpayers at risk. The import of the Act is clear: in the future, no financial firm will be "too big to fail."
For much of the last century, the American financial system was the envy of the world--surpassing other major developed economies in innovation and productivity growth. It provided investors and consumers with the strongest protections. Its regulatory checks and balances helped create a remarkably long period of relative economic stability. And the financial system was consistently better at directing investment towards the companies and industries where the returns would be the highest.
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Source: U.S. Department of th Treasury
Schwab keeps commission-free policy on ETF trading
August 10, 2010--Charles Schwab Corp said Tuesday it has no plans to change its commission-free trading policy on in-house branded exchange traded funds (ETFs), a move that triggered a price war among retail brokerages.
Schwab launched eight ETFs in November that can be traded online without commission fees, in an effort to increase its presence in a booming corner of the financial markets.
When asked if Schwab would maintain a no-commission policy on its in-house ETFs, Peter Crawford, senior vice president at Schwab said: "Certainly it will continue at Schwab."
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Source: FOX Business
Exchange-Traded Funds: US ETF Weekly Update-Morgan Stanley
August 9, 2010--Highlights
Weekly Flows: $ 5.7Billion Net Inflows
ETFs Traded $281 Billion Last Week
Launches: 3 New ETFs
PowerSharesMakes Index Change
US-Listed ETFs: Estimated Flows by Market Segment
ETFs had net cash inflows of $ 5.7 blnlast; 5thweek in a row of net inflows
Flows driven by US large-cap ($3.6 bln) and EM equity ($2.9 bln) equivalent to over 100% of the net flow
ETF assets stand at $845 bln; up 8% from year-end 2009 levels
Fixed Income ETFs had their weakest net inflows ($66 million) in three months (5/3/10)
$32 bln net inflows into ETFs over 13 wks; Fixed Income and EM equity account for almost 75% of net inflows
US-Listed ETFs: Estimated Largest Flows by Individual ETF
SPY had the largest net inflows for US ETFs at $2.5 billion lastweek
The trend of net inflows into US large-cap (SPY & QQQQ) continues on a 1-4-and 13-week basis, as do the outflows from US small-cap
Two high yield corporate ETFs among the strongest net inflows; Two shorter duration Treasury ETFs among those with largest net outflows
request report
Source: Morgan Stanley
WisdomTree Launches Emerging Markets Local Debt Fund (ELD)
August 9, 2010--WisdomTree, an exchange-traded fund ("ETF") sponsor and asset manager, announced today the launch of the WisdomTree Emerging Markets Local Debt Fund (ELD) on the NYSE Arca. ELD is designed to provide exposure to emerging market debt denominated in local currencies and has an expense ratio of 0.55%. The Fund currently has $125 million in assets.
ELD is an actively managed ETF sub-advised by Mellon Capital Management Corporation.
"We believe emerging market debt is an attractive asset class, based on the faster growth and typically higher yields available in these countries relative to the U.S. and developed world," said Bruce Lavine, WisdomTree President & COO. "ELD will offer full exposure to local currencies, a feature we consider important for many investors because of the potential lower correlations and currency appreciation against the U.S. dollar."
There are risks associated with investing including possible loss of principal. Foreign investing involves special risks, such as risk of loss from currency fluctuation or political or economic uncertainty. Investments in emerging, offshore or frontier markets are generally less liquid and less efficient than developed markets and are subject to additional risks, such as of adverse governmental regulation and intervention or political developments. Derivative investment risk can be volatile and may be less liquid than other securities and more sensitive to the effects of varied economic conditions. Fixed income investments are subject to interest rate risk; their value will normally decline as interest rates rise. In addition when interest rates fall income may decline. Fixed income investments are also subject to credit risk, the risk that the issuer of a bond will fail to pay interest and principal in a timely manner, or that negative perceptions of the issuers ability to make such payments will cause the price of that bond to decline. Unlike typical exchange-traded funds, there is no index that the Fund attempts to track or replicate. Thus, the ability of the Fund to achieve its objective will depend on the effectiveness of the portfolio manager. Please read the Fund's prospectus for specific details regarding the Fund's risk profile.
Source: WisdomTree
CFTC Seeks Public Comment on a Proposal to Amend the Requirements for Acknowledgment Letters
August 9, 2010-- The Commodity Futures Trading Commission (CFTC) today published in the Federal Register a proposal to amend CFTC regulations 1.20, 1.26 and 30.7. These regulations concern the acknowledgment letters that a futures commission merchant or derivatives clearing organization must obtain from any depository holding its segregated customer funds or funds of foreign futures or foreign options customers.
The proposal sets out standard template acknowledgment letters that reaffirm and clarify the obligations depositories incur when accepting segregated customer funds or funds of foreign futures or foreign options customers.
The CFTC seeks public comment on the proposal. The comment period will last 30 days following publication in the Federal Register. Copies may be obtained by accessing the Commission’s website, www.cftc.gov. Interested parties may submit their comments electronically to acknowledgmentletter@cftc.gov. All comments received will be promptly posted on the Commission's website.
Source: CFTC.gov
U.S. Corporate Bond Market: A Review of Second-Quarter 2010
Rating and Issuance Activity
August 9, 2010-Summary
While the impact of U.S. corporate bond upgrades and downgrades remained relatively modest in the second quarter, each affecting roughly 1% of market volume, upgrades, at $35.1 billion, nonetheless topped downgrades of $27.0 billion ? the first quarter to
exhibit such a trend since mid-2007.
Second-quarter upgrades were mostly a product of credit gains at the speculative grade level where upgrades of $24.9 billion readily
topped downgrades of $5.8 billion. Through the first half of 2010, the par value of U.S. corporate bonds affected by upgrades has run nearly even with the dollar impact of downgrades ($71.7 billion and $74.7 billion, respectively). Upgrades are up twofold
from levels recorded in the difficult first half of 2009, while downgrades have contracted to a small fraction (10%) of the comparable period in 2009.
In the wake of the European sovereign debt crisis and renewed risk aversion, new issuance fell 34% in the second quarter to $120.4 billion ? the lowest tally since the fourth quarter of 2008. The drop was mostly on the investment grade side as borrowers,
many flush with cash, opted to wait for more favorable market conditions rather than borrow at wider spreads. Speculative grade issuance was down in the second quarter
but remained firm, and with July’s strong showing is still on pace to set new records in 2010.
Second-Quarter 2010 Highlights
• Upgrades affected 0.4% of investment grade volume in the second quarter ($10.2 billion) and downgrades affected 0.8% ($21.1 billion). On the speculative grade front, the effects of positive and negative rating changes were 3.3% ($24.9 billion) and 0.8% ($5.8 billion), respectively. Speculative grade and investment grade industrials provided $24.0 billion and $10.1 billion, respectively, in upgrades while producing $4.9 billion and $11.3 billion, respectively, in downgrades. According to Fitch’s U.S. High Yield Par Default Index, the trailing 12-month default rate fell to 4.5% at the end of June from 9.1% in March and was down further in July to 4.2%.
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Source: Fitch Ratings
Financial Advisor Survey by iShares and Market Strategies International Finds "Flash Crash" Caused by Issues Related to Market Structure
Advisors Believe Clearer Routing Guidelines, Uniform Circuit Breakers, Key to Improving Structure in the Face of an Ongoing Volatile Market
August 9, 2010--BlackRock, Inc. released research findings on financial advisors' perceptions of and impact from the May 6th market event known as the "Flash Crash," along with advisors' views of current market sentiment. Commissioned by the iShares Exchange Traded Funds (ETFs) business and conducted by Market Strategies International, the survey found that the majority of advisors believe market structure issues were the primary driver of the sharpest single-day point decline in Dow Jones history, followed by an immediate rebound.
Advisors pointed to an overreliance on computer systems and high-frequency trading as the primary drivers that contributed to the extreme market volatility on May 6th. Secondary contributors cited by advisors included the use of stop-loss orders, the support of market makers and questions with exchange routing rules.
The survey also indicated that most advisors' accounts were not impacted by the events of May 6th. In fact, the most common account impact was a stop-loss order triggered by the "Flash Crash" at a significantly reduced value, which happened to about a quarter of advisors.
Universally, according to the survey, advisors are encouraged with the initial recommendations by the SEC to make the needed changes to market structure. The single-stock circuit breaker rule proposed by the SEC is one of the primary solutions advisors endorse to address the causes of the May 6th market decline. Advisors surveyed also favor clearer inter-market routing guidelines to rectify market structure problems and feel strongly towards placing trading audits and expanding the role of the lead market maker.
"The findings of the financial advisor survey around May 6th are noteworthy because they indicate that advisors believe that market structure issues were at the root of the 'Flash Crash' and that the initial recommendations made by regulators to fix structural market problems are a step in the right direction," said Rob Stone, Ph.D., Executive Vice President at Market Strategies International. "In addition, advisors' market sentiment leans towards the view of continued or increased market volatility and, despite the 'Flash Crash,' advisors state that they will use ETFs most often in uncertain markets."
As it relates to the macroeconomic environment, the majority of advisors surveyed expect current market volatility will either increase or remain at today's level over the next six months. Furthermore, those surveyed anticipate an event similar to May 6th will likely occur again, no matter what solutions are adopted. Regardless of the cause -- economic or structural like the "Flash Crash" -- advisors identified ETFs as the best investment vehicles to navigate a volatile market environment followed by bonds and mutual funds.
"We commissioned the 'Flash Crash' Perceptions Study to learn from financial advisors, one of the largest groups of ETF users, what they think about the market event that affected ETFs as a category. We continue to work with regulators by providing insights and observations into ways to further improve the existing market structure so that an event similar to May 6th can be prevented," said Noel Archard, Head of U.S. iShares Product at BlackRock.
Market Strategies International is a full-service market research and consulting firm with extensive experience in the financial services sector. The staff is comprised of consultants, researchers, statisticians, and project managers. Founded in 1989, Market Strategies is the 16th largest research firm in the U.S. according to "Honomichl Top 50," published in the June 2009 issue of Marketing News. iShares commissioned Market Strategies to conduct custom research with financial advisors on the unique events of May 6th 2010. The sample was a random set of 380 Retail Financial Advisors who have used or managed ETFs within the past six months
Source: BlackRock
WisdomTree Lists WisdomTree Emerging Markets Local Debt Fund on NYSE Arca
August 9, 2010-- NYSE Euronext (NYX) announced that its wholly-owned subsidiary, NYSE Arca, today began trading the WisdomTree Emerging Markets Local Debt Fund (Ticker: ELD). The ETF is sponsored by WisdomTree.
The WisdomTree Emerging Markets Local Debt Fund seeks a high level of total return consisting of both income and capital appreciation. The Fund attempts to achieve its investment objective through investment in Local Debt, which includes fixed income securities, such as bonds, notes or other debt obligations, of emerging market issuers that are denominated in a currency other than the U.S. dollar.
Source: NYSE Euronext
