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FINRA Issues New Investor Alert: Alternative Funds Are Not Your Typical Mutual Funds
June 11, 2013--The Financial Industry Regulatory Authority issued a new Investor Alert called Alternative Funds Are Not Your Typical Mutual Funds to inform investors considering investing in alternative funds to be aware of the unique characteristics and risks of these investments.
Alternative or "alt" mutual funds are publicly offered, SEC-registered funds that hold more non-traditional investments and employ more complex trading strategies than traditional mutual funds.
Alt funds might invest in assets such as global real estate, commodities, leveraged loans, start-up companies and unlisted securities that offer exposure beyond traditional stocks, bonds and cash. These funds also may employ complex strategies, including hedging and leveraging through derivatives and short selling. Some alt funds are structured as a fund containing numerous alternative funds. Although the strategies and investments of alt funds may bring to mind those of hedge funds, alt funds are regulated under the Investment Company Act of 1940, which limits their operations in ways that do not apply to unregistered hedge funds.
"Investors should fully understand the strategies and risks of any alternative mutual fund they are considering. FINRA is warning investors to carefully consider not only how an alt fund works, but how it might fit into their overall portfolio before investing," said Gerri Walsh, FINRA's Senior Vice President for Investor Education.
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Source: FINRA
Morgan Stanley-Exchange-Traded Funds
June 10, 2013--US ETF Weekly Update
Weekly Flows: $9.3 Billion Net Outflows
ETF Assets Stand at $1.5 Trillion, up 10% YTD
Five ETF Launches Last Week
Two Vanguard Funds Transition to New Indexes
US-Listed ETFs: Estimated Flows by Market Segment
ETFs posted net outflows of $9.3 bln last week, the largest week of net outflows YTD
Following a period of strong net inflows to start the year ($83 bln through 5/17/13), ETFs have exhibited net outflows for three
consecutive weeks ($11.5 bln in aggregate)
US Small- & Micro Cap ETFs have generated net inflows of $2.9 bln over past three weeks, including $1.1 bln last week
Last week’s net outflows were widespread across the majority of market segments; in particular, Fixed Income ETFs
experienced $4.2 bln in net outflows with concentration in broad investment grade and high yield, and intermediate duration
Treasury ETFs
ETF assets stand at $1.5 tln, up 10% YTD; $71.4 bln net inflows YTD
13-week flows remain mostly positive among asset classes; combined $27.8 bln in net inflows
International-Developed ETFs have generated $11.0 bln in net inflows over the last 13 weeks, the most of any measured
category; despite recent performance weakness, Japan ETFs have still driven net inflows for the category over this period
Commodity and International- Emerging ETFs continue to bleed assets; specifically, the two largest gold and two largest broad
emerging market ETFs have exhibited combined net outflows of $12.1 bln and $11.5 bln, respectively, over the last 13 weeks
US-Listed ETFs: Estimated Largest Flows by Individual ETF
The iShares Russell 2000 Index Fund (IWM) continued its recent streak of strong net inflows last week
IWM has generated aggregate net inflows of $2.3 bln over the last three weeks; moreover, ProShares Ultra Russell 2000 (UWM),
which targets 200% the daily total return of the Russell 2000 Index, led all ETFs this past week with $1.1 bln in net inflows
Unsurprisingly, given the recent focus on ‘tapering’ and increased volatility in the Treasury market, fixed income-focused ETFs
occupied six of the top 10 net outflow spots
Interestingly, the three fixed income ETFs appearing in the top 10 net inflows were all focused on short duration bonds; Morgan
Stanley Wealth Management’s strategists have been recommending investors lower portfolio duration and believe investment
US-Listed ETFs: Short Interest Data Unchanged: Based on data as of 5/15/13
SPDR S&P 500 ETF (SPY) had the largest increases in USD short interest at $1.1 bln
Despite the increase in short interest, SPY’s 240.2 mln shares short are only 6% above their 52-week average
Aggregate ETF USD short interest increased by $2.6 bln over the period ended 5/15/13
The average shares short/shares outstanding for ETFs is currently 4.5%
The CurrencyShares Japanese Yen Trust (FXY) had one of the highest % of shares short relative to shares outstanding at 187% for
the period ended 5/15/13; FXY has consistently been one of the most heavily shorted ETFs since we began tracking the data and
the trade has recently paid off as FXY is down more than 14% YTD on a market price basis
Based on multiple borrowings and the ability to continuously create new shares, shares short as a % of shares outstanding can
exceed 100% (only six ETFs exhibited shares short as a % of shares outstanding greater than 100%)
grade credit offers a better risk/reward profile than high yield while they see long-term value in floating-rate loans
US-Listed ETFs: Estimated Largest Flows by Individual ETF
The iShares Russell 2000 Index Fund (IWM) continued its recent streak of strong net inflows last week
IWM has generated aggregate net inflows of $2.3 bln over the last three weeks; moreover, ProShares Ultra Russell 2000 (UWM),
which targets 200% the daily total return of the Russell 2000 Index, led all ETFs this past week with $1.1 bln in net inflows
Unsurprisingly, given the recent focus on ‘tapering’ and increased volatility in the Treasury market, fixed income-focused ETFs
occupied six of the top 10 net outflow spots
Interestingly, the three fixed income ETFs appearing in the top 10 net inflows were all focused on short duration bonds; Morgan
Stanley Wealth Management’s strategists have been recommending investors lower portfolio duration and believe investment
grade credit offers a better risk/reward profile than high yield while they see long-term value in floating-rate loans
US-Listed ETFs: Short Interest Data Unchanged: Based on data as of 5/15/13
SPDR S&P 500 ETF (SPY) had the largest increases in USD short interest at $1.1 bln
Despite the increase in short interest, SPY’s 240.2 mln shares short are only 6% above their 52-week average
Aggregate ETF USD short interest increased by $2.6 bln over the period ended 5/15/13
The average shares short/shares outstanding for ETFs is currently 4.5%
The CurrencyShares Japanese Yen Trust (FXY) had one of the highest % of shares short relative to shares outstanding at 187% for
the period ended 5/15/13; FXY has consistently been one of the most heavily shorted ETFs since we began tracking the data and
the trade has recently paid off as FXY is down more than 14% YTD on a market price basis
Based on multiple borrowings and the ability to continuously create new shares, shares short as a % of shares outstanding can
exceed 100% (only six ETFs exhibited shares short as a % of shares outstanding greater than 100%)
US-Listed ETFs: Most Successful Recent Launches by Assets Source: Bloomberg, Morgan Stanley Wealth Management ETF Research. Data estimated as of 6/7/13 based on daily change in share counts and daily NAVs.
$7.2 bln in total market cap of ETFs less than 1-year old
Newly launched International Equity ETFs account for 40% of the market cap of ETFs launched over the past year; 78% of the
assets are tied to two ETFs tracking investable market versions of the MSCI developed market and emerging market indices;
MSCI investable market indices target 99% of the available market cap versus 85% their more traditional indices
Issuance has been light in 2013 relative to the past three years; 53 new ETF listings and 28 closures/delistings YTD
The top 10 most successful launches make up 66% of the market cap of ETFs launched over the past year
Six ETF sponsors and two asset classes represented in top 10 most successful launches; seven have an income orientation
First Trust NASDAQ Technology Dividend Index Fund (TDIV) cracked the top 10 most successful launches over the past year;
TDIV invests in a modified dividend value weighted basket of technology (80%) and telecommunications companies (20%)
First Trust ETFs now occupy three of the top 10 spots and all have an income focus
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Source: Morgan Stanley
Defined contribution plans keep distance from ETF options
No fee advantages seen vs. more established investment tools, and no one is really asking for ETFs
June 10, 2013--Despite significant overall growth in exchange-traded funds, ETFs barely register in 401(k) plans.
Consultants, researchers and ETF providers say executives at plans larger than $100 million have shown little interest, primarily because the fees they pay for investment options such as institutional shares of index funds, collective trusts and separate accounts are as cheap or cheaper than those of ETFs.
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Source: Pensions & Investments
NYSE Arca Unveils Exchange Traded Products Incentive Program
Supporting the overall growth of the ETP marketplace
June 10, 2013- NYSE Euronext (NYX) announced that it has received approval from the U.S. Securities and Exchange Commission (SEC) to launch the NYSE Arca Exchange Traded Product Incentive Program (IP).
This new 12 month pilot program offers an alternative for incentivizing lead market makers (LMM) to be the primary market maker in certain exchange traded products (ETPs) selected by issuers.
NYSE Arca is the only Exchange in the U.S. to offer this optional IP, which provides greater certainty to ETP issuers that the LMM will receive the economic incentive tailored to their specific ETP. In return, the LMM is required to meet industry-leading quoting obligations and requirements aimed at improving market quality. The IP pilot program will launch in the second half of 2013.
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Source: NYSE Euronext
CFTC Announces that Mandatory Clearing for Category 2 Entities Begins Today
June 10, 2013--The second phase of required clearing for certain credit default swaps (CDS) and interest rate swaps begins today.
Commodity pools, private funds, and persons predominantly engaged in activities that are in the business of banking, or in activities that are financial in nature, are included within the definition of Category 2 Entities. These entities are required to begin clearing swaps executed on or after June 10, 2013.
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Source: CFTC.gov
ISE Announces Three New Board Members
June 10, 2013--The International Securities Exchange (ISE) today announced the addition of three new members to its Board of Directors, and also announced six members were re-elected.
ISE’s Board of Directors consists of both industry and non-industry directors. Of the industry directors, each ISE exchange membership type is represented by two directors on the Board who serve two year terms. Patrick Hickey of Optiver US was elected to the Board as a director representing ISE’s Competitive Market Makers (CMMs). Elizabeth Martin of Goldman Sachs & Co. was elected to represent ISE’s Electronic Access Members (EAMs). Slade Winchester of Citigroup, who previously represented ISE’s EAMs and CMMs on the Board, was elected to serve as director on behalf of ISE’s Primary Market Makers (PMMs). In addition to these elections, Denis Medvedsek of Knight Capital Group was appointed as CMM Director to fill a vacancy.
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Source: International Securities Exchange (ISE)
BlackRock in Vanguard's debt for Credit Suisse deal approval
June 9, 2013--Vanguard's recent launch of exchange traded funds in Europe has helped BlackRock overcome a major barrier to acquiring Credit Suisse's ETF business, it has been revealed.
The US firm’s push has demonstrated that there is still room for new entrants in the European ETF market – coincidentally alleviating competitive concerns arising from iShares, BlackRock’s ETF unit, taking control of Credit Suisse ETF.
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Source: FT.com
CFTC's Division of Clearing and Risk Issues Time-Limited No-Action Relief from Required Clearing for Swaps Entered into by Certain Cooperatives
June 7, 2013--The Division of Clearing and Risk (DCR) of the Commodity Futures Trading Commission (Commission) today announced the issuance of a time-limited, no-action letter granting relief from required clearing under section 2(h)(1)(A) of the Commodity Exchange Act and
part 50 of the Commission’s regulations for certain swaps entered into by qualifying cooperatives.
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Source: CFTC.gov
CFTC.gov Commitments of Traders Reports Update
June 7, 2013--The current reports for the week of June 4, 2013 are now available.
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Source: CFTC.gov
CFTC's Division of Clearing and Risk Issues an Advisory Pertaining to the Effective Date of the Clearing Exemption for Swaps Between Certain Affiliated Entities
June 7, 2013--The Division of Clearing and Risk (DCR) of the Commodity Futures Trading Commission (CFTC) today issued an Advisory notifying market participants that the effective date of the final rule adopting the "Clearing Exemption for Swaps Between Certain Affiliated Entities"
has been automatically extended by operation of law, to June 18, 2013.
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Source: CFTC.gov
