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Investors Vote With Their Feet Before Scottish Poll

As Scotland votes on its independence Thursday, the fate of the U.K. remains too close to call.

But ETF investors have been voting all month — with their money. Of the eight U.S.-listed ETFs specific to the U.K., three of the largest have seen large net cash outflow, while the remaining five have seen inflow match outflow.

IShares MSCI United Kingdom ETF (EWU) — the largest U.K.-related ETF, with a market cap of $4.13 billion — saw outflow of $40.5 million in August, says Morningstar. The fund tracks about 85% of the U.K. stock market. Its top three holdings are HSBC Holdings at 7.1% of assets, Royal Dutch Shell at 5.3% and BP at 4.9%.

The fund has tumbled 9% from its June high.

IShares MSCI United Kingdom Small-Cap ETF (EWUS) saw outflow of $10.2 million for the month ended Sept. 15, nearly a quarter of its total assets, according to research firm XTF. With its price declining 2% the past month, the fund has sunk 9% from its June high.

Even though investors have known about the vote all year, recent polls showing that the Scots favor leaving Great Britain have flamed uncertainty. And investors are famous for hating uncertainty.

“The vote is most important for the U.K., but Scottish independence would have broader significance as well, particularly for the rest of Europe,” wrote Russ Koesterich, global chief investment strategist for BlackRock’s iShares business, in a recent note. “At the very least, sterling and other U.K. assets would likely come under additional pressure. In addition, given that Scotland is typically more pro-European Union than the rest of the U.K., a departure could raise the odds of an eventual U.K. exit from the EU, which would only add to uncertainty in the region.”

Should the Scots vote “Yes,” the biggest losers will be the British pound sterling and Prime Minister David Cameron, who may be forced to call a new election.

CurrencyShares British Pound Sterling Trust (FXB), which tracks the performance of the pound against the dollar, saw the second most outflow over the past 30 days, $16.3 million, leaving it with $63.8 million in assets, according to XTF. FXB’s price fell 2% the past month and is down 5% from July, when the pound hit a multiyear high.

“If they vote ‘Yes,’ people might flee out of sterling because the government might be toppled,” said Axel Merk, president and chief investment officer of Merk Investments in Palo Alto, Calif. “But I’ve been buying sterling because I believe there will be a relief rally when the Scots say ‘No.'”

FXB has rallied 2% in the past seven sessions.

Scotland accounts for about 10% of Britain’s gross domestic product, but a “Yes” vote will create a lot of uncertainty over the North Sea oil assets, says Merk. People who don’t want uncertainty will take their capital from Edinburgh to London, he says.

Bucking the trend, Deutsche X-trackers MSCI United Kingdom Hedged Equity ETF (DBUK) is up 5% in the past month. It provides exposure to the U.K. stock market while using a hedging strategy to benefit from weakness in the pound.

For the full story go to Investor’s Business Daily.


ETF Assets Grew 25% in 2013 Says ICI

The U.S. exchange-traded-fund industry added a net of 99 new ETFs, or growth of 8.2%, for a total of 1,293 funds, according to the Investment Company Institute.

The combined assets of the nation’s ETFs grew 1.9% in December and 25.2% for all of 2013 to end the year at $1.675 trillion, reported the Institute, the trade group for the mutual fund and ETF industries better known as the ICI.

Ironically, while saw fixed income saw the greatest growth with 36 new funds, or 17.8%, it posted the smallest asset growth, just 1%, to $245.9 billion. No doubt, this is a result of the massive outflows as bond investors reposition their portfolios in anticipation of the Federal Reserve reducing its bond purchasing as part of the Quantitative Easing program.

Meanwhile, even though the hybrid category added just one new fund in 2013 for a total of 14, it posted the greatest asset growth, 121%, to $1.45 billion.

The total number of domestic equity funds, which includes commodity ETFs, grew 4.9% to 603. Domestic equity assets jumped 35% to $1.028 trillion. Global and international equity funds grew 8.4% to 438, while assets under management jumped 21.3% to $398.85 billion.

During December, the value of all ETF shares issued, or net issuance, exceeded that of shares redeemed by $19.97 billion, a 39% drop from the net issuance of $32.58 billion in December 2012. Net issuance for all of 2013 was $179.87 billion, a 3% drop from 2012’s net issuance $185.39 billion.

SPDR Turns 20 Years Old

It was 20 years ago today, State Street Global launched the ETF. (Sung to the tune of
Sgt. Pepper’s Lonely Hearts Club Band.)

On January 29, 1993, the first exchange traded fund, called the Standard & Poor’s Depositary Receipt, began trading on the American Stock Exchange. With the abbreviation SPDR, the product was immediately nicknamed “the spider.” The Amex created the product, then called an “index tracking stock,” with State Street’s logistical help, as a way to increase trading volumes on the dying exchange. The first day the SPDR traded one million shares. Not a bad total for that time period. However, a month later trading volumes had shrunk to 19,500 a day and within three months volumes had fallen so low the Amex considered delisting it.

The Amex is now dead and gone, but its legacy lives on as a huge success and flagship of a revolution in investing. Renamed the SPDR S&P 500 (SPY), the Spider is now the largest fund of any kind in the world, with net assets of $123 billion and average daily volume of 144 million shares.

State Street Global Advisors celebrated the 20th anniversary of its product Tuesday with a panel discussion about the present state and future of the industry it helped start.

New Bond ETFs Offer More Yield With Less Risk

State Street Global Advisors launched two new ETFs today on the NYSE Arca that seek to pay a yield higher than most investment grade bonds with less expected risk than junk bonds or debt from emerging markets.

The SPDR BofA Merrill Lynch Crossover Corporate Bond ETF (XOVR) tracks the BofA Merrill Lynch US Diversified Crossover Corporate Index. According to State Street, “ ‘Crossover’ corporate debt generally means corporate debt rated at levels where the lower end of investment-grade debt and the higher end of high-yield, or junk, debt meet. Qualifying securities must be rated BBB1 through BB3 inclusive — based on an average rating of Moody’s Investors Service, Standard & Poor’s and Fitch — have a fixed income coupon schedule, have at least one year remaining to final maturity, and a minimum amount of outstanding of issuance of $250 million or more. Index constituents are segmented into two groups: those rated between BBB1 and BBB3, inclusive, and those rated between BB1 and BB3, inclusive. Within these two groups, issues are capitalization-weighted and each group is assigned a 50% weight in the overall index – with a 2% cap on each issuer.” As of May 31, the index held approximately 3029 securities. The expense ratio is 0.30%.

“Featuring potentially higher yields than most investment grade bonds and potentially less credit risk than most high yield issues, demand for crossover bonds is growing among financial advisors and investors during this extended low-yield environment,” said James Ross, senior managing director and global head of SPDR Exchange Traded Funds in a written statement. “With the launch of the SPDR BofA Merrill Lynch Crossover Corporate Bond ETF, precise, cost-efficient access to this asset class is within reach for investors seeking exposure that spans both investment grade and high-yield bonds.”

The SPDR BofA Merrill Lynch Emerging Markets Corporate Bond ETF (EMCD) tracks the BofA Merrill Lynch Emerging Markets Large Cap Senior Corporate Index, which designed to measure the performance of U.S. dollar-denominated emerging market corporate senior and secured debt publicly issued in the U.S. domestic market and the Eurobond market. To qualify for inclusion, an issuer must have primary risk exposure to a country other than a member of the G10 (Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, the United Kingdom, and the United States), a Western European country, or a territory of the U.S.

Individual securities of qualifying issuers must be denominated in U.S. dollars, be senior or secured debt, have at least one year remaining to final maturity, a fixed coupon and $500 million or more in outstanding face value. As of May 31, approximately 454 securities were included in the index. The expense ratio is 0.50%.

“The SPDR BofA Merrill Lynch Emerging Markets Corporate Bond ETF provides investors with an opportunity to tap into the growth potential of emerging markets while minimizing exposure to emerging market currencies,” said Ross. “As fixed-income portfolio diversification becomes a higher priority for investors, interest in emerging market bond exposure is increasing.”

Down 50% in 2 Days, TVIX Could Fall More Monday

After the VelocityShares Daily 2x Long VIX Short-Term ETN (TVIX) plunged 30% in Thursday, Credit Suisse, the sponsor of the controversial fund, reopened share issuance on a “limited basis.” The ETF proceed to fall again Friday for a 50% drop over two days.

The Swiss banking giant was blamed for the two-day decline, by Benzinga, because it had temporarily halting new issuance of TVIX shares last month.

“Beginning March 23, 2012, Credit Suisse may from time to time issue the ETNs into inventory of its affiliates to make the ETNs available for lending at or about rates that prevailed prior to the temporary suspension of issuances of the ETNs. Also, beginning as soon as March 28, 2012, Credit Suisse may issue additional ETNs from time to time to be sold solely to authorized market makers,” according to a written statement issued by the bank after Thursday’s close.

Benzinga says “the halt in TVIX share creations may have caused a massive spike in the ETN’s net asset value. The elevated NAV and ensuing plunge in TVIX indicates that, simply put, traders discovered said premium and exploited it.”

TVIX’s slide continued in after-hours trading where the ETN lost almost another 12% and was found at $9 at 8:30PM Eastern Time. That’s by far the the lowest price TVIX has ever traded at.

On Friday, the shares fell 30% to $7.16 on volume of 29.3 million shares, more than twice its daily average volume. That’s 62% of the 46.7 million shares outstanding. And with the shares still 7% above their indicative value of $6.70, according to VelocityShares, the ETN could see another decline on Monday.

ETF Reading List:

China’s PMI Data Could Hinder, Help These ETFs (HAO, FXI, MCHI) (Benzinga)

Happy Water Day? Maybe For Water ETFs (PIO, PHO, CGW) (Benzinga)

Yorkville High Income MLP ETF’s Yield 8.5% On Average (

Seriously? Credit Suisse to Allow New TVIX Creations (TVIX, CS) (Benzinga)

Avoid These ETFs For Now (FXI, TVIX, GDXJ) (Benzinga)

Volatility ETFs Take a Hit; TVIX Plunges 25%

ETF Reading List:

TVIX Plummets Nearly 30% Despite Rallying VIX (Benzinga)

Identical ETFs are not created equal: What’s under the hood can impact returns – Why do the SPDR Select Sector ETF family and iShares’ sector ETF post different results? (MarketWatch)

First Indonesia Small-Cap ETF Debuts (Benginza)

The 7 Most Deceiving ETF Names (FONE, ESR, COW) (Benzinga)

U.S. Futures Hit the Fan as Asia Stocks Plunge

Well, it looks like it’s going to be a clustermunch on the markets tomorrow in reaction to the S&P downgrade of the U.S. credit rating.

If the Asian markets are any indication, the U.S. stock market is going to take a bath Monday. The Asian markets plunged Monday with China taking the biggest hit as Hong Kong’s Hang Seng Index sank 3.9%. Japan’s Nikkei fell 2.2%, Austrailia sank 2.9% and South Korea tumbled 3.8%. Monday’s declines have pushed most of the Asian markets into bear territory with a 20% drop from recent highs.

Meanwhile, the U.S. futures have already hit the fan. Futures on the Dow Jones Industrial Average fell 2% on Sunday, while the Nasdaq futures skidded 2.3%. Ironically, U.S. Treasurys, the U.S. debt instrument that for all intents and purposes was the recipient of the downgrade, actually saw its yield fall a few basis points to 2.53%. It’s the exact opposite reaction one would expect after a downgrade.

I can’t imagine it’s going to stop on Monday. Nor can I see much reason to keep holding stocks, especially, if you’ve made a profit over the past two years. The ProShares and Direxion inverse ETFs can provide a way to capitalize on the expected mayhem, but be careful, if the market does bounce, you could get caught with your pants down.