News > Financial Services

September swoon for ETFs could continue in the week ahead
Asset Management
<p>U.S. stocks ended last week in miserable fashion as all three major U.S. indexes slumped more than 1 percent on Friday. For the week, the S&amp;P 500, Dow Jones Industrial Average and the Nasdaq Composite each lost at least 2.6 percent.</p> <p>With those dismal numbers in mind, perhaps it is a good thing that the week ahead will be shortened by the Labor Day holiday because while the bull market is still in tact, investors' enthusiasm for riskier assets is clearly waning. Emerging markets stocks and exchange traded funds continue to confirm as much.</p> <p>Read more at Benzinga.<br /> Photo: Rich Herrmann</p>
The best (and worst) hedge funds so far in 2015
Hedge Funds
<p>Julian Robertson’s cubs may have been roarin’ so far this year but as good as their performance was, it wasn’t good enough for them to crack into the top five.</p> <p>Zero Hedge has just released a 20 best (and worst) performing hedge funds for 2015 list and surprisingly, none of the usual suspects – save for John Burbank’s Passport Capital – were on it.</p> <p>Burbank’s Passport Special Opportunities Fund came in third this year with a huge 29.18% return through July 31, while Simon Sadler’s Segantii Asia-Pacific Equity Multi-Strategy Fund came in second with an eye-popping 32.19% return through August 28. Topping them all though is Joseph Edelman’s Perceptive Life Sciences Offshore Fund, which boasts a Druckemiller-esque 35.34% return through August 21. Here’s the rest of the top five:</p> <p>Place<br /> Fund name<br /> Return<br /> Date</p> <p>4th<br /> Lucerne Capital Fund<br /> 23.33%<br /> July 31</p> <p>5th<br /> Alcentra Global Special Situations Fund<br /> 22.79%<br /> July 31</p> <p>And here are the bottom three:</p> <p>Fund name<br /> Return<br /> Date</p> <p>Dorset Energy Fund<br /> -24.54%<br /> August 28</p> <p>Elm Ridge Capital Partners<br /> -18.04%<br /> August 31</p> <p>Tulip Trend Fund<br /> -16.73%<br /> August 31</p> <p>Forever haters, Zero Hedge would like to point out that John Paulson has stopped publishing his performance figures entirely.<br /> Photo: Damon Green</p>
ETFs may wobble, but can they 'flash crash'?
Asset Management
<p>Wobbly markets and international turmoil can get the best of even a seasoned investor. Take a look at what happened in the world of ETFs. When the Dow Jones Industrials plunged 10% on Black Monday, some ETFs went all haywire. The much-loved vehicle for Main Street suddenly stopped making sense.</p> <p>Kim Arthur, of Main Management, told ETF.com that the August 24 mayhem was  reminiscent of the May 2010 flash crash.</p> <p>&nbsp;</p> <p>Just to recall what happened: In the early trading hours, ETFs suffered a massive sell-off, with some funds seeing close to 50% losses. The iShares Select Divident fund was down 36%. And the Guggenheim S&amp;P 500 Equal Weight dropped 42%. Skittish investors sold the funds at huge discounts, only to see the security prices bounce back in minutes. Some investors were stalled for up to 20 minutes trying to log into their accounts, creating pent-up sell stops that slammed the market.</p> <p>Arthur says players aren't playing close enough attention to trade executions and keeping realistic bid/ask spreads.<br /> “I had thought, along with that flash crash in 2010, [regulators] told market makers they had to have some reasonable tolerance within your bid and your offers; otherwise, you cannot be making a market. You have to get out of the way,” Arthur said. “It seems like we saw that again [August 24].”<br /> Not so, says Ed Rosenberg, head of ETF Capital Market and Analytics for FlexShares. You can't compare the original "flash crash" of 2010 to a quick downturn in ETFs, he argues.  “Its almost impossible for the ETFs to crash on their own,” says Rosenberg. ETFs are tied so closely to the underlying securities that there needs to be serious price dislocation from securities for that to happen. Price dislocations do happen, but they self correct within seconds. "Those last so short it's unbelievable," says Rosenberg.</p> <p>The market did exactly what it was supposed to do August 24, but ETF investors freaked out, writes Dave Nadig in FactSet. For example during the first hour of the market's open, trading in the Guggenheim S&amp;P 500 Equal Weight ETF (RSP) only happened in 15 to 30 second bursts between halts. Any move of more than 10% within a five minute window triggers a halt, meaning trading halted four times on down moves and six times on up moves.</p> <p>Most investors are "smart enough to treat their ETFs...as long term asset allocation vehicles," says Nadig. The day to day swings can be scary, but most people recognize that it's part of holding such an investment.</p> <p>Investors do need to understand that an ETF isn't to be traded like a stock, says Rosenberg. ETFs seem to trade like stocks, but stocks are driven by supply and demand, where ETFs are tied to the underlying securities, he says.</p> <p>Unlike mutual funds, which just trade once a day at the closing net asset value price, ETFs have to weather the daily trading storms, says Ben Carlson in his blog "A Wealth of Common Sense." "Whenever something goes wrong in the markets (read: losses), people tend to look for someone or something to blame," writes Carlson. It's not the ETFs' fault if an investor put in a sell order and gets stuck with the market's price for the fund. ETF traders should expect this, but long term investors needn't worry. Panics can and will happen on occasion, says Carlson. The trick is just to not be forc</p>
Top Ten Investment Scams Ever
Asset Management
<p>Every year, over 31 million purchasers are victimized by investment fraud. The medium loss per investor is roughly $15,000. Individual losses run into hundreds of thousands of dollars. Most remarkable is that financial swindle targets ranked above financial non-victims with percentages of 58% and 41% respectively.</p> <p>Why do many get scammed The #1 rule in fraud is "Don't breed any mistrust." High returns can go overlooked for decades. But, like Bernie Madoff shows, it will all show up at the end of the day. In 2013, the SEC listed over 700 enforcement efforts for investment scams.</p> <p>A look at fraud would have to go back centuries to 300 BC. That’s about the timie a Greek merchant named Hegestratos took out an insurance policy. The merchant would borrow money and pay it back with interest on a ship’s cargo arrived. If the loan isn’t paid back, the lender had the rights to acquire the boat and its freight.</p> <p>Hegestratos conspired with a few friends to empty his boat, sink it, keep the loan and sell the corn. His plan didn’t really work out. The ship’s crew and passengers caught him in the act and he drowned trying to escape.<br /> Investment Scams: The First Insider Trading Scheme<br /> Just a few years after American became a nation, it produced it first fraud. In the late 18th century, American bonds were like junk-bonds are today. Every wind of news about the colonies’ fortunes cause the value of the bonds to fluctuate. The trick for the investor was to be able to anticipate which direction a bond’s value was headed.</p> <p>Alexander Hamilton, Treasury Secretary, worked to restructure American finance by replacing a variety of bonds issued by the colonies with bonds from the new country’s central bank.</p> <p>William Duer, assistant secretary of the Treasury, was in the perfect spot to get in some profitable insider trading. Duer was among the first to know news which would drive up bond prices. He would tip his friends, trade in his portfolio and then leak that information to the public. Then all Duer had to do was set back and sell off bonds and make an easy profit.<br /> Top Ten Investment Scams</p> <p> Charles Ponzi – $20 million lost by investors</p> <p>Everyone has heard of "Ponzi scheme. It is titled after Charles Ponzi's famous scheme where he promised profits of 50% in 45 days. Tenured investors were paid off with money from fresh investors.</p> <p>Lesson: Get an independent 3rd party to write the statements</p> <p> Barry Minkow – Loss calculated at $100 million</p> <p>When he was 19, Minkow saw his rug washing company go public and eventually reach $200 million in capitalization. Using false records and sales slips, it appears Minkow had built a huge and profitable business. Clients who were suspicious about overcharges on their invoices headed to an inquiry which uncovered Minkow's revenue figures. Minkow was sentenced regarding almost 60 felonies.</p> <p>Lesson: Again — Get a reliable 3rd party accountant is reviewing the statements.</p> <p> Jordan Belfort – Loss $200 million</p> <p>Jordan Belfort was the subject of the TK movie "Wolf of Wall Street." Belfort reached the silver screen by running a pump-and-dump scam in the 90s where agents would force up the cost of usually, junk stock and then ca</p>
Dan Loeb’s books: Recommended reading list
Hedge Funds
<p>Daniel Seth Loeb is the founder of the New York based hedge fund Third Point LLC, which at the end of the third quarter of 2014 reported assets under management of $17.5 billion.</p> <p>The outspoken and prominent value investor founded the hedge fund in 1995 and is currently responsible for the business activities of Third Point. He is also the managing member and chairman of Third Point, LLC.</p> <p>Dan Loeb is known for his explicit public letters regarding the performance and actions of other financial executives. His mocking letters are an entertaining yet the thought-provoking approach of addressing and disapproving a certain serious issue.</p> <p>For more on Dan Loeb, head over to ValueWalk’s Dan Loeb Resource Page, where you can find a detailed rundown of his background, bio, and investment philosophy.<br /> Dan Loeb: Recommended books<br /> Reminiscences of a Stock Operator</p> <p>Edwin Lefevre. Loeb calls the book a classic. The book is the thinly disguised biography of Jesse Livermore, a remarkable character who first started speculating in New England bucket shops at the turn of the century. Livermore, who was banned from these shady operations because of his winning ways, soon moved to Wall Street where he made and lost his fortune several times over. What makes this book so valuable are the observations that Lefèvre records about investing, speculating, and the nature of the market itself.</p> <p>You Can Be a Stock Market Genius</p> <p>Joel Greenblatt. Greenblatt’s book explains how best to invest such as spin-offs, mergers, risk arbitrage, etc. Loeb uses many of the strategies discussed in this book in his own investing strategy. Loeb is now alone in his admiration of the book. Seth Klarman also recommends Greenblatt's book on his list of favorite books as detailed here.</p> <p>Financial Shenanigans</p> <p>Howard Schilit. The author details various tricks that management have used, and will continue to use in the future. They consist of various manipulations of the income statement, and the cash flow statement.</p> <p>The Art of Short Selling</p> <p>Kathryn Staley. A book about finding tricks used by management in financial statements, and using the information to short the company.</p> <p>The Power of Story</p> <p>Jim Loehr. Loeb’s favorite "non-investing" book.  Loeb stated that the book can "change your destiny in business and in life."</p>
You've Gotta Be Kidding Me: That story about a fund making $1B on Black Monday? Impossible!
Hedge Funds
<p>Remember those stories you read about a "Black Swan" fund that made $1 billion on Black Monday?</p> <p>"It's all marketing garbage," says Tom Sosnoff, a trader and co-host of TastyTrade. In a 15-minute video, Sosnoff along with his co-host Tony Battista, eviscerate a story that Mark Spitznagel of Universa Investments made $1 billion on August 24, when the Dow Jones Industrial Average plunged 10% at the open.</p> <p>It isn't even remotely possible, says Sosnoff who took out a pencil and paper to do the math.</p> <p>Battista figures that if Universa had $250 million in capital to invest in put options (which Spitznagel claimed to have deployed), the fund would have needed to trade more than 60,000 in options (in one scenario) and more than 300,000 in options, in another possible scenario. The market didn't trade anywhere near that volume. At the open, the open interest stood at 83 in the first scenario and just over 9,000 in the second.</p> <p>"This scares me," says Sosnoff. Spitznagel was splashed on every major media outlet -- from Bloomberg to The Wall Street Journal and The New York Times. "How does it work? I just don''t get it. Can't anybody do the math?"</p> <p>Watch this episode of "You've Got to Be Kidding Me" on TastyTrade and let us know what you think.</p> <p>h/t The Reformed Broker</p> <p>&nbsp;</p> <p>&nbsp;</p>
NexAmerica People Moves: Fortress exec departs; Stanford Management CEO leaves for Credit Suisse
Hedge Funds
<p>Fortress hedge fund exec departs firm. Stuart Bohart, president of the firm's hedge fund unit, is leaving the firm after five years. Fortress' macro trading business has suffered recently from disappointing performance and outflows. Bohart previously worked as co-head of Morgan Stanley's asset management unit. Wall Street Journal</p> <p>Credit Suisse hedge fund arm hires former Stanford Management CEO. John Powers, former president and CEO, is leaving the Stanford University endowment to lead Credit Suisse Asset Management's new hedge fund initiative. Powers will be launching a strategy that invests in the equity of hedge fund managers. Institutional Investor<br /> Photo: ©iStock.com/ooyoo<br /> &nbsp;</p>
NexAmerica People Moves: Northern Trust adds to Canada team; BlackRock alpha strategies head to retire
Asset Management
<p>Northern Trust added institutional sales v.p. Nick Petruccelli has joined Northern Trust for the newly created position of senior v.p. for institutional sales in Canada. Petruccelli will be responsible for building the custody and asset servicing business with pensions funds, endowments and foundations. Petruccelli most recently worked as head of sales and business development at Larsen &amp; Toubro Infotech. Pensions &amp; Investments</p> <p>BlackRock alpha strategies head to retire. Quintin Price, the lead behind the $944 billion alpha strategies group, will retire next year. Price will return to London, and will continued to work with the firm as senior advisor through next summer. The 54-year-old Price has been with the firm since 2005, and has led the alpha strategies group since its start in 2012. Reuters</p> <p>Nikko Asset Management hires institutional business head. Nikko Australia hired Eddy Schipper to the newly created role. Schipper previously worked as executive director of Asia Pacific investor relations for IFM Investors. Investor Daily<br /> Photo: ©iStock.com/ooyoo<br /> &nbsp;</p>
The China survival guide: Foreign funds change strategy
Asset Management
<p>As China’s markets are consumed by panic and paranoia, foreign investment funds are in a scramble to switch their strategies and generate some upside from the chaos, or at least mitigate some of their loses.</p> <p>According to Reuters, there have been range of responses to the implosion. Here are a few of the strategies funds are adopting to survive the rout:</p> <p>Looking to Hong kong. Those who still remain bullish on China’s long terms prospects are now looking for more opportunities in the territory where valuations are lower. Another main attraction is that the market is better regulated and less subject to whims of Beijing officials than Shanghai and Shenzhen. </p> <p>Shorting Asian currencies. While the bearish sentiment on Asian currencies has eased recently, those that still see the decline in the yuan, and fall in national exports, as a precursor to more economic pain down the line are betting against the currencies of China's Asian trading partners.</p> <p>Shorting banks with heavy China exposure. Many of the same pessimists going short on Asian currencies are also banking on the decline of those with massive China exposure, particularly UL-headquartered banks like HSBC Holdings, and Standard Chartered.  </p> <p>Buying US mortgage-backed bonds. Some are investing in this area in the expectation that the wealthy Chinese looking for a safe haven will pull capital out of China and pour it into US real estate.</p> <p>...or just staying focused on China. Instead of fleeing the mainland completely some are just becoming more targeted. Fidelity Investments, for example, is seeking value in specific high-growth business, particularly in the consumer space, that were undervalued even before the meltdown.<br /> Photo: Lwp Kommunikáció, Bear Grylls Ventures</p>
Leon Cooperman blames risk parity for market chaos
Hedge Funds
<p>Last week JPMorgan Chase &amp; Co. (NYSE:JPM) Chase &amp; Co. warned its clients that Volatility Target strategies, CTAs and Risk Parity portfolios could sell a combined total of $150 billion to $300 billion of equities during the next few weeks as momentum drives selling (Concerns Over Risk Parity Grow [Cont.])</p> <p>The report from JPMorgan came a few days after the Financial Times published an article on the risks that Risk Parity strategies posed to the global bond market. The Financial Times cited a new report from AllianceBernstein (Introduction to Tail Risk Parity an old copy of the paper can be found here), which estimates that risk parity is now a $400 billion industry. Assuming an average leverage ratio of 355%, these funds control around $1.4 trillion in assets.</p> <p>Leon Cooperman on risk parity<br /> Reports from the Financial Times, AllianceBernstein and JPMorgan all imply that Risk Parity is a disaster waiting to happen. And Leon Cooperman, the founder of Omega Advisors just joined the party.</p> <p>Within his August letter to investors, Cooperman blamed Omega's poor returns (year to date Omega's funds are down between 6% and 11% according to Omega's letter to investors reviewed by ValueWalk) on "price-insensitive" investors.</p> <p>Our investment process, grounded in fundamental company research, with a capital marketr overview designed to help us gauge appropriate risk asset exposure, has served us well since our inception 23 years ago, and we believe in its continued effectiveness. The firm has virtually no debit balance, and we like what we own.<br /> With respect to the investment outlook, we believe that shares in the U.S. will end the year higher. A slowing in China's economic growth, the surprise devaluation of the yuan in August, continued weak oil and commodity prices, and uncertainty as to the timing of the first Federal Reserve rate hike, all contributed to an initial weakness in U.S. and global equity markets in late August. However, these factors, we believe, cannot fully explain the maenitude and velocity of the decline in equity markets last month. We think that much of that decline can Ix attributed to systematic/technical investors that are price-insensitive and largely indifferent to fundamentals. Such investors include risk-parity funds, derivative hedgers, trend-following CTA's, and insurance variable-annuity programs.</p> <p>The month of August was a bad one for global risk markets and a bad one for Omega. The S&amp;P 500 dropped 6%, its worst monthly decline in over three years. Our various investment funds, excluding our Credit Opportunity Fund which eased just 1.4% last month, declined by between 9% and 11% in August. Year to date, our equity-focused funds are down between 6% and 11%; differential returns among our funds reflect </p>