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DB Synthetic Equity & Index Strategy-US ETF Model Portfolios-Country Rotation Portfolio Update
June 4, 2013--Country Rotation Update as of May 31st, 2013
Portfolios experienced weakness driven by underperformance of long portfolios during May.
Market Performance
The global equity markets edged lower in May following an end-of-month reversal. The MSCI AC World Index (ACWI) lost 0.38% during this period.
ETF Country Rotation Portfolio (CRP) Series Performance
Our long portfolios posted negative returns for May. The tercile, quartile, and quintile portfolios recorded losses of 4.22%, 5.58%, and 6.02%, respectively. Similarly on the long/short area, the tercile, the quartile and quintile portfolios recorded losses of 2.26%, 3.83% and 3.63%, respectively. The main drags to the long/short portfolios came from the long positions in New Zealand and Thailand.
Implicit Costs of a Transition
June 4, 2013--The objective of a transition manager is to preserve the asset value of a client's portfolio. This can only be done by implementing a strategy to manage all of the component costs of trading, in particular those subject to greater variability- the implicit costs of a transition.
The cost of a transition is commonly viewed as a combination of two elements-the explicit costs, which can be clearly estimated in advance and generally easily understood, and the implicit costs, which are subject to a far greater degree of variability, and more difficult to both estimate and measure.
As with most investment decisions that investors make, transitions must be considered in the context of risk-adjusted cost. Despite the uncertainty in estimating implicit costs, at the end of the day, the objective of any transition manager is to preserve the asset value of the client’s portfolio. This can only be done by implementing a strategy to manage all of the component costs of trading, in particular those subject to greater variability-the implicit costs of a transition.
Deutsche Asset & Wealth Management Launches Municipal Infrastructure Revenue Bond ETF and Regulated Utilities ETF
June 4, 2013--Deutsche Asset & Wealth Management today announced the launch of the db X-trackers Municipal Infrastructure Revenue Bond Fund (NYSE Ticker: RVNU) and the db X-trackers Regulated Utilities Fund (NYSE Ticker: UTLT).
RVNU is the only exchange-traded fund (ETF) on the market offering investors targeted access to municipal infrastructure revenue bonds and UTLT is first ETF to provide investors with 100% exposure to regulated utilities.
The new funds offer unique investment opportunities in markets not previously served by ETFs. RVNU invests in municipal infrastructure revenue bonds which are backed by dedicated revenue streams from infrastructure projects. UTLT provides investors exposure to regulated utilities, an asset class backed by a government regulated rate base that produces stable earnings.
Brazil reduces foreign capital controls as currency tanks
Gov't to scrap tax on foreign purchases of local debt
Surprise move likely to help ease fall of real
Cbank official said earlier real likely to stay weak
Investors see mixed messages in gov't fx policy
June 4. 2013--Brazil will scrap a tax on foreign investments in local debt, a surprise move that could help stop a sharp depreciation of the country's currency that threatens to stoke already high inflation in Latin America's largest economy.
In a hastily called press briefing, Finance Minister Guido Mantega said that a drop in foreign inflows prompted the removal of the financial transaction tax, known as IOF, on foreign purchases of government bonds and other fixed-income investments.
Van Eck files with the SEC.
June 4, 2013--Van Eck has filed a amended application for exemptive relief with the SEC.
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CFTC's Division of Clearing and Risk Provides No-Action Relief from the Clearing Requirement for Swaps Entered into by Eligible Treasury Affiliates
June 4, 2013--The Division of Clearing and Risk (Division) of the Commodity Futures Trading Commission (CFTC) today issued a no-action letter providing eligible treasury affiliates that enter into swaps that are subject to the clearing requirement in section 2(h)(1) of the Commodity Exchange Act (CEA) and part 50 of the CFTC's regulations, with relief from the clearing requirement, subject to certain conditions and requirements.
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Regulators Snub Sign That May Predict Next Crisis, BIS Says
June 3, 2012--Regulators may be overlooking a signal that could give them an opportunity to identify a new financial crisis, according to the Bank for International Settlements.
By focusing only on the gap between the size of an economy and the amount of bank credit within it, policy makers are ignoring contributions that foreign and non-bank lenders make to credit booms that typically precede systemic banking crises, according to Mathias Drehmann, a senior economist at the Basel-based institution. That role can be “significant,” as shown by a new BIS database that shows domestic banks currently supply only 30 percent of credit in the U.S. economy.
iShares files with the SEC-iSharesBond 2023 Corporate Term ETF
June 3, 2013--iShares has filed a post-effective amendment, registration statement with the SEC for the iSharesBond 2023 Corporate Term ETF.
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iShares files with the SEC-iSharesBond 2020 Corporate Term ETF
June 3, 2013--iShares has filed a post-effective amendment, registration statement with the SEC for the iSharesBond 2020 Corporate Term ETF.
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iShares files with the SEC-iSharesBond 2018 Corporate Term ETF
June 3, 2013--iShares has filed a post-effective amendment, registration statement with the SEC for the iSharesBond 2018 Corporate Term ETF.
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iShares files with the SEC
June 3, 2013--iShares has filed a post-effective amendment, registration statement with the SEC for the iSharesBond 2016 Corporate Term ETF.
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May 2013 Trading Volume in VIX Futures Post Gains Over Year Ago
Average Daily Volume Up 61% From 2012
Total Volume Tops Three Million Contracts for Fourth Consecutive Month
June 3, 2013--The CBOE Futures Exchange, LLC (CFE(R)) announced today that total trading volume and average daily volume (ADV) for futures on the CBOE Volatility Index(R) (VIX(R)) during May 2013 posted gains over year ago levels.
VIX Futures
May 2013 was the third most active trading month all-time for VIX futures at CFE, trailing only April 2013 (4,056,760 contracts) and March 2013 (3,220,977 contracts). During May, a total of 3,212,399 VIX futures contracts traded. This was an increase of 61 percent versus the 1,999,974 contracts traded in May 2012 and a decrease of 21 percent when compared to the all-time high of 4,056,760 contracts traded in April 2013. May was the fourth consecutive month, and the fourth time in CFE history, in which total monthly volume in VIX futures surpassed three million contracts traded.
Ranger Alternative Management files with the SEC
June 3, 2013--Ranger Alternative Management has filed a amended application for exemptive relief with the SEC.
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Morgan Stanley-US ETF Weekly Update
June 3, 2013--US ETF Weekly Update
Weekly Flows: $2.0 Billion Net Outflows
ETF Assets Stand at $1.5 Trillion, up 10% YTD
Two ETF Launches Last Week
First Trust Changes Name, Ticker, and Objective on Large-Cap ETF
Deutsche Bank Changes Currency Hedged ETF
Vanguard Transitions International Developed Market Index
US-Listed ETFs: Estimated Flows by Market Segment
ETFs posted net outflows of $2.0 bln last week, the second consecutive week of net outflows
Last week’s net outflows were only the fifth week of net outflows YTD and were driven by International -Emerging Equity and Fixed Income ETFs; they posted a combined $4.1 bln in net outflows
Despite ETF net outflows last week, 11 out of the 15 categories that we measured generated net inflows
ETF assets stand at $1.5 tln, up 10% YTD; $80.6 bln net inflows YTD
13-week flows were mostly positive among asset classes; combined $43.0 bln in net inflows
Despite exhibiting net outflows for the third consecutive week, Fixed Income ETFs have generated $12.1 bln in net inflows over the last 13 weeks, the most of any measured category; net inflows have been primarily attributed to short duration products
Commodity ETFs continue to bleed money and over the last 13 weeks have exhibited net outflows of $14.2 bln; specifically, the two largest gold ETFs have posted net outflows of a combined $12.6 bln, potentially contributing to the price decline of the metal
US-Listed ETFs: Estimated Largest Flows by Individual ETF
For the second straight week, the iShares Russell 2000 Index Fund (IWM) posted the most net inflows
The iShares MSCI Emerging Markets Index Fund (EEM) and the Vanguard FTSE Emerging Markets ETF (VWO) posted a combined $10.1 bln in net outflows over the last 13 weeks, including $2.6 bln in net outflows last week; emerging market returns have struggled YTD; however, Morgan Stanley Wealth Management’s strategists believe emerging markets look cheap and may be a way to play a 2H13 global recovery
Interestingly, some of the more cyclical sectors (financials, consumer discretionary, industrials, energy) generated net inflows last week amid a broad market pullback
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 5/31/13 based on daily change in share counts and daily NAVs.
$6.9 bln in total market cap of ETFs less than 1-year old
Newly launched International – Emerging Equity ETFs accounted for 25% of the market cap of ETFs launched over the past
year, the most of any category
Issuance has been light in 2013 relative to the past three years; 48 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
Seven different ETF sponsors and two asset classes represented in top 10 most successful launches
Seven out of the 10 most successful launches over the past year have an income orientation
The iShares Core MSCI Emerging Markets ETF (IEMG) has generated net inflows of $873 mln over the last 13 weeks; notably, two of the older, larger, and broad emerging markets ETFs (EEM, VWO) have posted a combined $10.1 bln in net outflows over the same time period
DB-Synthetic Equity & Index Strategy-US ETF Model Portfolios-Diversified Momentum Portfolio Update
June 3, 2013--Diversified Momentum- Update as of May 31st, 2013
Rotation out of defensives and rates sell off weighed on DMP performance in May.
Market Performance
The US equity market (SPY) continued the rally in May. However, the broad US Fixed Income market (BND), and the Commodity market (DBC) retreated by 2.11% and 1.56% during the same period, respectively.
Model Portfolio Performance
Our Diversified Momentum Portfolio (DMP) fell by 1.23% in May. In the meantime, the equity market and our multi asset class benchmark were both up recording gains of 2.36% and 0.23%, respectively.
Portfolio Updates and New Membership
14 of the 20 DMP positions will change for June. In terms of portfolio weights, the asset class weights will suffer the following changes: Commodities will be the new top allocation with 40% (vs. 20%), followed by Currencies with 30% (vs. 40%), Global Sector with 20% (vs. 30%), and Treasuries with 10% (vs. 10%).
