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The Shift from Active to Passive Investing: Potential Risks to Financial Stability?
June 29, 2020--Abstract:
The past couple of decades have seen a significant shift from active to passive investment strategies. We examine how this shift affects financial stability through its impacts on: (i) funds' liquidity and redemption risks, (ii) asset-market volatility, (iii) asset-management industry concentration, and (iv) comovement of asset returns and liquidity.
Overall, the shift appears to be increasing some risks and reducing others. Some passive strategies amplify market volatility, and the shift has increased industry concentration, but it has diminished some liquidity and redemption risks. Finally, evidence is mixed on the links between indexing and comovement of asset returns and liquidity.
view the paper-The Shift from Active to Passive Investing: Potential Risks to Financial Stability?
Source: federalreserve.gov
National Bureau of Economic Research-Working paper-Corporate Bond Liquidity During the COVID-19 Crisis
June 28, 2020--We study liquidity conditions in the corporate bond market since the onset of the COVID-19 pandemic. We find that in mid-March 2020, as selling pressure surged, dealers were wary of accumulating inventory on their balance sheets, perhaps out of concern for violating regulatory requirements. As a result, the cost to investors of trading immediately with a dealer surged.
A portion of transactions migrated to a slower, less costly process wherein dealers arranged for trades directly between customers without using their own balance sheet space. Interventions by the Federal Reserve appear to have relaxed balance sheet constraints: soon after they were announced, dealers began absorbing inventory, bid-ask spreads declined, and market liquidity started to improve. Interestingly, liquidity conditions improved for bonds that were eligible for the Fed's lending/purchase programs and for bonds that were ineligible. Hence, by allowing dealers to unload certain assets from their balance sheet, the Fed’s interventions may have helped dealers to better intermediate a wide variety of assets, including those not directly targeted.
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Source: nber.org
A new trend is shaking up the ETF industry: active management
June 28, 2020-Traditional fund groups are fighting back by launching ETFs that buy assets without following an index
Entering client meetings and conference halls like conquering noblemen, the champions of the exchange-traded fund industry denounced stock pickers, brokers and fund gurus for their greed.
Clutching books by Jack Bogle and William Sharpe, they warned that every dollar paid in fees was a dollar less for widowers and grandmothers.
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Source: FT.com
Financial Regulators Modify Volcker Rule
June 25, 2020--Five federal regulatory agencies today finalized a rule modifying regulations implementing the Volcker Rule's prohibition on banking entities investing in or sponsoring hedge funds or private equity funds-known as covered funds. The final rule is broadly similar to the proposed rule from January.
The Volcker Rule generally prohibits banking entities from engaging in proprietary trading and from acquiring or retaining ownership interests in, sponsoring, or having certain relationships with a hedge fund or private equity fund.
Like the proposal, the final rule modifies three areas of the rule by:
Streamlining the covered funds portion of the rule;
Addressing the extraterritorial treatment of certain foreign funds; and
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Source: CFTC.gov
Toews Corporation Debuts Agility SharesTM Family of ETFs
June 25, 2020--Money Manager With Multi-Decade Track Record of Risk-Managed Investing Introduces Inaugural ETFs
Risk-averse investors have some new tools in the never-ending quest to build portfolios for the long term.
Toews Corporation, the investment management firm founded in 1996 by Philip Toews, is bringing its brand of risk-managed investing into the ETF arena. With approximately $1.8 billion in assets under management, Toews Corporation will serve as the adviser to the Agility SharesTM lineup of ETFs, beginning with today’s launch of the brand's first two ETF products: the Agility SharesTM Managed Risk ETF (MRSK) and the Agility SharesTM Dynamic Tactical Income ETF (THY).
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Source: Agility Share
Trump Administration Targets ESG Funds With 401(k) Rule
June 25, 2020--The Labor Department wants to restrict where retirement plan managers put your money, which may hurt sustainability focused funds.
One in four of every professionally invested U.S. dollar is tied to environmental, social and governance criteria. But the Trump administration's latest proposed rule change may make it harder for ESG funds to attract interest from retirement plans.
On June 23, the Labor Department led by Secretary Eugene Scalia proposed an update to the Employee Retirement Income Security Act of 1974 (ERISA) that would require those overseeing pension and 401(k) plans to always put economic interests ahead of "non-pecuniary" goals. The agency specifically called out ESG investing in its proposal.
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Source: bloomberg.com
Pacer ETFs Expands Lineup With Addition of 4 New Funds
June 25, 2020--The firm continues growth with multiple fund additions as it rings in 5th anniversary
-Pacer ETFs ("Pacer"), an ETF provider that offers strategy-driven, rules-based ETFs, celebrates their fifth anniversary and the launch of four new funds.
These additions come after another year of impressive growth for the firm, especially during a difficult environment so far in 2020. Pacer ETFs has accumulated $5.28 billion in assets under management in its five years of existence.
Pacer's first fund addition is the Pacer BioThreat Strategy ETF (VIRS)
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Source: Pacer Financial, Inc.
US economy shrank at annualized rate of 5 percent in first quarter
June 25, 2020-The U.S. economy shrank at an annualized rate of 5 percent in the first quarter of 2020 as the coronavirus pandemic triggered an unprecedented economic collapse, according to data released by the Commerce Department on Thursday.
U.S. gross domestic product (GDP) fell at an annualized rate of 5 percent between January and March, according to the third estimate of quarterly economic growth released by the Bureau of Economic Analysis (BEA). The BEA previously estimated first-quarter GDP to have dropped by an annualized rate of 5 percent in a May projection and 4.8 percent in its April estimate.
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Source: thehill.com
Direxion Launches Work From Home ETF
June 25, 2020--First ETF to Meet Investor Demand for Exposure to Worldwide Remote Productivity Shift
Direxion announced today it has expanded its range of buy and hold ETFs with the launch of the Direxion Work From Home ETF (Ticker: WFH). This is the first ETF with a strategy designed to provide investors with comprehensive exposure to firms at the forefront of the worldwide, societal transformation towards greater adoption of flexible work.
PwC's recent COVID-19 CFO Pulse Survey notes that more than half (54%) of companies say that going forward, they're planning to make remote work a permanent option for roles that allow. It's even higher (61%) among financial services firms. Because technology has allowed for greater remote productivity, trends toward more flexible work locations have increased over recent decades.
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Source: Direxion
Fed bans stock buybacks, caps dividend payments for big banks after stress tests
June 25, 2020--The Federal Reserve on Thursday banned more than 30 large U.S. banks from buying back their stocks and limited the size of dividends they could pay out to shareholders due to the financial strain of the coronavirus recession.
The Fed's announcement came as the central bank released the results of 2020 stress tests mandated under the Dodd-Frank Wall Street reform law passed in the wake of the 2007-09 financial crisis.
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Source: thehill.com
