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White paper release: 2012 Study of Indexing in DC Plans
March 6, 2012--Summary
Despite the popularity of index funds and their accompanying perception of being low cost, small plans are paying quite a premium for this investment type. This study supports the use of index investments in defined contribution plans, but finds that nearly 88% of such plans in the United States are overpaying by using Mutual Funds instead of Exchange Traded Funds (ETFs).
Given the substantial number of plans which fall into this category (88% of plans have less than $200 million in assets), the increasing popularity of index investing and new fiduciary regulations that require companies to ensure the reasonableness of investment expenses; the practical decision to replace index mutual funds with ETFs will likely serve as the “breakout” point for ETFs in retirement plans.
This study will show that for plans with less than $200 million in assets, ETFs should be used for index investing rather than mutual funds.
view white paper-2012-Study of Indexing in DC plans
Source: Invest n Retire
Launches of ETPs hit record in US
March 6, 2012--A record number of exchange-traded products (ETPs) were launched in the US in January and February, as the battle among asset management companies for market share in the fast-growing sector intensifies.
A total of 71 different ETPs, which track the performance of a basket of underlying assets, were launched in the first two months of 2012, compared to 302 in the whole of 2011, according to ETF Global Insight, a data provider. That took the number of US ETPs to 1,432 at the end of February, up from around 700 five years ago.
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Source: FT.com
ETFs After Pimco Total Return
March 5, 2012--Like bills introduced in congressional subcommittees, exchange-traded fund filings can often be more position papers than action items. Witness the several hundred prospective ETFs and handful of issuers just sitting in registration.
But last week, amid the Pimco Total Return ETF hype, New York-based asset manager Van Eck Global took a noteworthy position, espoused by only one other ETF issuer.
In a filing under the Investment Company Act of 1940, Van Eck proposed launching ETF share classes of existing and future mutual funds. The filing also requests the ability to convert traditional mutual fund shares to exchange-traded shares.
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Source: Forbes
How Do Exchange Rate Regimes Affect Firms' Incentives to Hedge Currency Risk? Micro Evidence for Latin America-IMF Working paper
March 5, 2012--Summary: Using a unique dataset with information on the currency composition of firms' assets and liabilities in six Latin-American countries, I investigate how the choice of exchange rate regime affects firms' foreign currency borrowing decisions and the associated currency mismatches in their balance sheets.
I find that after countries switch from pegged to floating exchange rate regimes, firms reduce their levels of foreign currency exposures, in two ways. First, they reduce the share of debt contracted in foreign currency. Second, firms match more systematically their foreign currency liabilities with assets denominated in foreign currency and export revenues--effectively reducing their vulnerability to exchange rate shocks. More broadly, the study provides novel evidence on the impact of exchange rate regimes on the level of un-hedged foreign currency debt in the corporate sector and thus on aggregate financial stability.
SEC's Gallagher sounds alarm on Volcker rule
March 5, 2012--A securities regulator said policymakers may need to overhaul the Volcker rule proposal that curbs banks' proprietary trading, saying a hasty approach could cause market disruptions and harm U.S. competitiveness.
Dan Gallagher, a Republican commissioner at the U.S. Securities and Exchange Commission, said on Monday that a quick review of the thousands of comment letters revealed widespread fears about the rule's potential impact.
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Source: Reuters
Sommers Is 'Deeply Concerned' Over Lack of CFTC, SEC Coordination on Swaps
March 5, 2012--The inability of U.S. regulators to agree on guidelines for the international reach of the Dodd- Frank Act may disrupt the $708 trillion global swaps market, said Jill E. Sommers, a Republican member of the Commodity Futures Trading Commission.
“I’m deeply concerned that there has not been adequate coordination” with the U.S. Securities and Exchange Commission and non-U.S. regulators, she said today in a speech at an Institute of International Bankers conference in Washington. “Of even greater concern to me is that the commission appears to be considering a piecemeal approach,” she said of the CFTC.
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Source: Bloomberg
2012 ISDA U.S. Municipal Reference Entity Protocol
March 5, 2012--The 2012 ISDA U.S. Municipal Reference Entity Supplement to the 2003 ISDA Credit Derivatives Definitions (the "2012 Muni Supplement") brings the terms of U.S Municipal CDS ("Muni CDS") contracts in line with the terms applicable to standard corporate and sovereign CDS contracts.
The key changes to current Muni CDS terms are the use of auction settlement following a credit event and reliance on the ISDA Credit Derivatives Determinations Committee for the Americas (the "DC") to make binding determinations for issues such as whether a Credit Event has occurred; whether an auction will be held; and whether a particular obligation is deliverable.
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Source: ISDA
ETF Industry Association Releases February 2012 ETF Data Reports
March 5, 2012--Highlights from the February 2012 ETF Data report include:
Assets in US listed Exchange Traded Funds (ETF) and Exchange Traded Notes (ETN) totaled approximately $1.2 trillion at February 2012 month-end, an increase of almost 14% over February 2011 month-end, when assets totaled $1.06 trillion.
ETFs/ETNs net cash inflows reached approximately $13.9 billion for the month of February 2012, with year-to-date net cash inflows reaching $42.7 billion, a record for the first 2 months of a calendar year.
At February 2012 month-end, there were 1,440 U.S. listed products, an increase of 27% compared to 1135 U.S. listed products at the same time last year.
Visit www.etf-ia.com for more info.
Source: ETF Industry Association
Available to trade: row over scope of Dodd-Frank execution rules
March 5, 2012--There are 359,959 words in the Dodd-Frank Act. Six of those words are given over to the phrase "available to trade", repeated twice. On that basis, it might look like the phrase is no big deal. In fact, it looks set to play a pivotal role in determining how cleared over-the-counter derivatives are executed
– and the past two months have seen a heated debate between dealers, clients and trading venues, after the US Commodity Futures Trading Commission (CFTC) issued proposals that tried to clarify exactly what it means.
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Source: Risk.net
Morgan Stanley-US ETF Weekly Update
March 5, 2012-Highlights
Weekly Flows: $1.0 Billion Net Inflows
ETF Assets Stand at $1.2 Trillion, up 13% YTD
Three ETF Launches Last Week
PowerShares Makes Name, Ticker & Index Changes
Van Eck Lowers Expense Ratio on Hard Assets ETF
Vanguard Lowers Expense Ratios on Six ETFs
ProShares Announces Reverse Share Split on VIX ETF
US-Listed ETFs: Estimated Flows by Market Segment
ETFs generated net inflows for the second consecutive week ($1.0 bln last week)
Net inflows were led by Commodity ETFs last week ($1.3 bln in net inflows), while US Small- & Micro-Cap ETFs exhibited net
outflows of $2.4 bln
ETF assets stand at $1.2 tln, up 13% YTD; ETFs have posted only one week of net outflows YTD
13-week flows were mostly positive among asset classes; combined $49.5 bln net inflows
Fixed Income ETFs have consistently generated weekly net inflows (29 straight weeks of net inflows)
Currency, Leveraged/Inverse, and Global Equity ETFs are the categories over the past 13 weeks to exhibit net outflows
US-Listed ETFs: Estimated Largest Flows by Individual ETF
SPDR S&P 500 ETF (SPY) posted net inflows of $527 mln last week, the most of any ETF
High yield bond ETFs continued to generate strong net inflows; iShares iBoxx $ High Yield Corporate Bond Fund (HYG) and SPDR Barclays Capital High Yield Bond ETF (JNK) posted a combined $475 mln in net inflows last week
The iShares Russell 2000 Index Fund (IWM) exhibited meaningful net outflows of $2.2 bln last week; over the past 52 weeks IWM’s flows have been extremely volatile with nearly half of the weeks posting net outflows
US-Listed ETFs: Short Interest
Data Updated: Based on data as of 2/15/12
SPY exhibited the largest increase in USD short interest since last updated
Despite SPY’s increase in shares short, it is well below its all-time high reached on 9/15/11
GLD posted the largest drop in USD short interest since last updated;
lowest level of shares short since 9/30/09
Financials-focused ETFs make up 4 of the 10 most heavily shorted ETFs (shares short/shares outstanding)
Only six ETFs have short interest at a % of market cap greater than 100%; compares to eight during the last period we measured
The average shares short/shares outstanding for ETFs is currently 4%
Based on multiple borrowings and the ability to continuously create new shares, short interest as a % of market cap can exceed 100%
US-Listed ETFs: Most Successful Recent Launches by Assets
Source: Bloomberg, Morgan Stanley Smith Barney Research. Data estimated as of 3/2/12 based on daily change in share counts and daily NAVs.
$8.1 billion in total market cap of ETFs less than 1-year old
Over the past 13 weeks, newly launched US Dividend Income ETFs generated most net inflows at $746 mln
64 new ETF listings and 8 closures YTD; at this point last year, only 35 ETFs had come to market
Over past year, many of the successful launches have a dividend/income orientation
6 different ETF sponsors and 2 asset classes represented in top 10 most successful launches
For the second consecutive week, the ProShares Ultra VIX Short-Term Futures ETF (UVXY) posted the most net inflows of any recently launched ETF; in our view, the primary reason for UVXY’s surge is related to a competing product no longer accepting creation units (UVXY has a market cap of $108 mln)
Top 10 most successful launches account for 59% of market cap of ETFs launched over the past year
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Source: Morgan Stanley
