Oppenheimer Ordered to Repurchase $5.98 Million in Auction Rate Securities
(Jan 2012)
In January 2012, a Financial Industry Regulatory Authority arbitration panel in New York ordered Oppenheimer to repurchase certain Auction Rate Securities sold to Claimant Nicole Davi Perry for $5.98 million, plus payment of $134,108 in legal fees. The award was posted in FINRA's arbitration database this Monday. See this related report from Reuters. Dr. O'Neal at SLCG testified on behalf of the Claimant; Dr. O'Neal and Dr. McCann have authored a report on ARS previously.
Auction rate...
President and CIO of Direxion admits that leveraged ETFs are not appropriate for most investors
(Jan 2012)
Today Seeking Alpha posted an interview with Dan O'Neill, President and CIO of Direxion, one of the first and best known issuers of leveraged ETFs. Readers familiar with our work on leveraged ETFs know that we feel these products are almost always unsuitable for retail investors.
Surprisingly enough, Mr. O'Neill agrees completely:
The leveraged indexed ETFs are used by very tactical investors, and so there we have bull and bear funds. They have daily betas, which means that essentially...
FINRA Regulatory Notice: Complex Products
(Jan 2012)
FINRA recently released Regulatory Notice 12-03: Heightened Supervision of Complex Products, outlining their increased scrutiny of a wide variety of alternative investments including structured products, inverse or leveraged exchange traded funds, and asset-backed securities. Here at SLCG, we've done research on each of those subjects, and have a variety of ongoing projects that bear directly on the issues highlighted by the Notice.
The products identified include:
Futures-Based (Commodities) ETFs
(Jan 2012)
Investors may think, when investing in Futures-Based Commodities exchange traded funds (ETFs), that they are gaining exposure to the underlying commodity. In this blog post, we discuss the ability of these ETFs to track the spot price of the underlying commodity.
In a previous blog post, we introduced the basics of Exchange Traded Funds (ETFs). In this post, we are going to discuss a specific kind of ETF: Commodities Futures Based ETFs.
There are a large number of Exchange Traded Funds...
NY Times on the Hosier decision
(Jan 2012)
The New York times has an article about the MAT and ASTA products sold by Citigroup that were the subject of a $54.1 million award in Denver last April. SLCG provided expert testimony and analysis for the claimants in this case, including assessing the MAT/ASTA products at issue, and we are excited that the Times has drawn attention to these highly risky investments.
The MAT and ASTA products were hedge funds that implemented a leveraged municipal bond arbitrage strategy. Essentially,...
What are 'structured products', anyway?
(Jan 2012)
By Tim Husson, PhD
We've done a lot of work on structured products. And I mean a lot. In addition to our research on valuation and suitability issues, we've devoted a section of our website to informing investors about different types of products, as well as Tear Sheets evaluating several thousand structured products released over the past couple years. We have found that most structured products are issued at a substantial premium, and that many investors (especially retail investors) do...
SLCG Research: Average Credit Quality
(Aug 2011)
SLCG released today 'What Does a Mutual Fund's Average Credit Quality Tell Investors?'
Bond mutual funds often report an "average credit quality" in their marketing materials. A fund's average credit quality is represented by a rating (e.g. A, A-) that is based on the credit ratings of the fund's individual securities, and these credit ratings come directly from rating agencies such as Standard and Poor's and Moody's.
In this paper, we explain a methodological flaw in the way average...