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CFTC Commitments of Traders Reports Update
August 13, 2010-The CFTC.gov Commitments of Traders Reports for the week of August 10, 2010 are now available.
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Source: CFTC.gov
ETF circuit breakers needed after US flash crash
August 12, 2010-Exchange traded funds should have “circuit breakers” consistent with those being proposed for individual equities to prevent a repeat of the “flash crash” of May 6 when the US stock market briefly dropped more than 8 per cent, according to industry participants at a meeting of US regulators on Wednesday.
Numerous ETFs were caught up in the still unexplained plunge in the US stock market on May 6 which also saw the share prices of some companies temporarily drop to one penny, erasing billions of dollars from their market value.
The joint advisory committee meeting of the Commodity Futures Trading Commission and the Securities and Exchange Commission on Wednesday, showed regulators are still struggling to understand fully why ETFs were disproportionately affected in the flash crash.
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Source: FT.com
Morningstar Reports U.S. Mutual Fund and ETF Asset Flows Through July 2010
August 11, 2010--—Morningstar, Inc., a leading provider of independent investment research, today reported estimated U.S. mutual fund and exchange-traded fund asset flows through July 2010. Overall flows into U.S. open-end mutual funds increased slightly in July to $14.1 billion. Almost universally, outflows increased for equity and balanced funds, and inflows rose for bond, alternative, and commodity funds.
U.S. ETFs registered total net inflows of $6.8 billion in July, marking the sixth consecutive month of positive asset flows. Total ETF assets are up 6% since the start of the year and 29% over the trailing 12 months.
Additional highlights from Morningstar’s report on mutual fund flows:
Bond funds had another strong month of inflows, with investors adding $22.3 billion to taxable-bond funds and $3.9 billion to municipal-bond funds, approximately double the inflows municipal-bond funds saw in June.
Nearly $12.4 billion exited domestic-equity funds in July, but international-stock funds saw less severe outflows of $565 million. Flows into emerging-markets equity funds offset redemptions from broader foreign-stock funds. Emerging-markets equity funds had roughly $161.4 billion in total assets as of the end of July, up nearly 41% over the trailing 12 months.
Emerging-markets bond fund assets more than doubled to $30.8 billion over the last year after taking in more than $1.2 billion in July. A significant portion of these flows were allocated to local-currency emerging-markets bond funds, led by PIMCO Emerging Local Bond Fund with inflows of nearly $3.6 billion over the trailing 12 months.
PIMCO and Vanguard led all fund families in terms of total inflows in July, taking in $5.9 billion and $4.9 billion, respectively. American Funds continued to see significant outflows with another $4.6 billion in redemptions in July.
Additional highlights from Morningstar’s report on ETF flows:
Inflows into emerging-markets ETFs helped make international-stock funds, which saw inflows of $4.6 billion, the most popular ETF asset class in July. Vanguard Emerging Markets Stock VWO was the top asset gatherer within the international-stock asset class as well as the overall U.S. ETF universe, with $2.3 billion in net inflows in July. Investors also expressed a renewed interest in single-country ETFs to gain precise international exposure while avoiding struggling Eastern European countries.
Commodity ETFs saw net outflows in July for the first month since February. Although iShares COMEX Gold Trust IAU gathered assets of $209 million during the month, the asset class saw redemptions of $1.8 billion, led by SPDR Gold Shares GLD with $1.4 billion in outflows.
Fixed-income ETFs remained popular in July, but investors favored the short end of the yield curve to the longer end. ETFs in the long government and long-term bond Morningstar categories saw combined total net inflows of $1.1 billion, while short government and short-term bond ETFs experienced outflows of $446 million.
U.S. stock ETFs saw outflows of $91 million in July, as inflows into small-cap funds were not enough to offset outflows from large-cap funds. Investors added $2.3 billion to the iShares Russell 2000 Index IWM, bolstering ETFs in the small-blend category, whereas redemptions from SPDR SandP 500 SPY drove outflows from large-cap U.S. stock ETFs.
For more information about Morningstar Fund Flows, please visit http://global.morningstar.com/fundflows.
Source: Morningstar
“False Profits” Statement before the Third Meeting of the CFTC-SEC Joint Advisory Committee on Emerging Regulatory Issues
Commissioner Bart Chilton
August 11, 2010--All too often some look for an easy explanation of what took place in a disastrous circumstance. Ever since 1997 when Sebastian Junger’s Perfect Storm was released, that phrase has been used to explain calamitous circumstances. Hurricane Katrina’s impact on New Orleans was a perfect storm, and some suggest that the May 6th flash crash was a perfect storm. I don’t rule out that there were anomalous market circumstances that may have led to the flash crash. There could be a collection of culprits. We understand that there was great uncertainty about European financial conditions. There was a “flight to quality.” Investors were moving money to gold and government bonds, for example. But, as I have said, computer trading added to the volatility and that without this technology, the number of trades simply would not have occurred. The downward spiral of nearly 1,000 points would not have taken place, nor would the rapid rebound to a loss of 348 points have occurred.
There may in fact be an over-reliance on computer systems and high-frequency trading. Nevertheless, we should not accept that those were merely part of a collection of culprits and let it go at that. This matter is too important. We certainly need to continue to look deeper. Today is another effort in that regard.
One area that deserves additional attention is the matter of price feeds or price quotes. These feeds come in two forms: there is the general feed—the consolidated feed—that is offered to anyone. This feed is made available, for example, to myriad portals through which a trader might want to trade with an exchange, such as the New York Stock Exchange (NYSE). There are also premium feeds available directly from the exchanges. On May 6, during the 20 or so minutes in question, it appears that the consolidated feed that many portals were using was delayed from the real time quotes. At times, this delay amounted to more than 20 seconds. While 20 seconds may not seem like a lot to many folks, when markets are volatile, 20 seconds is a significant amount of time.
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Source: CFTC.gov
EGShares Launches Industrys First India Infrastructure Exchange-Traded Fund
August 11, 2010--EGShares, the first dedicated emerging markets sector ETF provider, today launched the EGShares India Infrastructure ETF (NYSE: INXX), the first ETF that offers investors exclusive access to Indian companies positioned to benefit from infrastructure development in India. The Emerging Global Shares Indxx India Infrastructure Index Fund invests in 30 of the largest locally traded Indian companies dedicated to the infrastructure industry.
“We are very excited about launching the world’s first India Infrastructure ETF,” said Robert Holderith, President and CEO of EGShares. “In our estimation, until today, India exposure through ETFs has been very limited and the offerings have been very similar. INXX can provide meaningfully different underlying holdings and industries from the handful of other India ETFs.”
The Indxx India Infrastructure Index is a 30 stock index with a mean free float market capitalization of $11.19 billion. INXX charges a net expense ratio of 0.85% (gross expense ratio: 1.58%). The top five industry weights of the Index, as of 6/30/10, were Electricity (23.26%), Construction & Materials (16.86%), Industrial Metals & Mining (13.71%), Industrial Engineering (12.03%), and Mobile Telecom (10.09%), followed by Industrial Transportation, Oil & Gas Producers, Real Estate Investment & Services, Electronic & Electrical Equipment, and Alternative Energy.
According to Richard Kang, CIO and Director of Research at EGShares, “investors are searching for returns at this time of great economic uncertainty. We believe that in developed markets, not only are return expectations low, but yields on bonds and dividends are low and correlations between various return sources remain high. We remain convinced that the fundamental factors underlying the global shift in favor of this new world are related to demographics and urbanization. We believe the demand for natural resources, specifically for infrastructure development in the emerging markets, is a strong case for the prolonged trend of rising commodity prices. Furthermore, there are many additional industries that, when combined, form the infrastructure theme. We see this play to be strongest in the emerging markets and like our recent product offerings related to China and Brazil, we believe that a similar story is being played out in India.”
The EGShares India Infrastructure ETF is the eighth ETF to be introduced by EGShares. Other ETFs include the EGShares India Small Cap ETF (SCIN), EGShares Brazil Infrastructure ETF (BRXX), EGShares China Infrastructure ETF (CHXX), EGShares Emerging Markets Metals/Mining ETF (EMT), EGShares Emerging Markets Energy ETF (EEO), EGShares Emerging Markets Financials ETF (EFN) and the EGShares Emerging Markets Composite ETF (EEG).
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Source: EGShares
Component Changes Made to Dow Jones U.K. Select Dividend 20 Index
August 11, 2010-- Dow Jones Indexes, a leading global index provider, today announced component changes in the Dow Jones U.K. Select Dividend 20 Index.
Tomkins PLC (United Kingdom, Industrial Goods & Services, TOMK.LN) will be deleted from the Dow Jones U.K. Select Dividend 20 Index and replaced by HMV Group PLC (United Kingdom, Retail, HMV.LN). Tomkins PLC is being removed due to the cancellation of its dividend payment. The changes in the Dow Jones U.K. Select Dividend 20 Index will be effective as of the open of trading on Monday, August 16, 2010
The Dow Jones U.K. Select Dividend 20 Index represents the country's top 20 stocks by dividend yield. Further information on the Dow Jones U.K. Select Dividend 20 Index can be found at http://www.djindexes.com.
Company additions to and deletions from the Dow Jones U.K. Select Dividend 20 Index do not in any way reflect an opinion on the investment merits of the company.
Source: Dow Jones Indexes
Fitch Reports-Credit Derivatives and Margin: Under the Radar?
August 11, 2010--Summary
The dramatic growth in the credit derivatives market over the past decade is, in part, a reflection of their utility to market participants in managing credit exposure. However, these instruments are also frequently cited as having amplified the global financial crisis. Criticism of credit default swaps (CDS) often focuses on the opacity of CDS markets, counterparty risk, and issues related to clearing and settlement.
In addition to these concerns, it is also important to consider the significant investment leverage obtainable through CDS. CDS leverage, which is driven to a large extent by the amount of margin required to collateralize these exposures, has several implications for financial markets more broadly.
The relatively low down payment (i.e. the initial margin rate) needed for investing in CDS, coupled with their generally high liquidity, enables investors to more readily express a credit view and build larger risk positions than in the cash bond market.
The high leverage of CDS and trading orientation of some market participants (e.g. hedge funds), combined with the impact of margining and re-margining, have the potential to distort pricing, which could result in disconnects between CDS spreads and credit fundamentals.
Since market participants often use CDS prices as a gauge of credit risk, dislocations in pricing can hamper funding access, particularly for issuers under stress.
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Source: Fitch Ratings
Emerging Global Advisors Lists EGShares INDXX India Infrastructure Index Fund on NYSE Arca
August 11, 2010-- NYSE Euronext (NYX) announced that its wholly-owned subsidiary, NYSE Arca, today began trading the EGShares INDXX India Infrastructure Index Fund (Ticker: INXX). The ETF is sponsored by Emerging Global Advisors.
The EGShares INDXX India Infrastructure Index Fund seeks investment results that generally correspond, before fees and expenses, to the price and yield performance of the INDXX India Infrastructure Index.
Source: NYSE Euronext
Wisdom Tree files with the SEC
August 11, 2010--Wisdom Tree has filed an amended and restarted application for exemptive relief with the SEC.
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Source: SEC.gov
US trade gap swells to 21-month high
August 11, 2010--The sharp rise in the US trade gap in June was evidence that while demand in the US economy has so far held up reasonably well, a disturbing amount of it is leaking abroad.
The rise in the monthly trade deficit to $49.9bn (€37bn, £31bn), higher than analysts’ expectations, reflected a surge in imports of consumer goods and cars. Imports of capital goods, used in industrial production, also rose, but raw materials and components fell.
In a preliminary estimate of second-quarter gross domestic product released on July 30, which showed the expansion in GDP slowing sharply, net exports subtracted an annualised 2.8 percentage points from economic growth.
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Source: FT.com