Back to the Future: Stock Prices Quoted with Fractions
(Nov 2012)
The Wall Street Journal recently reported that the SEC is considering reverting back to an old system in which stock prices were quoted using fractions. Using fractions for stock prices in the US has its roots in a Spanish colonial currency whose smallest denomination was 1/8 of a doubloon, hence prices were quoted in eights. The NYSE, founded in 1792 within the Buttonwood agreement, modeled their listing system off the Spanish system.
The largest number used for the denominator in the...
The Effects of ETF Turnover
(Oct 2012)
Lately there has been a lot of turnover in exchange-traded funds (ETFs), as we noted back in August. InvestmentNews has a great summary of what has happened this year, with 86 funds having closed so far in 2012. They note the important consequences of an ETF closing for investors and advisers:
Even though they are more routine, ETF closings still can create ripple effects that reach financial advisers and their clients. "For an adviser, the worst thing that can happen is, you recommend an ETF...
Do ETF Flows Move the Market?
(Oct 2012)
As exchange-traded fund (ETF) flows have grown over the past few years, the question of whether those fund flows influence the prices of ETF holdings has become a perennial issue. Matt Jarzemsky and Chris Dieterich of the Wall Street Journal recently posted what is perhaps the highest profile discussion of this issue to date, in which they provide interesting evidence that the ETF 'tail' might be wagging the market 'dog.'
They note that in early October, mid-cap indexes saw...
Vanguard Abandons MSCI and MSCI's Share Price Crashes
(Oct 2012)
A few weeks ago, the Wall Street Journal reported that Vanguard is replacing the benchmarks on nearly two dozen of its index funds currently provided by MSCI and replacing them with benchmarks provided by either FTSE or the Center For Research In Security Prices (CRSP) at the University of Chicago. See the press release dated October 2, 2012.
This is clearly great news for FTSE since this index change by Vanguard makes them the "third-largest equity exchange traded product index benchmark...
ETFs in Mutual Funds: a Raw Deal?
(Aug 2012)
Ian Salisbury at SmartMoney raises an interesting point:
The whole point of actively run funds, their proponents say, is that a living, breathing fund manager has a better chance of sussing out great investment opportunities than an exchange-traded fund, which just blindly tracks an index. Indeed, that's one of the reasons actively managed funds have higher fees than ETFs -- to pay for all that expert guidance.
So it might come as a shock to some investors that the top holdings of several...
The JOBS Act and Private Placements
(Aug 2012)
The Jumpstart Our Business Startups (JOBS) Act (PDF) that was enacted this past April was ostensibly designed to increase investment opportunities by relaxing certain regulatory requirements on small businesses. There are several excellent reviews of the provisions of the JOBS Act, which not surprisingly is a lengthy and impenetrable document, and there has been considerable debate between proponents, who argue that increased investment opportunities can help support new business ventures...
Mutual Fund and ETF Issuers Competing on Fees
(Aug 2012)
In March, we posted a graph of the returns and fees of the 25 largest funds by net assets and called attention to the striking difference in fees between funds offered by the Vanguard Group and those offered by American Funds. While both had very similar 5-year annualized total returns, the Vanguard funds had significantly lower fees.
Today the Wall Street Journal ran an article about how Vanguard's funds have attracted net inflows of $452 billion from January 2008 to June 2012, while...
Hedge Fund "Side Pockets" Explained
(Jul 2012)
Hedge funds can be extremely complicated investments, and one of the features that contributes to their lack of transparency is their so called 'side pocket' accounts. Side pockets have drawn scrutiny from the SEC and have been the subject of high profile investigations (see also) due to their potential for abuse from hedge fund managers eager to hide losses from investors.
Side pockets are essentially separate accounts that a hedge fund may use to separate illiquid or thinly traded assets...
Big Wall Street Firms Pressure Their Salesmen to Favor House-Brands
(Jul 2012)
Financial advisors and brokers are bound by ethical guidelines to analyze and recommend investment products that are suitable and appropriate for their clients' investment objectives and tolerance for risk. In general, they are obliged to put their clients' best interests ahead of their own.
The New York Times reported Monday on the recent admission from a former JPMorgan mutual fund advisor that he sold JPMorgan funds over similar offerings from outside JPMorgan for no other reason than to...
