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Morgan Stanley-US ETF Weekly Update
April 8, 2013--US ETF Weekly Update
Weekly Flows: $505 Million Net Inflows
ETF Assets Stand at $1.4 Trillion, up 7% YTD
Three ETF Launches
BNP Paribas Commodity ETF to Delist
US-Listed ETFs: Estimated Flows by Market Segment
ETFs posted net inflows of $505 mln last week, the sixth consecutive week of net inflows
Over the past six weeks, ETFs have generated net inflows of $19.5 bln
Last week’s net inflows were led by US Large-Cap ETFs ($2.4 bln); conversely, International - Emerging Equity ETFs exhibited
net outflows of $1.4 bln, the most of any category we measured
ETF assets stand at $1.4 tln, up 7% YTD; $54.4 bln net inflows YTD
13-week flows were mostly positive among asset classes; combined $38.6 bln in net inflows
International-Developed Equity ETFs have posted material net inflows over the last 13 weeks ($12.1 bln), 26% more net inflows
than the next highest category
Over the past 13 weeks three categories that we measured exhibited net outflows of greater than $3.5 bln (Commodity, US Large-
Cap, and International – Emerging) and combined for net outflows of $14.9 bln
US-Listed ETFs: Estimated Largest Flows by Individual ETF
SPDR S&P 500 ETF (SPY) generated net inflows of $1.2 bln last week, the most of any ETF
Interestingly, the shorter dated iShares Barclays 1-3 Year Treasury Bond Fund (SHY) and the iShares Barclays 7-10 Year Treasury
Bond Fund (IEF) had net inflows totaling $610 mln last week while the longer-dated iShares Barclays 20+ Year Treasury Bond
Fund (TLT) posted meaningful net outflows of $374 mln
Notably, the Vanguard FTSE Emerging Markets ETF (VWO) exhibited $929 mln in net outflows last week, the most of any ETF;
VWO has posted net outflows four out of the past five weeks totaling $2.0 bln
Over the last 13 weeks the WisdomTree Japan Hedged Equity Fund (DXJ) has generated net inflows of $3.9 bln, $1.6 bln more in
net inflows than the next best fund
US-Listed ETFs: Short Interest Data Unchanged: Based on data as of 3/15/13
iShares MSCI Emerging Markets Index Fund (EEM) had the largest increases in USD short interest at $731 mln
EEM’s shares short have increased for three consecutive periods and are at their highest level since 10/14/11
EEM is up more than 11% on a total return basis since 10/14/11
Aggregate ETF USD short interest increased by $1.9 bln over the period ended 3/15/13 and has now increased $13.3 bln over the
last four periods
The average shares short/shares outstanding for ETFs is currently 4.4%
The SPDR Retail ETF (XRT) regained the top spot as shares short as a % of shares outstanding currently is 234%
Retail, currency, and financial ETFs seem to consistently make the list as the most heavily shorted ETFs
Based on multiple borrowings and the ability to continuously create new shares, shares short as a % of shares outstanding can
exceed 100% (only four 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 Smith Barney Research. Data estimated as of 4/5/13 based on daily change in share counts and daily NAVs.
$5.6 bln in total market cap of ETFs less than 1-year old
Newly launched Fixed Income ETFs accounted for 23% of the market cap of ETFs launched over the past year, the most of any
category, including $707 mln in net inflows over the last 13 weeks
22 new ETF listings and 26 closures YTD
The top 10 most successful launches make up 60% 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
Despite not breaching the top 10 most successful launches over the past year, the Market Vectors Emerging Markets High Yield
Bond ETF (HYEM) generated net inflows of $54 mln last week, the most of any recently launched ETF
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Source: Morgan Stanley
The Dividend Collar: A High-Yield and Low-Risk Strategy
April 5, 2013--Is it possible with well-selected and timed options positions, to combine high-yield and low-risk? Yes, but it takes work to locate the right proximity and value.
The dividend collar is so-called because timing involves ex-dividend date. The idea is to move into a long stock position right before ex-dividend date, protect that position with options, and then exercise out right after.
The collar consists of 100 shares long, a long put, and a short call. The ideal proximity is that both strikes are slightly higher than current value, but it is difficult to get the price offset with that ideal. You are more likely to open a dividend collar with both options slightly in or slightly out of the money. Strangely enough, it doesn’t matter which you choose. The main requirement is that the net cost of the long put is offset by the premium from the short call. A second requirement is that upon exercise of either option (the short call by the buyer, and the long put by you), it ends up at zero loss or even a small profit.
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Source: Michael C. Thomsett Contributo CBOE
CFTC's Division of Market Oversight and Division of Clearing and Risk Issue Joint No-Action Relief for Swaps Between Affiliated Counterparties from Certain Swap Reporting Requirements
April 5, 2013--The Commodity Futures Trading Commission's ("Commission") Division of Market Oversight and Division of Clearing and Risk ("Divisions") today issued no-action relief for swaps entered into between affiliates of certain wholly-owned and majority-owned market participants
from the requirement to report their intra-group swaps to a registered swap data repository (“SDR”), under parts 45, 46, and regulation 50.50(b) of the Commission’s regulations, subject to several conditions.
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Source: CFTC.gov
CFTC’s Division of Market Oversight Issues No-Action Relief for End-Users from Certain Reporting and Recordkeeping Requirements of the Trade Option Exemption
April 5, 2013--The Commodity Futures Trading Commission's (CFTC) Division of Market Oversight (DMO) issued a no-action letter stating that DMO will not recommend that the CFTC commence an enforcement action against an entity that is neither a swap dealer (SD) nor a major swap participant (MSP) (collectively, non-SD/MSP), including all end-users,
for failing to report under Part 45 of the CFTC’s regulations, as applicable, commodity options otherwise qualifying for the Part 32 trade option exemption, provided that the non-SD/MSP (1) reports such transactions pursuant to Form TO and (2) notifies DMO if it transacts in excess of $1 billion notional value of trade options in any calendar year.
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Source: CFTC.gov
CBO Monthly Budget Review
April 5, 2013--The federal government ran a budget deficit of $601 billion in the first half of fiscal year 2013, CBO estimates, $178 billion less than the shortfall recorded for the same period last year.
Total Receipts Were Up by 12 Percent in the First Half of Fiscal Year 2013
Receipts in the first half of fiscal year 2013 totaled $1.2 trillion, $132 billion more than those in the same period last year. Compared with receipts in the first half of last year: Individual income and payroll (social insurance) taxes together rose by $107 billion (or 12 percent)—accounting for most of the gains so far this year.
view the CBO Monthly Budget Review
Source: Congressional Budget Office
Final rule establishing requirements for determining when a company is "predominantly engaged in financial activities"
April 3, 2013--The Federal Reserve Board on Wednesday announced approval of a final rule that establishes the requirements for determining when a company is "predominantly engaged in financial activities."
The requirements will be used by the Financial Stability Oversight Council (FSOC) when it considers the potential designation of a nonbank financial company for consolidated supervision by the Federal Reserve.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, a nonbank financial company can be designated by the FSOC for supervision by the Federal Reserve only if it is "predominantly engaged in financial activities." A company is considered to be predominantly engaged in financial activities if 85 percent or more of the company's revenues or assets are related to activities that are defined as financial in nature under the Bank Holding Company Act. Additionally, the FSOC may issue recommendations for primary financial regulatory agencies to apply new or heightened standards to a financial activity or practice conducted by companies that are predominantly engaged in financial activities.
The final rule largely adopts the approach in the proposed rule, with a few exceptions. For example, the final rule states that engaging in physically settled derivatives transactions generally will not be considered a financial activity, a change from the proposal.
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Source: FBR
Morgan Stanley ETF Fund Flows-Preliminary 1Q 2013 ETF Net Cash Flows
April 3, 2013--We estimate that net cash inflows into US-listed ETFs were
$54.5 billion during the first quarter of 2013. This report contains our estimates and analysis of 1Q 2013 ETF flows for the US market. Once official data are released, we will publish our more comprehensive flow analysis.
The $54.5 billion during 1Q 2013 is the highest ETF cash flows
recorded in the first quarter. Additionally, this is the third
consecutive quarter of net cash inflows of more than $50 billion.
US-listed ETF assets are now over $1.4 trillion, which is roughly 8%
higher than from the end of 2012.
The largest net cash inflows went into ETFs tracking International Developed Markets and US Sector & Industry equity indices. These segments had net cash inflows of $13.9 billion and $11.2 billion in 1Q 2013, respectively. Commodity ETFs was the only segment to post net outflows ($6.7 billion) this past quarter, most of which is attributable to $6.6 billion in net outflows from the largest gold ETF, the SPDR Gold Trust (GLD).
Vanguard’s net cash inflows of $20.1 billion in 1Q 2013 were the largest of any provider. BlackRock, State Street and Vanguard account for nearly 80% of ETF assets.
There were 19 ETFs launched and 26 liquidated in the US during 1Q 2013. Of the 19 ETFs issued, 10 provide passive exposure to US equity markets while five are actively managed ETFs. There are 37 issuers with 1,232 ETFs.
Roughly $6 billion in total ETF market cap is from ETFs issued over the past year. The most successful recent launches (by total assets) have focused on low cost, broad equity exposure and seven out of the 10 most successful launches have an income orientation.
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Source: Morgan Stanley
ISE Reports Business Activity for March 2013
April 2, 2013--ISE was the second largest equity options exchange in March with a market share of 17.5%,
excluding dividend trades.
Dividend trades made up 4.7% of industry volume in March 2013.
The International Securities Exchange (ISE) today reported an average daily volume of 2.4 million contracts in March 2013.
This represents a decrease of 11.7% compared to March 2012. Total options volume for the month was 47.3 million contracts. ISE was the second largest U.S. equity options exchange in March with a market share of 17.5%*.
Business highlights for the month of March include:
On March 1, ISE appointed Rob Cornish Chief Technology Officer of ISE.
On March 5, ISE announced that the U.S. Securities and Exchange Commission (SEC) published for comment a Form 1 application for ISE’s second options exchange.
On March 14, ISE issued a statement on the patent infringement case against the Chicago Board Options Exchange (CBOE).
On March 18, ISE signed a licensing agreement with KSM, the largest Israeli ETF Issuer. The KSM ETF will track the ISE Water Index.
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Source: International Securities Exchange (ISE)
Record ETF Inflows Help Fuel Stock Rally
April 2, 2013--More and more people are warming back up to stocks.
The latest data point confirming that trend comes from BlackRock, which reported Tuesday morning that the first quarter witnessed record inflows to exchange traded funds, with U.S. stock funds attracting a majority of that cash.
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Source: Wall Street Journal
Dow, S&P push to new record highs
April 2, 2013--US stocks pushed to new record highs Tuesday, bolstered by solid US manufacturing orders and strong results from US automakers.
The Dow Jones Industrial Average closed at an all-time record high of 14,662.01, up 89.16 (0.61 percent).
The broad-based S&P 500 also reached a new record, gaining 8.08 (0.52 percent) at 1,570.25.
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Source: AFP.
