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...
SLCG Research: Reverse Convertibles
(Jun 2010)
SLCG released today 'What TiVo and J.P. Morgan teach us about Reverse Convertibles'.
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 to debt. A reverse convertible note is an equity-linked structured product. It is a short-term note that pays a relatively high coupon rate...
SLCG Research: Abuse of Structured Finance
(Jan 2009)
SLCG released today 'Regions Morgan Keegan: The Abuse of Structured Finance'.
Six Regions Morgan Keegan (RMK) bond funds lost $2 billion in 2007. In the paper, we argue that the loss was not due to 'flight to quality' or 'mortgage meltdown' but to RMK's portfolio concentration in subordinated tranches of asset-backed securities.
We also find that RMK misrepresented to investors and the Securities and Exchange Commission (SEC) in several ways. Firstly, RMK did not disclose to the SEC...
SLCG Research: Collateralized Mortgage Obligations
(Jun 2007)
SLCG released today 'A CMO Primer: the law of Conservation of Structured Securities Risk'.
Recently, the finance industry witnessed the bailout of two Bears Sterns hedge funds and the collapse of Brookstreet Securities. Both had portfolio holdings of collateralized mortgage obligations (CMOs) and suffered huge losses thereof. We have seen such CMO losses before, when in 1994 interest rates rose, CMOs fell in value and bond mutual funds suffered unexpected losses.
In this paper, Dr....
SLCG Research: Closed-end Fund IPOs
(Jun 2007)
SLCG released today 'Closed-end Fund IPOs'.
In this paper,
Dr. Edward O'Neal explains how closed-end funds trade at a discount to their net asset value (NAV). Dr O'Neal finds that at the initial public offering (IPO), a closed-end fund's offering price is set at its NAV. Yet during the year after the IPO, a closed-end fund's price drops as much as 5% from its offering price at the IPO. Furthermore, investors pay huge commissions on the sale of the closed-end fund, generating a premium...
