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Ten Commandments Of ETF Investing

Michael Johnston — Thu, 21 Oct 2010 11:05:53 +0000

As ETFs have burst on to the scene in recent years and worked their way into the investing mainstream, the number of products available and complexity of exposure offered has increased significantly. Advisors and investors have taken steps to educate themselves on the ins and outs of ETFs, but many are still scrambling to play catch-up and unaware of the complexities these products can present. What began as a handful of securities seeking to replicate widely-known stock and bond indexes has grown into a lineup of more than 1,000 funds, offering exposure to nearly every asset class, region, and investment strategy imaginable. While this impressive growth has enhanced the arsenal of securities available to ETF investors, it has also created the potential for misuse and made finding the right ticker symbol a bit more challenging. And while ETFs offer countless potential advantages relative to strategies that revolve around mutual funds [...]

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Direxion Brings 3x Leveraged ETFs To Europe

Michael Johnston — Wed, 31 Mar 2010 14:44:28 +0000

Direxion, the pioneer of 3x and -3x daily leveraged ETFs in the U.S., is going international. Beginning on March 31, six Direxion Shares Daily ETFs will be listed on the Amsterdam market of NYSE Euronext, significantly expanding the base of investors with access to these products. The Direxion ETFs available on this market include daily 3x and -3x ETFs targeting the MSCI Emerging Markets Index, Russell 1000 Index, and Russell 1000 Financial Services Index: Daily Emerging Markets Bull 3x Shares (EDC) Daily Large Cap Bull 3x Shares (BGU) Daily Financial Bull 3x Shares (FAB) Daily Emerging Markets Bear 3x Shares (EDZ) Daily Large Cap Bear 3x Shares (BGZ) Daily Financial Bear 3x Shares (FAZ) Each of these products is already listed in the U.S., and all but one of them trade under the same ticker symbol stateside (the 3x bull financial fund is listed as “FAS” in the U.S.). It’s [...]

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ProShares Planning Short, Leveraged Regional Bank ETFs

Michael Johnston — Tue, 02 Mar 2010 23:19:26 +0000

ProShares, a leading provider of inverse and leveraged ETFs, has filed for approval on seven addition ETFs, including four “ultra” international ETFs and three products focusing on a popular regional bank index. The international ETFs complement four existing 200% inverse products, and include: Ultra MSCI Brazil: Seeks daily returns equal to 200% of the daily returns on the MSCI Brazil Index. Ultra Pacific ex-Japan: Seeks daily returns equal to 200% of the daily returns on the MSCI Pacific ex-Japan Index. Ultra MSCI Europe: Seeks daily returns equal to 200% of the daily returns on the MSCI Europe Index. Ultra MSCI Mexico Investable Market: Seeks daily returns equal to 200% of the daily returns on the MSCI Mexico Investable Market Index. In June 2009, ProShares launched UltraShort products that seek to deliver 200% of the inverse of daily returns of the same four indexes. iShares currently offers ETFs designed to replicate [...]

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Seven Surprising ETF Trading Stats

Michael Johnston — Mon, 25 Jan 2010 16:00:58 +0000

One of the best sources of information on the state of the ETF industry is the monthly data download from the National Stock Exchange. While the most interesting numbers are generally the fund flows into exchange-traded products and the issuer “totem pole,” the release has some pretty thorough statistics on notional and share trading volumes. A closer look at the December version reveals some interesting insights about the ETF industry and sheds some light on a few interesting patterns behind ETF use among investors: 7. Trading Volumes Decreased In 2009 Excluding leveraged ETFs, the number of ETF shares traded declined from about 329 billion in 2008 to 312 billion in 2009, a puzzling statistic considering that the industry saw total cash inflows of almost $120 billion and more than 100 new product launches. Perhaps these numbers are more indicative of the extreme volatility and unique market environment of 2008 rather [...]

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Defending The “Most Dangerous ETFs”

Michael Johnston — Fri, 25 Sep 2009 08:00:27 +0000

Don Dion, who covers ETFs for TheStreet.com and runs Dion Money Management, recently wrote a three part series highlighting the “10 Most Dangerous ETFs”. Dion notes that as the ETF industry continues to expand beyond “plain vanilla” funds, investors are introduced to products that can face significant liquidity issues, be subject to increased regulatory scrutiny, and carry “unprecedented risks” associated with their complex and non-traditional strategies. While I agree with most of Dion’s analysis (and certainly share his view that there are a number of complex ETFs that should be limited to the most sophisticated investors), I feel it’s necessary to defend a few of the ETFs that made the list: Claymore/BNY Mellon Frontier Markets (FRN) FRN invests in frontier markets, which generally refer to the least developed economies in the world. MSCI Barra, a provider of domestic and international equity indexes, analyzes 75 markets around the world on four [...]

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Most Popular ETFs: Leveraged, Financial ETFs Among Winners

Michael Johnston — Tue, 21 Jul 2009 06:05:54 +0000

The old saying “any publicity is good publicity” certainly seems to ring true in the ETF industry. Over the last several months, leveraged ETFs have been the subject of intense scrutiny, first from individual investors and analysts, and more recently from regulatory agencies such as FINRA. Despite allegations that these funds are dishonest products that end up harming average investors who don’t understand their nuances, many leveraged exchange-traded products are among the most popular securities in the world, indicating that while they have their share of detractors, they have found widespread acceptance among certain investor groups. Most Popular ETFs While State Street’s SPDR S&P 500 (SPY) and Select Financial Sector Fund (XLF) are the most heavily-traded ETFs, leveraged funds from Direxion and ProShares dominate the top of the list, accounting for half of the top ten ETFs by average daily volume. Because of the complex way these ETFs are structured, they are [...]

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Direxion ETFs To Undergo Reverse Split

Michael Johnston — Tue, 07 Jul 2009 22:45:28 +0000

Direxion, the ETF firm that pioneered 3x leveraged ETFs, announced today that it will execute reverse splits on two of its funds, the Daily Financial Bull 3x Shares (FAS) and Daily Financial Bear 3x Shares (FAZ). FAS will undergo a 1-for-5 reverse split, meaning that the number of FAS shares outstanding will decline by approximately 80% and the net asset value of the fund will increase fivefold. FAZ will undergo a 1-for-10 reverse split. The two ETFs will begin trading on the NYSE Arca exchange on a split-adjusted basis on Thursday. Last month, Direxion executed a 1-for-2 reverse split on its Daily Mid Cap Bear 3x Shares (MWN). FAS and FAZ are among the most actively traded ETFs, with average daily volumes of 184 million and 158 million shares, respectively. As such, the decision to split has little to do with the popularity of the fund, and more to do [...]

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FINRA Zeroes In On Leveraged ETFs

Michael Johnston — Fri, 03 Jul 2009 13:50:34 +0000

The Financial Industry Regulatory Authority (FINRA) has completed an initial information sweep of U.S. firms that sell leveraged ETFs, seeking to gather information about sales of these products to investors with accounts of less than $10 million. Leveraged funds, which seek to amplify daily returns on a benchmark equity or bond index by using leverage, have been the topic of much debate lately in the ETF industry. While the securities are well-suited for investors such as hedge funds and day traders, numerous parties have expressed concern that they could be used improperly by a less sophisticated breed of investor. Due to the compounding of returns, the performance of leveraged ETFs over extended periods of time can vary in both magnitude and direction from the return on the underlying index, an understanding that may elude “average” investors. Leveraged ETFs have become extremely popular over the last year, with countless new funds [...]

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How To Fix the Leveraged ETF Mess

Michael Johnston — Fri, 26 Jun 2009 11:00:28 +0000

Leveraged ETFs have quickly become the hot-button issue in the ETF industry, dividing investors and observers into two distinct camps. On the one side are sophisticated day traders who believe these funds, which use derivatives and other complex financial instruments to provide amplified daily returns on a target index, are the greatest thing since sliced bread. And on the other are those who accuse these ETFs of being fundamentally dishonest in nature – products that, in the words of legendary investor Jack Bogle, “verge on insanity.” Personally, I fall somewhere in between, believing that leveraged ETFs can be an incredibly powerful tool for sophisticated investors, but acknowledging that there exists the potential for these funds to be used in a detrimental manner by investors unaware of exactly how they function. And while I’m generally inclined to let things be, it’s becoming increasingly clear that this issue will not be going away any time soon [...]

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Financial ETFs in Focus: Obama’s Financial Regulation Overhaul

Michael Johnston — Mon, 15 Jun 2009 15:59:41 +0000

President Barack Obama is expected this week to announce sweeping changes to the way the much-maligned U.S. financial industry is regulated. The changes, which are to be unveiled Wednesday, are expected to include the development of a more centralized regulation system and enhanced consumer-protection capabilities. Speaking on the new developments, Treasury Secretary Timothy Geithner noted that the current regulatory system “was fundamentally too fragile and unstable and it did a bad job of protecting consumers and investors.” Following the release of plan details, financial sector ETFs are sure to be in focus this week as investors digest and dissect what may be the most important piece of legislature in Obama’s presidency to date. What to Expect Although the details of the administration’s proposed regulatory changes won’t be officially released until mid-week, a piece by Geithner and Lawrence Summers in Monday’s Washington Post has already shed light on what can be expected. [...]

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ETF Database » FAS

Ten Commandments Of ETF Investing

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Direxion Brings 3x Leveraged ETFs To Europe

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