FINRA Investor Alert: Closed-End Fund Distributions
(Nov 2013)
The Financial Industry Regulatory Authority (FINRA) recently released an Investor Alert to draw investors attention to the subtle difference between distributions and returns in the context ofclosed-end funds. Closed-end funds are pooled investments like mutual funds (which are also known as 'open-end funds'), but have only a fixed number of shares. This distinction has a big impact on how the fund is analyzed.
Distributions from closed-end funds are typically quoted as a rate (e.g. 6%). This...
FINRA Investor Alert: Private Placements
(Sep 2013)
Many of the riskiest financial products we have seen are sold as private placements. Generally speaking, private placements are investments sold directly to accredited investors, and are not registered with the SEC. Private placements include hedge funds, oil and gas partnerships, private real estate investment trusts, and other speculative investments.
Yesterday, FINRA released an Investor Alert on private placements. In it, they warn investors that sales abuses and even fraud have been...
FINRA Issues Investor Alert on Alternative Funds
(Jun 2013)
The Financial Industry Regulatory Authority (FINRA) recently released an investor alert entitled "Alternative Funds Are Not Your Typical Mutual Funds". FINRA defines Alternative (Alt) Funds as mutual funds that "seek to accomplish the fund's objectives through non-traditional investments and trading strategies."
These funds have garnered significant assets in recent years -- over $175 billion as of May 2013 -- as investors stretch beyond traditional stock and bond allocations for additional...
Many ETF Issuers Consolidating Offerings
(Aug 2012)
As inflows to ETFs have exploded over the past few years, many issuers expanded their lineup of funds to take advantage of the increased investor interest. Some have tried to compete with established funds by creating funds with very similar exposure, while others have offered highly specific investment strategies in an attempt to capture a niche market.
In general the ETF market has exhibited a 'winner take all' pattern whereby the oldest and largest funds attract by far the most investor...
FINRA Issues Warning on ETNs
(Jul 2012)
The Financial Industry Regulatory Authority (FINRA) recently issued an Investor Alert regarding the risks of exchange-traded notes (ETNs).
ETNs are a type of unsecured debt instrument typically issued by banks and other financial institutions. Similar to its close cousin the exchange-traded fund (ETF), ETNs track the returns of a specified asset class--often an index. However, unlike ETFs, ETNs do not hold actual assets tracked by the underlying index. This means investors in ETNs can suffer...
FDIC Warns Investors about Structured CDs
(Jul 2012)
Earlier this year, the Federal Deposit Insurance Corporation issued a warning about structured certificates of deposit (CDs), which are hybrid investments combining features of both traditional CDs and structured products. FINRA has also recently investigated the market for structured CDs, which has been estimated to be as large as $30 billion.
Structured CDs are essentially bank deposits whose interest payments depend on the value of a reference index instead of a predefined fixed or...
FINRA Investor Alert: Leveraged and Inverse ETFs
(Aug 2009)
Leveraged and Inverse ETFs: Specialized Products with Extra Risks for Buy-and-Hold Investors
The Financial Industry Regulatory Authority (FINRA) issued an Investor Alert to help investors understand the performance objectives of leveraged and inverse exchange-traded funds.
Exchange-Traded Funds is an investment fund that holds stocks, bonds, or commodities and typically tracks specific indices representing such asset classes. Introduced in 1993 by State Street Global Advisors, ETFs...
FINRA Investor Alert: Municipal Bonds
(Jun 2009)
Municipal Bonds-Staying on the Safe Side of the Street in Rough Times
The Financial Industry Regulatory Authority (FINRA) published an Investor Alert on municipal bonds. This provides a thorough background on municipal bonds and advice on investing.
There are certain risks in investing in municipal bonds. For example, the municipality issuing the municipal bonds can default, leading to the loss of some (if not all) interest and principal to the investor. This is called default risk....
FINRA Investor Alert: Auction Rate Securities
(Nov 2008)
Auction Rate Securities: What Happens When Auctions Fail
The Financial Industry Regulatory Authority (FINRA) published an Investor Alert on auction rate securities (ARS). This provides quite a thorough background on ARS, their auction mechanism and risks of failure, alternatives to ARS, and redemption and liquidity issues.
ARS are issued widely by institutions ranging from closed-end mutual funds, municipalities to student loan trusts. ARS are long-term floating rate securities whose...
