The last week was a relatively tame one on Wall Street, with major U.S. benchmarks posting relatively small changes. The biggest developments came overseas, where protests in Egypt culminated in the transfer of power from the long-term ruler to the military. The uncertainty in Egypt has had an impact around the globe, with concerns that the relatively peaceful revolution could spur unrest elsewhere [see ETFs To Watch As Egyptian Drama Plays Out]:
In the ETF world, the uncertainty surrounding Egypt also created some interesting developments (more on this below), while the product development front was relatively quiet. Below we highlight three intriguing articles from the always interesting world of ETFs from the last week:
Highlighting a potentially dark side of the exchange-traded fund boom, Kara Scannell highlights new concerns among regulators that Wall Street traders have embraced ETFs as a means of disguising their insider trading. “In one scenario, a trader could learn information about a company, buy an ETF that includes the company’s stock, and short sell the other stocks in the ETF,” writes Scannell. “The practice, known as ETF-stripping, would allow the trader to benefit from movements in the company’s share price without directly buying or selling that stock.”
Impending Collapse Of the 30% Premium For EGPT at Invest With An Edge
Interest in Egyptian equities has soared in recent weeks, as the intensifying protests in the streets of Cairo have sent opportunistic investors scrambling to obtain access. With Egyptian stock markets closed, many have turned to the Egypt ETF (EGPT) from Van Eck to achieve access. But the suspension of trading in Cairo has caused some interesting developments in EGPT, including a significant concentration in cash. With trading expected to resume soon, Ron Rowland walks through the most likely outcomes–including some that others apparently don’t expect. “The key question is what happens next,” writes Rowland. “The prevailing sentiment is that once reopened, Egypt’s stock market will rally to match the value of the EGPT fund (I hesitate to call it an ETF at this juncture). I believe prevailing sentiment is wrong.”
Inverse VIX ETNs: Free Money? at ETF Database
Volatility products have surged in popularity in recent years, as the marriage of VIX futures and the exchange-traded structure has democratized an asset class that was previously beyond the reach of many investors. In this article, we take a look at one of the more creative and unique VIX-related ETPs out there: the Daily Inverse VIX Short-Term ETN (XIV) from VelocityShares. Allowing investors to exploit the nuances of a futures curve in steep contango has the potential for impressive returns in any environment–even when the VIX is rising.
Disclosure: No positions at time of writing.
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