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‘ETFs Should Be High On Regulators’ List Of Unfinished Business’ (Bloomberg View)
Exchange-traded funds (ETFs) have gotten increasingly popular in the past two decades. Last year, ETFs accounted for 27% of all U.S. equities trading, reports Bloomberg. But a new Bloomberg View editorial claims ETFs are getting risky.
“There are now ETFs based on commodities and currencies. Devising strange new indexes for ETFs to track is a business in its own right. Today, you can buy a leveraged ETF — riskier by design than the securities it bundles together. Or an inverse ETF, which goes up when the relevant market bundle goes down. Or a synthetic ETF, which tracks its benchmark with derivatives rather than by holding the underlying securities. Or you can trade options on any of the above.”
They argue that synthetic ETFs are the most risky. While these are largely seen in Europe and it has garnered attention from international regulators there’s more that can be done. “ETFs should be high on regulators’ list of unfinished business,” they write.
Morgan Stanley Hires Two Advisor Teams From Wells Fargo And UBS (The Wall Street Journal)
Morgan Stanley has hired two advisor teams, one each from UBS and Wells Fargo, that together manage about $US425 million in client assets, reports Corrie Driebusch at The Wall Street Journal. James Wong, Matthew Barker, Justin Harris, and Desiderio Rodriquez have joined from Wells Fargo Advisors where they generated $US2.8 million in commissions and fees. Meanwhile, Daniel Tedesco and Dennis Madden have joined from UBS Wealth Management Americas where they generated $US1.6 million in fees and commissions annually.
In his latest ‘Investment Outlook’ PIMCO’s Bill Gross highlights Concentric Circles that are pinned to the whiteboard in the Investment Committee boardroom. The safest asset classes are in the center (like Treasury bills) while the riskiest (equities, real estate, high-yield credit) are in the outer circles. But there’s more to it than just that.
“Change the price of credit at the center and you change the price of assets at the outer extremities,” writes Gross. “In addition to the changing policy rate at the center, asset prices on the outer circles are dependent on investor expectations and the confidence in policymakers and the effectiveness of their policies. The center must have credibility, the center must ‘hold’ or else the entire array of asset prices at the extremities is at risk.”
M&A Activity In The RIA Space Was Healthy Last Year (Schwab Advisor Services)
2013 saw 54 completed mergers and acquisitions (M&A) in the registered investment advisor (RIA) space that totaled $US43.6 billion in AUM, according to Schwab Advisor Services. Deals were up 20% on the year, though total AUM was down 26% on the year.
“There was an identifiable trend last year during the second half of 2013 in which larger firms acquired smaller and mid-size firms, an indication that firms across the spectrum looked to M&A as a means to quickly expand their footprint,” Jonathan Beatty, senior vice president of sales and relationship management at Schwab Advisor Services said in a press release.
Here’s How To Avoid The ‘Dumb Money’ Effect (Credit Suisse)
Group-think and the ‘dumb-money effect’ exhibit the worst of investor behaviour and feed into one another. Investors can offset this tendency “by making predictions that place more weight on past results and less on recent outcomes,” argues Credit Suisse’s Michael Mauboussin.
“Since year-to-year results for the stock market are very difficult to predict, investors should not be lured by last year’s good results any more than they should be repelled by poor outcomes. It is better to focus on long-term averages and avoid being too swayed by recent outcomes. Avoiding the dumb money effect boils down to maintaining consistent exposure.”
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