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TAG | doomed etfs

May/11

30

Have you Invested in Outrageous ETFs?

Comments off · Posted by admin in FINRA

In an article from Forbes.com, May 27, 2011, Zack O’Malley Greenburg writes that a little over a year ago, fund provider Direxion launched an ETF (Exhange Traded Fund) called the Daily Semiconductor Bull 3x Shares. Its aim was to triple the performance of the PHLX Semiconductor Sector Index. Not as simple a task as it seems, apparently: Over the next seven months the index rose 5%, while the Direxion fund returned -6.25%.

Maybe investors should have heeded Direxion’s own disclaimer: “There is no guarantee the fund will meet its stated investment objective.”

This is the way of things in the world of ETFs, writes Greenburg, where offerings have exploded in recent years. Nearly 900 ETFs have been launched over the past five years, leading to a preponderance of funds that straddle the line from obscure to downright bizarre. Among them are leveraged ETFs like the aforementioned semiconductor fund that seek to double or triple the performance of sectors–and don’t always succeed. Examples range from the ProShares Ultra KBW Regional Banking ETF, to the Direxion Daily Agribusiness Bear 3x Shares ETF, which trades under ticker symbol COWS. There is also a smattering of international offerings, which comprised half of all new S&P-based index funds launched last year. Market Vectors parent Van Eck recently announced plans to launch a Mongolia ETF.

Forbes.com writes that there are a few ETFs so outrageous that they’ve already been shut down–for example, the HealthShares Dermatology and Wound Care ETF, shuttered in 2008 due to lack of demand. Others, like the PowerShares Dynamic Brand Name Products Portfolio and the PowerShares Autonomic Allocation Research Affiliates Portfolio, never even made it past the planning stages.

We are reminded that many obscure ETFs like Direxion’s leveraged semiconductor fund can be hazardous to investors who aren’t careful. These leveraged funds are designed for day-traders and backed by derivatives. Though providers warn that these funds are not meant to be held as long-term assets, many investors miss the fine print.

The Forbes.com article says that the SEC launched a review of all funds last March, deferring applications for “actively managed and leveraged ETFs that particularly rely on swaps and other derivative instruments to achieve their investment objectives” in the meantime. There has been a lot of concern generally about derivatives in the last few years, and specifically in our division about the use of derivatives by investment companies, including ETFs,” says Elizabeth Osterman, head of the exemptive applications office of SEC’s Division of Investment Management. “Our decision to defer the review of exemptive applications for derivatives-based ETFs reflects concerns about whether granting exemptive relief for those funds would be consistent with required regulatory standards in light of those concerns.”

Greenburg goes on to say that the SEC hasn’t yet resumed allowing providers to launch new leveraged ETFs, but it hasn’t banned existing products or disallowed existing issuers from creating new ones. The three leading providers of such funds–Direxion, Rydex and ProShares–now have something of a lock on leveraged ETFs. And no matter how outlandish their products may sound, they continue to be popular.

If you have invested in an ETFs and lost your investment, you may have valuable legal rights to be compensated for your losses. Call a Securities Arbitration Lawyer at Soreide Law Group for a free consultation on how to potentially recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com.

Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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May/11

6

After Commodities Selloff, Funds Affected

Comments off · Posted by admin in FINRA

Today, in an article in InvestmentNews.com, we learn that the emerging-markets mutual funds managed by Goldman Sachs Group Inc. and Franklin Resources Inc., along with leveraged raw material ETFs, were among the U.S.-registered funds affected the most in this week’s commodities selloff.

It was noted that the mutual funds and exchange-traded funds dedicated to commodities, including index-based products, suffered steeper declines. The ProShares Ultra Silver ETF, designed to return twice the daily performance of silver, plummeted 51 percent from Monday to Thursday, although it was up 2.85% as of midday on Friday. Non-leveraged silver ETFs fell about 30 percent.

In the $831 million Goldman Sachs BRIC Fund and the $825 million Templeton BRIC Fund, which focus on Brazil, China, India and Russia, both fell 5.7 percent in the week ended yesterday. The funds, from New York-based Goldman Sachs Group Inc. and San Mateo, California’s Franklin Resources Inc., lost the most among diversified equity funds with more than $500 million in assets and at least 20 percent in energy or basic materials stocks, according to data compiled by Bloomberg.

The InvestmentNews.com article says that Bill Miller, manager of the $3.94 billion Legg Mason Capital Management Value Trust, said in an April 19 letter to investors that he saw little value in commodities. He pointed to research from Stifel, Nicolaus & Co. showing that commodity returns relative to stock returns were at a 200-year high on a rolling 10-year basis.

“One thing is clear from the analysis of long-term commodity returns: they are cyclical,” Miller wrote.

Commodities plunged yesterday as investors accelerated sales following year-to-date gains through April of more than 23 percent for silver, oil, gasoline and coffee. The Standard & Poor’s GSCI index of 24 commodities sank 6.5 percent at 4:32 p.m. New York time in the biggest one-day drop since January 2009, bringing its loss this week to 9.9 percent.

“It’s panic,” said Michael Shaoul, chairman of Marketfield Asset Management, which oversees $1 billion in New York. “There’s nothing to do with weak U.S. economic data. It’s not a global financial crisis. It’s a classic liquidation move in a crowded trade.”

Oil tumbled 8.6 percent yesterday, the most in two years, to $99.80 a barrel. Silver dropped 8 percent, extending the worst four-day slump since 1983 to 25 percent. The Dow Jones BRIC 50 Index declined 5.1 percent from April 28 through yesterday.

These leaders of the four countries plus South Africa, a group known as the BRICS, said last month that excessively volatile commodity prices pose “new risks for the ongoing recovery of the world economy.”

The $726 million DWS Latin America Equity Fund, managed by the funds unit of Frankfurt’s Deutsche Bank AG, fell 5.4 percent in the past week. Boston-based Fidelity Investments’ $5.46 billion Canada Fund lost 5.3 percent, and the $1.4 billion FPA Capital Fund, run by Los Angeles-based First Pacific Advisors LLC, dropped 4.6 percent.

Open interest in silver futures has tumbled about 15 percent since the Comex exchange in New York began raising margin requirements on April 25. Futures on Brent crude, crude oil, heating oil, gasoline and natural gas plunged more than 6.9 percent yesterday.

Also, crude oil dropped below $100 a barrel for the first time since March 17. Copper futures slumped 3.3 percent, falling below $4 a pound for the first time in five months. Among agricultural commodities, cocoa, cotton, corn and weak retreated more than 2.3 percent in futures trading.

If you have invested in ETFs or mutual funds and lost money, you may have valuable legal rights to be compensated for your losses. Call a Securities arbitration lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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May/11

6

Can You Spot A Doomed ETF(Exchange-Traded Fund)?

Comments off · Posted by admin in FINRA

In an article in InvestmentNews.com, Jessica Toonkal writes that with fund firms launching a seemingly endless parade of exchange-traded funds, a dark side to this glut of offerings is emerging. Portfolio liquidations, once rare, are becoming increasingly commonplace. This recent trend is scaring advisers. Indeed, some said they are more than a little worried about getting stuck in an ETF that ends up being shut down.

“With the proliferation of ETFs, this is becoming a greater concern,” said Sailesh S. Radha, a vice president at CCM Investment Advisers LLC, a registered investment advisory firm that manages $2.5 billion in assets. “Telling an investor than an ETF is shutting down is not news you want to give them.” said.

So how can an adviser spot trouble before it strikes? Here are a few warning signs to look for:

Has your ETF been around too long?

It is important to pay attention to how long an ETF has been around. You need to pay attention to how long an ETF has been on the market. “No one launches ETFs, then closes them a couple months later, except for Northern Trust [Corp.],” Mr. Hougan said, taking a jab at the Chicago-based firm, which closed 17 ETFs last February only 11 months after launching them.

Small Assets?

We are reminded that an ETF that has has less than $10 million in assets – and has been around for a couple of years or so – should raise a red flag for advisers. It’s clearly not gaining traction with advisers.

Crowded Assets?

Advisers also should pay attention to how an ETF is trading and if the fund is best-in-class, said Matt Hougan, president of ETF analytics at IndexUniverse. An ETF’s assets may be puny, but if it’s one of the few funds in an asset class that is poised to take off, it may stick around longer, he explained.

How are the other ETFs doing in the firm?

The article goes on to remind us that advisers also should take note of the investment adviser for the funds. If the firm manages a large number of profitable funds, it could buy additional time for laggards, said one executive at an ETF company, who asked not to be identified. “As long as you have a few ETFs that are the money makers, you can afford to have a few that take longer to gain assets,” the exec said.

If you have invested in ETFs and lost money, you may have valuable legal rights to be compensated for your losses. Call a Securities arbitration lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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Feb/11

16

Additional ETFs Close as Funds Flood the Market

Comments off · Posted by admin in FINRA

Another great article on ETFs by Jessica Toonkel, appeared in Investmentnews on February 13, 2011.  She states that with fund firms launching a seemingly endless parade of exchange-traded funds, a dark side to this glut of offerings is emerging: Portfolio liquidations, once rare, are becoming more common.

This trend is frightening some financial advisers. Indeed, some said that they are more than a little worried about getting stuck in an ETF that ends up being shut down.

“With the proliferation of ETFs, this is becoming a greater concern,” Sailesh S. Radha, a vice president at CCM Investment Advisers LLC, a registered investment advisory firm that manages $2.5 billion in assets, said last week at IndexUniverse.com’s Inside ETFs conference.

Toonkel goes on to say that for advisory firms such as CCM, which has a $20 million country rotation portfolio, choosing the right fund is vital to keeping clients’ trust.

“Telling an investor that an ETF is shutting down is not news you want to give them,” Mr. Radha said.

Although as more advisers rush into sector-based ETFs, the chance of being in a fund that closes is on the rise. In 2006, just one ETF closed, according to Morningstar Inc. In 2007, none did. But in the past three years, there have been 160 ETF liquidations.

For example, last year, Grail Advisors LLC, which is up for sale, and Claymore Securities Inc. closed a number of funds. Grail closed two of its seven ETFs in August and Claymore closed four ETFs in October because they failed to attract assets.

CAN YOU SPOT TROUBLE?

The advisers may be able to spot trouble before it strikes, said Ron Rowland, president of Capital Cities Asset Management Inc., who runs a monthly column about ETFs in danger of closing in his Invest with an Edge newsletter. “There is no specific sector that is usually represented in the list, but it’s a lot of smaller ETFs,” he said. Mr. Rowland said that ETFs headed for trouble tend to have a similar profile. An ETF that has been around for at least 28 months and has less than $10 million in assets should raise a red flag for advisers, he said.

Also, Mr. Rowland gives new ETFs a six-month grace period to gain assets before they become eligible for his ETF deathwatch.

It is important to pay attention to how long an ETF has been around.

“No one launches ETFs then closes them a couple months later, except for Northern Trust,” said Matt Hougan, president of ETF analytics at IndexUniverse.com. Northern Trust Corp. closed 17 ETFs last February, just 11 months after launching them.

Toonkel goes on to say that advisers also should pay attention to how an ETF trades and whether the fund is best-in-class, said Matt Hougan, president of ETF analytics at IndexUniverse.com. An ETF may have very little in assets, but if it is one of the few funds in an asset class that is poised to take off, the fund may succeed, he said.

These advisers also should take note of the investment adviser for the funds.

“As long as you have a few ETFs that are the moneymakers, you can afford to have a few that take longer to gain assets,” an executive said.

When ETF providers terminate funds, they often put out a press release and let investors know that the liquidation will take place in three to four weeks, conference participants said. Often the providers will encourage investors to stay in the funds until they are liquidated, at which time the providers will pay the investors back. Mr. Rowland warns investors against being swayed by this pitch.

THE ‘SALES HOOK’

“The sales hook is that if you go with them through the liquidation, you save yourself the commission,” he said. “But the risks far outweigh the savings.” For one thing, many ETFs hit investors with a termination fee. Also, fund operators often start liquidating ETFs slowly, which can lead to tracking errors during the wind-down period, Mr. Rowland said.

Sticking with a fund through liquidation could cause advisers to lose an opportunity to put their money somewhere else. “You usually get your money back within six to 10 days of liquidation,” Mr. Rowland said. “However, you have to wait those six to 10 days, and you may have lost an opportunity to employ that cash elsewhere.”

If you have invested in ETFs and lost money, you may have valuable legal rights to be compensated for your losses. Call a Securities arbitration lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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Feb/11

9

Can You Spot a Doomed ETF?

Comments off · Posted by admin in FINRA

In an article from InvestmentNews, Jessica Toonkel writes, that with fund firms launching a seemingly endless parade of exchange-traded funds, a dark side to this glut of offerings is emerging. Portfolio liquidations, once rare, are becoming increasingly commonplace.

Some are saying they are more than a little worried about getting stuck in an ETF that ends up being shut down.

“With the proliferation of ETFs, this is becoming a greater concern,” said Sailesh S. Radha, a vice president at CCM Investment Advisers LLC, a registered investment advisory firm that manages $2.5 billion in assets, speaking to InvestmentNews at IndexUniverse’s conference Monday. For advisory firms such as CCM, which has a $20 million country rotation portfolio, choosing the right fund is vital to keeping clients’ trust. “Telling an investor than an ETF is shutting down is not news you want to give them,” Mr. Radha said.

 As more advisers rush into sector-based ETFs, the chance of being in a fund that closes is on the rise. In 2007, a mere 10 ETFs closed. Over the past three years, 150 have been shut down, according to Ron Rowland, president of Capital Cities Asset Management Inc. That works out to about one ETF vaporizing each week.

Investors want to know how an adviser can spot trouble before it strikes? Mr. Rowland, who puts out a monthly column about ETFs that might close in his Invest with an Edge newsletter, said: “There is no specific sector that is usually represented in the list. But it’s a lot of smaller ETFs.”

This asset manager also noted that funds headed for trouble tend to have a similar profile. An ETF that has been around for about 28 months and has less than $10 million in assets should raise a red flag for advisers, Mr. Rowland said. He gives new ETFs a six-month grace period to gain assets before they become eligible for his ETF deathwatch.

The advisers also should pay attention to how an ETF is trading and if the fund is best-in-class, said Matt Hougan, president of ETF analytics at IndexUniverse. An ETF’s assets may be puny, but if it’s one of the few funds in an asset class that is poised to take off, it may stick around longer, he explained.

Paying attention to how long an ETF has been on the store shelf is also important. “No one launches ETFs, then closes them a couple months later, except for Northern Trust [Corp.],” Mr. Hougan said, taking a jab at the Chicago-based firm, which closed 17 ETFs last February only 11 months after launching them.

Your advisers also should take note of the investment adviser for the funds. If the firm manages a large number of profitable funds, it could buy additional time for laggards, said one executive at an ETF company, who asked not to be identified. “As long as you have a few ETFs that are the money makers, you can afford to have a few that take longer to gain assets,” the exec said.

When the ETF providers terminate funds, they often put out a press release and let investors know that the liquidation will take place in three to four weeks, experts at the conference said. Often the providers will encourage investors to stay in the funds until they are liquidated, at which time the providers will pay the investors back. Mr. Rowland warned investors against being swayed by this pitch.

“The sales hook is that if you go with them through the liquidation, you save yourself the commission,” he said. “But the risks far outweigh the savings.”

Many ETFs hit investors with a termination fee. Also, fund operators often start liquidating ETFs slowly, which can lead to tracking errors during the wind-down period, Mr. Rowland said.

Sticking with a fund through liquidation could cause advisers to lose an opportunity to put their money somewhere else. “You usually get your money back within six to 10 days of liquidation,” Mr. Rowland said. “However, you have to wait those six to 10 days, and you may have lost an opportunity to employ that cash elsewhere.”

If you had invested in Leveraged and Inverse ETFs and lost money, you may have valuable legal rights to be compensated for your losses. Call a Securities arbitration lawyer for a free consultation on how to ecover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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