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Morgan Stanely-ETF Tracking Error: A Modest Rise Amid Expansion
March 13, 2013--Tracking error in this report is defined as the difference in total return between an ETF’s net asset value (NAV) and its underlying
index.
In our view, the most common sources of tracking error include fees and expenses, portfolio optimization, fair value pricing of net asset value (NAV), diversification requirements, ownership
restrictions, and index turnover.
Tracking error rose to 59 bps from 52 bps, on average, in 2012. While a slight setback from last year’s historically low read, the 2012 results were below the 64 bps average from 2002-2011. In fact, ETF tracking error has been cut in half since the 2009 high of 125 bps. Notably, the average expense ratio increased to 47 bps from 46 bps year-on-year while the range of tracking error declined to 539 bps from 695 bps (and is down from 1,709 bps in 2009).
On the negative side, the magnitude of tracking error increased in 2012 as the percentage of funds with tracking error below their respective expenses fell to 39% from 53% while the percentage of ETFs with tracking error <25 bps fell to 32% from 37% and the percentage of ETFs with tracking error >100 bps rose to 14% from 10%. Additionally, of the ETFs eligible for our 2011 and 2012 studies, 58.3% exhibited an increase in tracking error versus 39.1% showing a decline and just 2.6% with no change.
We attribute the slight uptick in average tracking error to myriad factors at play in 2012. 1) Increasing complexity of underlying markets; 2) new market entrants; 3) record net inflows; 4) strong performance and declining correlations impacting optimization techniques; 5) higher expenses and the effect of compounding amid higher asset prices. ETF tracking error remains in line with expectations. Despite the rise in the number and complexity of products, ETF providers have managed to lower tracking error over time. Process improvements, better optimization techniques, smarter indexing, scale, increased access to global capital markets, and a greater focus on tracking error by providers have contributed to the improved results, in our view.
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Source: Morgan Stanley
Barclays Launches the Barclays ETN+ Select MLP Exchange Traded Note
March 13, 2013--New Barclays ETN+ Select MLP ETN (ticker: ATMP) provides investors with exposure to a select group of partnerships and companies in the MLP space
March 13, 2013--Barclays Bank PLC announced today the launch of the Barclays ETN+ Select MLP Exchange Traded Note ("ETN") on the NYSE Arca stock exchange under the ticker symbol ATMP.
The ETN is designed to provide investors with exposure to a basket of midstream US master limited partnerships (“MLPs”), limited liability companies (“LLCs”) and corporations by tracking the volume weighted average price (“VWAP”) of the Atlantic Trust Select MLP Index (the “Index”). Additionally, the Index will also provide exposure to general partners of US MLPs in Canada.
“In response to the growing demand for yield, this MLP ETN offers the potential for income along with upside appreciation via a more focused exposure to a subset of general partners and limited partners in the MLP space, developed by the Atlantic Trust team,” said Ian Merrill, Head of Barclays ETNs, Americas. “We are pleased to have been able to extend our range of Barclays ETN+ ETNs through this partnership."
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Source: Market Watch
CBOE keeps exclusive rights to S&P, Dow Jones options through 2032
March 13, 2013--CBOE Holdings, Inc. (NASDAQ: CBOE) and S&P Dow Jones Indices announced today that they have finalized an amendment to their license agreement that extends Chicago Board Options Exchange's (CBOE) exclusive rights to list security options contracts based on certain indices calculated and published by S&P Dow Jones Indices through 2032,
and non-exclusive rights through 2033.
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Source: CBOE
S&P Dow Jones Indices Announces Changes To The S&P/TSX Canadian Indices-A Deletion From The S&P/TSX SmallCap Index
March 12, 2012--S&P Canadian Index Services will make the following changes in the S&P/TSX Canadian Indices:
The shareholders of The Brick Ltd. (TSX:BRK) have accepted the terms of a Plan of Arrangement whereby the company will be acquired by Leon's Furniture Limited (TSX:LNF).
Shareholders of The Brick will receive $CDN5.40 cash for every share held. The Brick will be removed from the S&P/TSX SmallCap Index effective after the close of Tuesday, March 19, 2013.
Source: S&P Canadian Index Services
S&P Dow Jones Indices Announces Changes To The S&P/TSX Canadian Indices-A Deletion From The S&P/TSX Global Mining And Base Metals Indices
March 12, 2013--S&P Canadian Index Services will make the following changes in the S&P/TSX Canadian Indices:
The shareholders of Talison Lithium Limited (TSX:TLH) have accepted the $CDN7.50 cash per share offer from Chengdu Tianqi Industry (Group) Co., Ltd.
Talison Lithium will be removed from the S&P/TSX Global Mining, Global Base Metals and Equal Weight Global Base Metals Indices effective after the close of Wednesday, March 13, 2013.
Source: S&P Canadian Index Services
Annual Changes to the NASDAQ Internet Index
March 12, 2012--The NASDAQ OMX Group, Inc. (Nasdaq:NDAQ) announced today the results of the annual evaluation of the NASDAQ Internet Index (Nasdaq:QNET), which will become effective with the market open on Monday, March 19,2012.
As a result of the evaluation, the following 13 securities will added to the Index: Angie's List, Inc. (Nasdaq:ANGI), HomeAway, Inc. (Nasdaq:AWAY), Carbonite, Inc. (Nasdaq:CARB), Cornerstone OnDemand, Inc. (Nasdaq:CSOD), Groupon, Inc. (Nasdaq:GRPN), Move, Inc. (Nasdaq:MOVE), Qihoo 360 Technology Co. Ltd. (NYSE:QIHU), Stamps.com Inc. (Nasdaq:STMP), Velti plc (Nasdaq:VELT), 21Vianet Group, Inc. (Nasdaq:VNET), Boingo Wireless, Inc. (Nasdaq:WIFI), Yandex N.V. (Nasdaq:YNDX), and Zillow, Inc. (Nasdaq:Z)
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Source: NASDAQ OMX
Barclays Launches AMTP MLP Exchange-Traded Note
March 12, 2013--Barclays today announced the launch of the Barclays ETN+ Select MLP Exchange Traded Note on the NYSE Arca stock exchange under the ticker symbol ATMP.
Barclays says the ETN is designed to provide investors with exposure to a basket of midstream US master limited partnerships, limited liability companies and corporations by tracking the volume weighted average price of the Atlantic Trust Select MLP Index. The index also provides exposure to general partners of US MLPs in Canada.
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Source: Barron's
The neuroscience of risk
March 12, 2013--Traders may find it slightly disconcerting to learn what is going on inside their bodies when volatility rises and falls, says John Coates, senior research fellow in neuroscience and finance at the University of Cambridge and author of "The Hour Between Dog and Wolf: Risk Taking, Gut Feelings, and the Biology of Boom and Bust."
Coates, a former derivatives trader at Goldman Sachs and Deutsche Bank, says, “It is entirely possible that trading is an addictive behavior.”
The role biology plays in risk taking was a key topic during Coates’ keynote address, “New Research in Neuroscience & Finance; The Biology of Risk Taking,” at the Chicago Board Options Exchange Risk Management Conference in Carlsbad, Calif.
Why it important to study the neuroscience of risk
“Every blowup we’ve seen north of $1 billion that shakes a bank to its foundation is handed to us by traders at the end of a two- or three-year winning streak. Traders who thought they could walk on water and risk management thought they could as well. Something happens to traders when they are on a winning streak that transforms them from something tame to something a lot more dangerous.”
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Source: Smartbrief
Schwab fires again in ETF 'price war'
March 12, 2013--Charles Schwab fired another broadside in the ongoing "price war" among exchange traded fund managers after further reducing the charges for its US small-cap ETF.
Schwab cut the expense ratio on its US small cap ETF, known by its ticker as SCHA, from 10 basis points to 8 basis points as the US financial services company underscored its determination to compete aggressively on ETF pricing with the largest players in the ETF industry.
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Source: FT.com
Morgan Stanley-US ETF Weekly Update
March 12, 2013-Weekly Flows: $6.0 Billion Net Inflows
ETF Assets Stand at $1.4 Trillion, up 7% YTD
No ETF Launches
Columbia Changes Names on Active ETFs
US-Listed ETFs: Estimated Flows by Market Segment
ETFs posted net inflows of $6.0 bln last week, the second consecutive week of net inflows
Last week¡¦s net inflows were driven by US Equity ETFs ($5.7 bln); specifically US Large-Cap ETFs had net inflows of $4.3 bln
ETF assets stand at $1.4 tln, up 7% YTD; $43.6 bln net inflows YTD
13-week flows were mostly positive among asset classes; combined $71.1 bln in net inflows
Despite International ¡V Emerging stumbling a bit last week, International Equity ETFs as a whole have posted net inflows of $28.6 bln over the last 13 weeks, which equates to 40% of ETF net inflows over this period, while the segment accounts for only 22% of ETF market cap
Commodity ETFs have posted net outflows of $5.4 bln over the last 13 weeks, the most of any category; in particular, one ETF,
the SPDR Gold Trust (GLD), has exhibited net outflows of $5.8 bln over this period
US-Listed ETFs: Estimated Largest Flows by Individual ETF
Eight of the 10 ETFs to post the largest net inflows last week were US equity-based
Three of the 10 ETFs to generate the largest net inflows track the S&P 500 Index and a fourth tracks the low volatility names in the
Index; the four ETFs had a combined $3.9 bln in net inflows
Notably, the iShares MSCI Emerging Markets Index Fund (EEM) has exhibited net outflows for two consecutive weeks totaling $1.7 bln; prior to the last two weeks, EEM had only posted net outflows in one of the previous 25 weeks
The SPDR Gold Trust (GLD) has not posted a weekly net inflow in 14 weeks and its market cap has declined from $74.3 bln to $62.9 bln over this period as weakness in gold has caused asset depreciation and continued outflows
US-Listed ETFs: Short Interest
Data Unchanged: Based on data as of 2/15/13
SPDR S&P 500 ETF (SPY) had the largest increases in USD short interest at $2.1 bln
Notably, the SPDR Barclays High Yield Bond ETF (JNK) exhibited its highest level of shares short since inception; JNK had 26.2 mln shares short as of the period ended 2/15/13, up 82% since the last period
Aggregate ETF USD short interest increased by $4.3 bln over the period ended 2/15/13 and has now increased $7.0 bln the last two periods; despite the increase in short interest, financial markets have remained resilient
The average shares short/shares outstanding for ETFs is currently 4.8%
Interestingly, the top 10 ETFs most heavily shorted as a % of shares outstanding does not change much; certain areas of the market
such as retail, currency, and real estate seem to consistently make the list
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 3/8/13 based on daily change in share counts and daily NAVs.
$6.3 bln in total market cap of ETFs less than 1-year old, down from $10.2 bln the prior week
Newly launched Fixed Income ETFs accounted for 41% of the market cap of ETFs launched over the past year, the most of any category and replacing Active ETFs; the reason for the decline in Active ETF assets can be attributed to the PIMCO Total Return ETF (BOND) falling off the recently launched list as it eclipsed its one-year anniversary
Issuance is off to a slow start in 2013; 15 new ETF listings and 16 closures YTD (nine additional announced closures)
The top 10 most successful launches make up 58% of the market cap of ETFs launched over the past year
Five 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 recently launched iShares international ¡§Core¡¨ series continues to gain traction driven by their low cost, broad market representation, and increasing liquidity (IEMG and IEFA posted a combined $184 mln in net inflows last week)
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Source: Morgan Stanley
