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...
SLCG Study on Competitiveness of Canadian Market for Securities
(Jun 2011)
Investment Industry Association of Canada Releases SLCG Study on Competitiveness of Canadian Market for Securities Data
SLCG was recently hired by the Investment Industry Association of Canada (IIAC) to investigate and write a report about the competitiveness in the market for securities data in Canada.
Canadian securities data costs have more than doubled since the mid-1990s. The IIAC alleged that these costs increases were not due to any improvement in technology or quality. SLCG...
SLCG Research: Oppenheimer Champion Income Fund
(May 2011)
SLCG released today 'Oppenheimer Champion Income Fund'.
Oppenheimer's Champion Income Fund (the Fund) was an open-end mutual fund that invested in high-yield bonds. It lost 80% in the second half of 2008, the highest loss for a mutual fund in Morningstar's high-yield bond fund category.
In this paper, we look at the portfolio management rules and decisions of the Fund in the context of what was happening in the markets. Leverage using debt to fund further investments was prohibited by...
SLCG Research: Modeling Autocallable Structured Products
(Mar 2011)
SLCG released today 'Modeling Autocallable Structured Products'.
A callable structured product is a note that is callable by the issuer. The note is linked to an underlying asset, or 'reference asset.' If the reference asset reaches the call price during the term of the note, the note is called and note holder receives a pre-specified return. If the reference asset never reaches the call price during the term of the note, the note is never called and the note holder simple receives the...
SLCG Research: Futures-Based Commodity ETFs
(Jan 2011)
SLCG released today a new study about Futures-Based Commodity ETFs. In the past decade the price of commodities has increased substantially and many investors have wanted to diversify their portfolios by including commodities. The most common way to invest in commodities is by buying futures contracts, which requires a good understanding of the pricing of futures contract and specific features of the futures market.
In the past few years we have seen many firms offer Commodity Exchange...
SLCG Research: Leveraged Municipal Bond Arbitrage
(Oct 2010)
SLCG released today 'Leveraged Municipal Bond Arbitrage: What Went Wrong?'. Leveraged municipal bond arbitrage is a strategy employed by fixed income hedge funds. This strategy buys long term municipal bonds and sells or shorts long term Treasury bonds while hedging with interest rate swaps. The strategy would seek to profit from the difference in the rates it receives from the municipal bonds and the rates it pays on the Treasury bonds and interest rate swaps.
Brokers marketed hedge...
SLCG Research: Auction Rate Securities
(Oct 2010)
SLCG released today 'Auction Rate Securities'.
Auction rate securities were first issued in the mid-1980s by corporations. Over the next two decades ARS were issued widely by institutions ranging from closed-end mutual funds, municipalities to student loan trusts. ARS were long-term floating rate securities whose coupon payments were determined at auctions that were typically held every 7 to 35 days. ARS were long-term securities with short-term floating rates.
Broker dealers marketed...
SLCG Research: Leveraged ETFs
(Aug 2010)
SLCG released today 'Leveraged ETFs, Holding Periods and Investment Shortfalls'.
Exchange-Traded Funds is an investment fund that holds stocks, bonds, or commodities and typically tracks specific indices of such asset classes. Leveraged and inverse leveraged ETFs were first introduced to the market in June 2006 by ProFunds, which promiseds to return a multiple of the underlying index return by rebalancing their portfolios at the end of each day. The total market value of leveraged and...
SLCG Research: Principal Protected Notes
(Jul 2010)
SLCG released today 'The Anatomy of Principal Protected Absolute Return Notes'.
Structured products are debt securities that often have unconventional and complex payoff structures. Their payoffs are often linked to a security or index, such as the S&P 500 or the Russell 2000, with asset classes ranging from equity, commodities, currencies and debt. A Principal Protected Absolute Return Barrier Note (ARBN) is one structured product that returns the absolute value of the return of the...
SLCG Research: Preferred Stock Portfolios
(Jun 2010)
SLCG released today 'The Risks of Preferred Stock Portfolios'.
Preferred stocks have characteristics similar to both debt and equity. Like debt, preferred stocks make fixed or floating dividend payments similar to coupon payments of debt. Like equity, the dividend payments are not an obligation of the issuer and a failure to make dividend payments does not constitute a default. Holders of preferred stocks have claims on the income and assets of the issuing company before common equity...
