Street One Financial

Newsletter provider, debt, growth
Street One Financial
Newsletter provider, debt, growth
Contributor since: 2010
Company: Street One Financial
Please see the following links to our instablog for supplemental charts that were prepared for us by the folks at AdvisorShares ETFs on the topics above:
Michael, well said and thanks for the retort. The most flagrant piece of misinformation in the Bogan report is equating "naked shorting" with an ETF (or equity for that matter) that has a higher short interest than long shares outstanding. Does it happen? You bet it does, every day, with hundreds if not thousands of securities. But naked shorting, and heavy short interest are two completely different things and make all the difference in the world in making an argument such as his. Misusing the term and application of naked shorting just punches holes in the rest of the "research."
Happy to talk about this Rich if you want to discuss the facts at some point. pweisbruch@streetonefi... 877-782-8353.
Matt great article and insights. Only, in Vanguard's defense, I would argue that the liquidity of VWO has always been there, and only the "trading volume" has been increasing, so as to compete with EEM in that respect.
We generally consider what the issuer calls their strategy, and PIMCO makes no bones in labeling MINT as active, so we would agree with this categorization.
As a supplement to this article, put buyers have been present now in FXI and EWY (South Korea) as well, in addition to a continuation of XLK put buying.
Wisdom Tree Dreyfus Chinese Yuan (CYB) is an ETF, not an ETN (typo).
Michael, excellent article. I often wonder why HOLDRs still have a respectable amount of assets in the products, and I suspect it's not because they are the best fits for one's portfolio in a given category. Rather, I suspect it's because of misinformation about how the products are structured, symbol and name recognition and familiarity, trading volume (working as a positive), and finally just a reluctance of those who have been trading HOLDRs for the past decade to use a newer, improved ETF as their benchmark core holding or trading tool.
The dividend yields are all ascertained from the individual fact sheets for each ETF from the company websites, on an annualized basis, not Yahoo Finance which can be incomplete at times.
True, these funds are rather new to the market and have low market cap, and low average daily trading volume, but that has nothing to do with the true underlying liquidity of the fund. If you need to buy or sell a large notional $ position in any of these funds, it can be achieved with minimal price impact. The underlying baskets are made up largely of heavily traded, large cap stocks. True underlying liquidity, and the amount of volume traded or an ETF's AUM, are not the same.
To avoid confusion, the original title of this article was "Dividend Based ETFs and New Options on the S&P 500 Dividend Index". So to clarify, DVS is not an ETF, but an index which will list options tomorrow. I am hoping that the editorial team makes the proper changes to the title. Thank you.
DVS is not an ETF, it is an INDEX that options will be based on. Please correct the title of this article, not sure why it reads this why. This wasn't the intentions of the original article. I was hoping to highlight the DVS Index, and parlay it into various Dividend based ETFs, like DLN, VIG, etc. Thank you.
GCE is also an alternative you are correct, but it is an ETN and thus structured differently. PCEF is therefore the first ETF in this class.
Ron, although this may not specifically be the case here, not all ETF splits are designed solely to increase trading volume. The creation/redemption market will be more active and draw more authorized participants if the ETF trades at a lower notional amount. This is because the creation/redemption unit minimums are often in 50,000 or 100,000 share increments, and less capital is tied up with a 50,000 share creation/redemption unit where the ETF trades at say $20 per share as opposed to $100 per share. Any ETF market making firm or Authorized Participant will tell you they can more effectively price and trade a lower priced ETF than a higher priced one simply because of the lesser capital requirements in creations/redemptions, and when the initial "seed capital" is placed, it's obviously more appealing to create a unit of 50,000 shares of a $20 ETF than a $100 one, and hold it on the books until you can get out of the position (ties up less capital). That said, I question why the Old Mutual ETFs didn't launch at $20 initially because although trading volume may increase going forward, liquidity doesn't increase because trading volume and liquidity are not the same. The underlying indexes contain the same securities, and just because spreads on the screens might come in a bit, that still doesn't equate to more liquidity.
As for MacroShares, you have a valid point, but for RevenueShares, their AUM has risen 5 fold to nearly $400 million from $60 million at the time of their split, so it would be hard to argue that it didn't help them in terms of having more authorized participants active in their funds since it's simply cheaper for them to be involved now. Thank you.
We hope that Registered Investment Advisors, who pride themselves as being independent free thinkers and fiduciaries, will use the best ETF products that are out there that fit within their customer's portfolio objectives, not simply the ones that are the cheapest to trade on a commissions basis.
Thanks for the article as this is a timely discussion. I recommend referencing our website or feel free to contact us as we are in the business of improving trading performance of portfolio managers by helping them recapture basis points that would otherwise be lost to the bid/ask spreads or poor trade execution.
Thanks for the feedback. When it comes down to it, it's all about the transparency of the underlying holdings of each of these ETFs (all name for name the same because they are S&P index based). That said, the risk can be assessed to a certain degree because of this transparency. While not a perfect collar, you can certainly build into your expectations "max moves" one way or the other depending on how the positions are established because of the underlying holdings, and their individual weightings. The differences in weightings on a weekly, monthly, or even daily basis, because of the ETF structure can be monitored rather closely to point out specific sectors that you may be over/underexposed to.
I could not agree more, this is why our firm is set up as an ETF centric, trade execution/liquidity provider. Please see and contact pweisbruch@streetonefi... for additional information. Thank you.
Volume and liquidity are two different things and this has not been addressed fairly on many Seeking Alpha contributions including the one above. Making determinations on the quality of an ETF based on the average daily volume is only seeing a partial picture. True, EFA and VEA may trade more volume than HEDJ, or perhaps the Emerging Global Shares ETFs such as EEG, EFN, EMT but this is not, I repeat is not an indicator of the liquidity of the underlying index. ETFs should not be "screened out" of one's portfolio because one is examining Average Daily Trading Volume. This is a popular, although shortsighted way to make snap investment decisions. HEDJ, although a newer product, will not be priced that much differently from an EFA from a portfolio basket level. Anyone who deals with alternative liquidity providers knows this because the real market that we will show a customer is not the published inside "bid/ask" or the "shown" liquidity on the screen, but often a vastly improved, tighter market with real size associated with it. Assuming that you "have" to trade with the inside bid/ask on a thinly traded ETF is flawed thinking and not practical in reality. Also, "market orders" are not, I repeat NOT the way to trade any ETF, VEA, EFA, or anything else for that matter. I am happy to show a live market in any of these "illiquid" ETFs at any point to dispel such myths, and to prove that trading volume and liquidity are two separate things. An ETF can be extremely liquid and still trade thinly. Please see for more information or feel free to contact me at pweisbruch@streetonefi... or 877-782-8353. Thank you.
Tom, Paul Weisbruch of RevenueShares here. How do we get our ETFs, at least the core broad based ones (RWL, RWK, RWJ) into your monthly performance reports? Thank you.
Tom, Paul Weisbruch of RevenueShares here. How does RWJ (RevenueShares Small Cap) not make this list? Up 19.57% YTD and up approximately 40% from the March 9th lows.
Seems like a shoe in on this list. Thanks.
Get this jacka-- above off the site.
No RevenueShares in here? RWL, RWK, RWJ, RTR, RWW, among some of the best performers YTD.
Ron thanks for the monthly coverage on this, it is quite unique. Although I agree that trading volume is good as an "initial" screen, there are two factors I hope you can build into this analysis. Number 1 is Net Creations vs. Net Redemptions. If a fund doesn't trade much, but all of the volume when it does trade is new buyers, then that fund, and fund company should have a very positive Creation to Redemption ratio and this is why ETF companies are in business in the first place. ETF companies don't "make money" by having lots of volume. They make money with their management fees (i.e. expense ratios), so having a large amount of net buyers is what really matters to the fund company. If SPY for example traded 100 million shares one day and 75% of that volume were long sellers and short sellers using the SPY to hedge their long portfolios, that does not help the fund company's bottom line. All it does is help the "volume" story along, which in theory can draw in long buyers of the ETF, and hopefully for State Street's case, more buy and hold users than simply day traders. If we measured the mutual fund industry by "volume" alone we might determine that the most heavily traded mutual funds last year were the "best" when in reality the most heavily traded ones saw the most net outflows of assets.
The Second factor is the viability of the issuer. I don't think you can put ETFs on Deathwatch notice simply by volume alone. Rydex, and iShares for instance have a few on this list, but this situation should be treated like it is in any industry. If from a business standpoint, as an issuer you have 100 ETFs and 20 of them haven't gained popularity yet (i.e. low trading volume), if your business as a whole is profitable you can support those less popular, and possibly money losing ETFs for quite a long time in order to maintain a broad product lineup for you customers. Many businesses function like this...some departments are money losers or break even ventures, but are "kept open" by the cash cows within the business. That said, the stronger the financial position of the issuer, trading volume should be less of a concern, as there are no "rules" that the ETF needs to be shut down because it doesn't trade that much. Thanks.
Shouldn't RWK (RevenueShares Mid Cap) +6.5% YTD vs MDY (Mid Cap Spyder) +1.6% be on this list as well as RWJ (RevenueShares Small Cap) -1.1% YTD vs. IJR (Small Cap IShares) -5.9%?
People attempt to use FAS for amplified long exposure to the XLF, that's a fair assumption no? Why not just use something vanilla like RWW instead of XLF that is long only (equity), and doesn't use futures and options so there's no need to worry about the daily resetting and the longer term frustrating performance. RWW up 84% in the past 1 month versus XLF up 70%...seems like a no brainer to me.
Basically it's up to the issuer's solvency. Having ETFs with little volume is obviously not desirable, but it all depends on the sales/distribution effort, and it becomes largely a judgment call on the ETF issuer's part whether or not they want to close the doors. That said, a company with a few profitable ETFs can easily sustain a few other products in their lineup that might not have any trading volume since the costs of running them are minimal and fixed for the omst part. Lose a bit here, make it up somewhere else, etc etc.
I would suggest as a solution to retail investors then to place your orders around NAV, not between the bid/ask. You will get volume notwithstanding. No arbitrageur will allow your bid or offer, if above or below the NAV of the fund to just sit out there for hours. If you give yourself a few cents of "room" around the NAV you are even more assured to get filled. We are talking pennies here.
Simply go to a tool like Google Finance and type in an ETF symbol, i.e. "XYZ.IV" This will give you the "real value" of the underlying basket. It doesn't matter if the spread between bid/ask is a dollar wide. The Authorized Participants that are watching these ETFs will trade against your order provided it is near NAV and they can arb it. Example: If NAV (IV) is $20, and the bid ask is $19.50-$20.50 and you are a buyer at $20.10, you will get filled. Someone will short the ETF shares to you at $20.10, and then create the basket at $20 and pocket the 10 cents. Does this work for all ETFs no, some ETNs have IV's that are more difficult to ascertain since they are tracking baskets of futures and other derivatives.
re: above comment, I meant to use the word "track"
"and most ETFs that track" liquid indexes
"High liquidity means you don’t have to worry about whether someone will take the other side of your trade."
What I don't understand, is that if you simply call an ETF market making firm (Susquehanna, Sloan Securities, Knight) they will almost always be able to make a market within pennies around the bid/ask on the screen. This notion of ETFs trading like closed end funds is largely isolated to the fixed income sector, and most ETFs that trade liquid indexes are VERY liquid even though some may have light trading volume. It's all about what is in the indexes, NOT the trading volume. If you don't believe it, call an ETF institutional market making desk some time and ask for a market.