Protection Against Identity Theft

This isn’t ETF news, but it is related to personal finance and another one of my areas of extreme interest: identity theft and privacy of personal information. Just got an email from my lawyer recommending people follow these ideas.

We’ve all heard horror stories about fraud committed after the theft of a name, address, credit cards or social security number. Once a thief has these numbers it’s easy for him to apply for new credit cards, get a cell phone service contract and cause other trouble that will cost your many hours and dollars to fix. I’ve been following most for a while, but it’s nice to have them written down all in one place.

1. Do not sign the back of your credit cards. Instead, put “PHOTO ID REQUIRED.”

2. When writing checks to pay on credit card accounts, DO NOT put the complete account number on the ‘For’ line. Instead, just put the last four numbers. The credit card company knows the rest of the number. Anyone else handling your check as it passes through the processing channels won’t have access to it.

3. NEVER, EVER, have your social security number printed on your personal checks.

4. If you have a post office box, use that as the address on the check. Some people say put your work address and phone number on the check. I say don’t put any phone number on the check. You can always add information with a pen if you have to, and most times you are not required to give it. But if you have information printed, anyone can get it.

5. We’ve been told we should cancel stolen credit cards immediately. But the key is having the card numbers handy and the companies’ toll free numbers so you know whom to call. Keep those where you can find them. Copy the contents of your wallet on a photocopy machine. Do both sides of each license, credit card, etc. If you lose the wallet, you will know what you had in it, all of the account numbers and the phone numbers to call and cancel. Keep the photocopy in a safe place.

6. Carry a photocopy of your passport when you travel.

7. If your wallet or credit cards are stolen, file a police report immediately in the jurisdiction where it occured. This proves to credit providers you were diligent and is the first step toward an investigation.

8. The most important thing to do immediately after the theft of a credit card or Social Security number is to call the three national credit reporting organizations to place a fraud alert on your name. Also call the Social Security fraud line number. The alert means any company that checks your credit knows your information was stolen and they have to contact you by phone to authorize new credit.

Here are the numbers of the three credit agencies. Contact them immediately if you have been the victim of a theft. Also, you are entitled to one free credit report a year from each of them so that you can make sure nothing funny has occurred in your files and to correct any incorrect information. You don’t need to use FreeCreditReport.com. That actually will cost you money.

1.) Equifax: 1-800-525-6285
2.) Experian (formerly TRW): 1-888-397-3742
3.) Trans Union: 1-800-680 7289
4.) Social Security Administration (fraud line): 1-800-269-0271

Getting Some TIPS from PIMCO

Pimco, the world’s largest bond fund manager by assets, launched its second ETF, the PIMCO 1-5 Year U.S. TIPS Index Fund (STPZ). The ETF began trading Monday on the NYSE Arca. It tracks the Merrill Lynch 1-5 Year U.S. Inflation-Linked Treasury Index. This unmanaged index holds TIPS (Treasury Inflation Protected Securities) with a maturity between one and five years, and averaging about three years. The fund charges in expense ratio of 0.20%.

STPZ is the first of three ETFs on TIPS, U.S. Government-issued fixed-income securities that give investors explicit inflation protection and the potential for additional yield. The principal value of TIPS is adjusted monthly according to the rate of inflation measured by the U.S. consumer price index.

Pimco said in a written statement that the new fund is the “first ETF to focus specifically on the short maturity segment of the TIPS market and aims to offer investors a high degree of protection against the immediate effects of inflation on their portfolio. Shorter-dated TIPS have historically shown a significantly higher correlation with current inflation and lower volatility relative to an index that covers the entire TIPS maturity spectrum.”

Currently, inflation remains close to non-existent, with deflation a bigger threat to the economy. But, that situation just can’t last. The government’s spending surge from the unprecedented fiscal stimulus bill passed earlier this year has the potential to significantly boost prices across the economy.

Pimco has been one of the most active participants in the TIPS market since the product’s inception in 1997. Next month, the bond fund firm expects to launch two more TIPS ETFs. The PIMCO 15+ Year U.S. TIPS Index Fund (LTPZ) will address the long end of the market while the PIMCO Broad U.S. TIPS Index Fund (TIPZ) will give TIPS exposure across the maturity spectrum. These two will take on the two TIPS ETFs already on the market, the iShares Barclays TIPS Bond Fund (TIP) and the SPDR Barclays Capital TIPS ETF (IPE).

“By focusing on the short end of the maturity curve, we’re addressing the two main concerns we’ve heard from investors (inflation protection and protection against the risk of rising interest rates),” John Cavalieri, a Pimco senior vice president and real return product manager, told IndexUniverse. He said while the ETFs on the market provide inflation protection, STPZ is uniquely positioned to protect against the risk of rising interest rates. “It boils down to this ETF providing exposure to the short end of the maturity curve, which limits interest rate sensitivity.”

Pimco launched its first ETF in June.

ProShares Launches Mild Short Bond Fund

With interest rates near 0%, the only direction they can go is up. And as anyone who has ever read a story about bonds knows, when interest rates go up, bond prices fall. When that will happen is anyone’s guess. But ProShares is getting ready for that day. ProShares timed the market perfectly last time by launching a series of ETFs to short the equities markets just in time to capitalize on the crash that started in October 2007. Now, they are priming the market for the popping of the bond bubble.

The ProShares Short 20+ Year Treasury ETF (TBF), a fund designed to provide short exposure to long-term U.S. Treasury bonds, launched Thursday on the NYSE Arca. This ETF will try to match the inverse performance of the Barclays Capital 20+ Year U.S. Treasury Index each day. The Barclays Capital 20+ Year U.S. Treasury Index trackes the performance of U.S. Treasury bonds with maturities of 20 years or greater.

ProShares says it’s launching this in “direct response to strong investor demand for a single beta2 short treasury fund.” I believe them. The inverse bond ETFs will soon become very hot.

Currently, ProShares offers two bond funds that offer a 200% inverse move of two other indexes. The ProShares UltraShort 7-10 Year Treasury ETF (PST) gives double the inverse return of the Barclays Capital 7-10 Year U.S. Treasury Index, while the ProShares UltraShort 20+ Year Treasury ETF (TBT) does the same for the Barclays Capital 20+ Year U.S. Treasury Index. All three charge an expense ratio of 0.95%

Of course, if negative 200% is a little too tame for you, Direxion offers short Treasury funds that seek an inverse 300% return to their tracking indexes. The Daily 10-Year Treasury Bear 3x Shares (TYO) and the Daily 30-Year Treasury Bear 3x Shares (TMV) also charge a fee of 0.95%.

The new ProShares bond ETF stands out from this crowd in that it’s the only one to offer a 1-to-1 inverse ratio, just a mild negative 100% of its tracking index.

TheStreet.com says the recent uproar over leveraged ETFs has led UBS and Ameriprise to stop selling the funds.

ETF to Track Herring Index

A Nordic Fund? Really? I didn’t think there was anything up there except Aquavit, herring and a lot of depressed Swedes. Yes, Nokia is from Finland, but is that enough to build an ETF around?

Well Global X Management thinks so. The New York-based asset manager today launched the Global X FTSE Nordic 30 ETF (GXF) on the NYSE Arca. It’s the first ETF in the U.S. to offer diversified access to the largest companies in Sweden, Denmark, Finland, and Norway. The ETF tracks the FTSE Nordic 30 index, which holds the 30 largest and most liquid companies in the Nordic region.

As of July 31, the FTSE Nordic 30 index had a 46% weighting in Sweden, 20% in Denmark, 17% in Norway, and 17% in Finland. The top sectors in the index are financials (28%), industrials (16%), technology (15%), health care (8%), and oil and gas (8%). Nordea Bank of Sweden, Novo-Nordisk of Denmark, and Nokia make up the largest companies in the index. I have officially nicknamed this the Herring Index.

I’m sure many people share my view and aren’t shocked it took this long to make a Nordic ETF. And probably many think this smacks of the resurgance of the niche ETFs. Yet, while the U.S. stock market is pretty much in that exact same place it was about 10 years ago, Globax X says the Nordic region has stood out in the developed Europe region. As of July 31, over the last five years the FTSE Nordic 30 Index’s return of 56.5% outperformed the FTSE Developed Europe Index’s return of 33.0% Year to date, the Nordic 30 has posted a 34.9% return vs. Developed Europe’s 19.3%. Not quite sure what all those Swedes are depressed about. Maybe they should lay off the Aquavit. And how did the land of opportunity, corporate theft, corruption and massive bailouts do over the last five years? As of July 31, the S&P 500 index posted a -0.7% return. Year-to-date, the S&P is up 11.0%. Maybe we should all be eating some herring here.

According to Global X, Sweden, Denmark, Finland, and Norway are members of a select group of 15 countries that receive top AAA ratings with stable outlooks from Standard & Poor’s. The firm reports that World Economic Forum’s most recent Global Competitive Report ranks Denmark, Sweden and Finland as third, fourth, and sixth, respectively, for global competitiveness. They also hold the top three positions in higher education and training.

“In our view, the Scandinavian region offers a stable macroeconomic environment and a unique economic model that has historically produced higher returns than its European neighbors,” said Bruno del Ama, Global X chief executive in a written statement.

This is the second ETF from Global X. On Feb. 5, 2009, it launched the Global X/Interbolsa FTSE Colombia 20 ETF (GXG). Through July 31, it has returned 64.7%.

Van Eck Launches Vietnam ETF

No doubt about it, the war with Vietnam is officially over.

Van Eck launched the Market Vectors Vietnam ETF (VNM) on the NYSE Arca Friday. The fund tracks the Market Vectors Vietnam Index (MNVNM), a rules-based, modified capitalization weighted, float-adjusted index. The index comprises “a broad representation” of Vietnam’s equity market with 28 companies in eight sectors. The top sectors include Financials (37% of the index), Energy (19%) and Materials (12%).

Van Eck says currently 70% of the Vietnam Index’ market capitalization is comprised of companies domiciled and primarily listed on an exchange in Vietnam. In addition, they must generate at least 50% of their revenues from Vietnam.. This percentage is expected to increase in the future. Currently, about 30% of the index is comprised of non-Vietnamese companies that generate, or are expected to generate, at least 50% of their revenues from Vietnam, or that demonstrate a significant position in the Vietnamese market.

Hyland Calls Allegations “Gibberish”

Two of the most popular and least understood ETFs are the U.S. Oil Fund (USO) and the U.S. Natural Gas Fund (UNG). Many have blamed these funds for being partly responsible for excessive speculation that caused the surge in oil and gas prices.

In its effort to decide whether to impose limits on speculators in the energy markets, the Commodity Futures Trading Commission held three days of hearings in Washington.

John Hyland, the chief investment officer for both ETFs testified before the CFTC on Wednesday. Bloomberg gives a good overview of the testimony in which Hyland calls the allegation that his funds are responsible for rising prices “self-serving statistical gibberish.”

IndexUniverse offers the full transcript of Hyland’s testimony before the CFTC. In it Hyland rebutted the CFTC’s allegations by noting that there were only 325,000 investors in the fund and that between 75% and 90% were comprised of individual and retail investors, not institutions or investment funds. He added he believes the funds are widely held because no single investor has filed a 13G of 13F filing with the SEC. These filings are required of an investor holding an interest of more than 5% in a fund.

As for the charge by certain media outlets that the huge popularity of USO and UNG has caused prices to move artificially, Hyland fought back, saying “the management of USO believes that readily available information from USO’s website and other widely available financial news and data sources indicate that many or most of these claims lack merit.”

In February, the Wall Street Journal said USO had gotten so bit it was it’s affecting the oil market.

I followed the story with the following postings.

* Debating the WSJ’s Assessment of USO

* U.S. Oil to Change Roll Policy

* Suspected Front Running Cost USO $120 Million in February

And It Takes Two (Months) to Contango

Claymore Cashes Out

It looks like the rumors were true.

For about year, rumors swirled around that ETF firm Claymore Securities had put itself up for sale. Well, it finally found a buyer. Guggenheim Partner, a privately held institutional money manager, on Friday agreed to acquire the entire Claymore Group. The Lisle, Ill., company includes the ETF firm Claymore Securities, as well as Claymore Advisors and Claymore Investments in Canada. All will become wholly owned subsidiaries of Guggenheim Partners. Terms of the transaction were not disclosed. The deal is expected to close at the end of the third quarter.

The deal gives Guggenheim, an institutional financial services firm with more than $100 billion in assets, its first retail operation. According to the National Stock Exchange, as of June 30, Claymore was the 13th-largest U.S. ETF provider, with 35 ETFs and more than $1.6 billion in assets under management. With more than $740 million in assets, its largest fund is the Claymore/BNY BRIC ETF (EEB)

In 2001 Claymore began as a creator of unit investment trusts (UITs) and closed-end funds. It began selling ETFs in 2006. At the end of the second quarter, all the Claymore entities combined managed $12.9 billion in assets, with more than $2 billion in Canada.

For more than a year, rumors have abounded that Dave Hooten, the Claymore Group chairman and chief executive, was looking to cash out of the firm he created, in a fashion similar to his old friend and ETF rival, Bruce Bond, the founder of PowerShares. In 2006, mutual fund giant Invesco bought PowerShares for $100 million and the possibility of contingency payments.

Claymore created some of the most original ETFs in the industry, such as the Claymore/KLD Sudan Free Large-Cap Core, the Claymore/Clear Global Vaccine Index and the Claymore/NYSE Arca Airline ETF (FAA). But many funds had a hard time acquiring assets because of their niche appeal. Claymore became the first ETF firm to close funds when it shut the Sudan and Vaccine funds along with nine others in February 2008.

Most ETFs are index funds. And Claymore has struggled because of the indexes its funds track. Unable to link up with a major index provider and working in an industry that makes it difficult for two funds to track the same index, Claymore’s basic large-cap, small-cap, value and growth funds failed to attract a huge audience. Claymore’s biggest index providers are Zacks and BNY/Mellon Bank.

While the Claymore deal comes on the heels of Blackrock’s purchase of iShares, Barclays ETF company, the trend isn’t obvious. Barclays, a giant British bank, was forced to sell its market-leading ETF firm, a huge moneymaker, in order to avoid a British government takeover due to depleted cash reserves from the financial crisis. While Claymore didn’t give a reason, a few come to mind.

1) The current market environment has hurt all fund companies. Over the past year, many investors pulled out cash and remain fearful of putting money back in the market.

2) The ETF business has been a struggle for all small independent firms. Unable to latch onto a major index provider, all the independent firms, like Claymore, have needed to create niche products. And while some have been great ideas, they nonetheless have had to work harder to attract attention to these less than obvious portfolio ideas. In a market full of fear, investors don’t want to invest in offbeat ideas. They tend to gravitate to conservative and well-known indexes. Many small ETF firms have gone out of business over the past two years.

3) In light of the combination of the above reasons, I think the upper management of Claymore wanted to cash out while their firm still had a good reputation and a sizeable amount of assets.

What this all means for investors remains unclear.