FINANCIAL PRODUCTS RESEARCH
Look who visited the ETF Business Review: George Lukas (Star Wars) and Rob Ivanoff (FPR) at the ICI5/16/2012
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The ETN market continues to grow. ETNs grew faster than both, mutual fund and ETF offerings in 2011 (see chart below), as of June 23rd, YTD. Earlier this year, we projected ETN assets to reach $23 billion by the end of 2011. However, we have been too optimistic. ETNs are now growing at a slower rate: total ETN universe grew 14% since end of 2010, as of June 23rd. ETNs hold $16 billion, which is up from $14 billion at the end of 2010. Amongst the colorful array of ETNs, more than 50% of them are in commodity-tracking offerings, ($8.6 bill), and volatility-related ETNs hold $2.1 bill. Another $3 bill is in energy-related MLP offerings. Agriculture related products hold close to $1.6 billion. Out of the 189 new ETP products launched in 2011, 36 were ETNs. Going forward, much of the growth in ETNs is expected to come from trader-oriented and alternatives-targeting products, areas that are challenging to package in ETF wrappers. Despite the credit risk associated with these products, ETNs serve as ideal instruments for placing precise bets on hard-to-reach areas of the marketplace. (extracted from this week's ETF Business Review, issue 76)  Much of what is written about social media is questionable. Much of what is sold as advice is truly useless. It is often full of excellent diagrams, but really, just a noise. To prevent expensive consultants from stealing your hard-won budget you need to simplify. You need to invent engaging ways of adding value. For that purpose, FPR offers you three ideas we extracted from understanding how Visa thinks about their social media engagement strategy:
1) Sharing is the new giving 2) Participation is the new engagement 3) Recommendations are the new advertising There's a process VISA (the credit card firm) observes in the online path to the purchase of a "something" that has been influenced by social media. It starts with 1) Advocate, 2) Consider, 3) Evaluate, then 4) Buy. Are people talking favorably about your brand and products? They should. Drop the endless analytics conversations around the drawing board. Go back to fundamentals that work. Start simple, on a small budget and build by contributing to your end-users.  Big success is often a matter of science and diligence.
It is possible that people working within the financial services, have no true understanding of how mutual funds work. It is also possible, that many do not understand why mutual funds have become the investment vehicle of choice for investors around the world. But it is absolutely certain - only a handful of people in the world, grasp the science behind what makes an asset manager win over its competitors. For that purpose, I want to tell you about a brand new book - The Fund Industry: How Your Money is Managed (Wiley Finance).The book is written by Robert Pozen, Senior Lecturer at Harvard Business School, and Theresa Hamacher, President of NICSA. It is highly appointed, in our industry circles, as the ultimate fund industry companion - a book that will not be surpassed, not until its next edition - by the very same authors. The great thing about The Fund Industry is that it clarifies a lot of difficult subjects in the mutual fund area. The book is comprehensive and it covers areas such as history and growth of mutual funds, how funds are sold through brokers, banks, insurance agents and the roles of independent directors and boards. It even goes into the challenges of gathering assets internationally, and the limitations of some alternative products. And because of the power of internet, which has brought our (networked) personalities together, I asked Bob and Theresa to write a short post for our readers. It pertains to the winning formula for US Asset Managers. Enter BOB POZEN and THERESA HAMACHER, authors of THE FUND INDUSTRY: The Winning Formula for US Asset Managers "During the late 1990s through 2001, US asset managers were frequently acquired by outsiders – Europeans and other types of financial firms such as banks, insurers and broker dealers. For example, Unicredito Bank bought Pioneer and Morgan Stanley bought Van Kampen. However, by 2010, most of the outsiders had left the fund management business and the dedicated fund managers were once again ascendant. Why did industry insiders win out over industry outsiders? Banks , insurers and brokers generally bought asset managers as part of a financial supermarket strategy. Under that strategy, if the financial firm had customers buying financial product X, it could distribute to those same customers financial products y and z. So it made sense to build an array of affiliated managers who could provide more financial products to the same customer base. But the financial supermarket strategy was not effective for several reasons. First, and most important, was the move toward open architecture. High net worth customers wanted the best manager of a fund, not an affiliated one. Second, the SEC began to scrutinize much more closely practices like paying special compensation to brokers who sold affiliated funds. Third, some portfolio managers did not like the bureaucratic culture of a large financial institutions; they also wanted to be paid on the basis of the performance of the asset management unit, not the performance of the larger institution. In 2003-2005, Citigroup and Merrill Lynch both decided to sell their asset management units and to concentrate on distribution of all financial products. These sales in turn reinforced the positions of BlackRock and Legg Mason as asset managers. Between 2007 and 2009, a number of large institutions chose to sell their asset management units in order to raise capital in response to the financial crisis. These included sales by AIG, Bank of America, Lincoln Life and Barclays. Now the asset management industry is again dominated by two groups of dedicated asset management firms. One is the big private firms – Capital Research, Fidelity and Vanguard – which have continued to top the ranks of mutual fund managers. All three are organized effectively as partnerships, though the technical legal format may vary. The second group is the private-public firms like BlackRock, Franklin and T Rowe Price. While these firms have publicly held shares, they are effectively controlled by their own investment managers. Thus, the winning formula seems to be clear – a firm primarily dedicated to asset management that either is privately held or controlled by insiders. These firms have the focus on asset management, the long-term perspective and the informal cultures that are critical to success in asset management." Note: The statistics on all acquisitions and mergers in the asset management industry are detailed in chapter 15 of The Fund Industry: How Your Money is Managed (Wiley Finance). The celebrated book is out today. To become a member of NICSA- visit their website. Goldman Sachs has agreed to buy India's Benchmark Asset Management, a major provider of ETFs. Benchmark Asset Management was founded in 2001 and had about $700 million in assets under management as of Dec. 31. As of last year, Benchmark had nearly 65% marketshare of the Indian ETF market, and its gold ETF was the first and largest, in terms of AUM. Benchmark previously held almost $2 billion in AUM over its productline (2008 data). Terms of the deal were not disclosed. Goldman, which has had a license to offer investment-banking services in India since 2008, said it planned to launch actively managed on-shore funds in India. The firm is also planning a major push in Korea, targeting its increasingly wealthy population. Benchmark Asset Management is known for its Gold ETF, but also offers six equity, one international and one fixed income ETFs. FPR Commentary: Benchmark and Goldman will face the onerous task of competing against iShares, European and local banks in the increasingly relevant Indian wealth management space. However, Goldman now has the strategic advantage of owning the most established ETF provider in India. Amongst the benefits that will accrue to Goldman are a) knowledge on the local markets, b) regulatory connections and c) established local distribution. The firms are indirectly hoping to preempt iShares, ETF Securities, (and eventually T Rowe Price through its ownership of UTI Asset Management Co) from gaining advantage in India. However, it has been a tough job for Benchmark to convince the Indian newly-rich to embrace ETFs. Distribution efforts have suffered due to the extensive resources required in educating local investors and advisors on the benefits of exchange traded funds. Further, Indian rich are traditionally known for investing in physical gold. Some seem reluctant to embrace the concept of ' gold fund that charges annual expenses' unless a larger global brand is behind it. And this is where Goldman's name comes in. Given the benefits ETFs offer (such as low cost, transparency, and ease-of-transaction), it will be a slow but steady march towards winning the trust of India's wealthy. As the emerging markets continue to correct down, FPR expects to see more global M&A activity in that corner of the world. Activity that will effectively redefine the battle for India's wealth, through smart alliances and global partnerships. P.S. To all ETF Business Review subscribers, here is the website of Benchmark in India <script src="http://cdn.wibiya.com/Toolbars/dir_0862/Toolbar_862239/Loader_862239.js" ></script><noscript><a href="http://www.wibiya.com/">Web Toolbar by Wibiya</a></noscript>  This is going to be a short post. Last week, we spoke about the exciting trend of wholesalers adopting iPads, for product presentations. In time for the new iPad 2 just revealed by Steven Jobs today, the ETF Business Review has a charming demo to show you: a new interactive novel Operation Ajax. Go ahead and play the video below. Typically, in this graphic novel you can zoom in on every photo, play video and voice-overs, even interact with the graphics (once it is on iPad). It'll be breathtaking to see what possibilities will come about, once fund firms adopt and perfect the software. Fund product marketing is about to enter a new era of design. Play the video and send us your comments. (Rob Ivanoff) Operation Ajax from Operation Ajax on Vimeo.  NY-based FactorShares has launched 5 futures-based spread ETFs with cost of 75 basis points. The offerings are first-of--kind spread ETFs and will allow sophisticated investors to simultaneously hold long and short positions in a 2X leveraged return format. The funds are:
Conclusion: Since spread ETFs are still unproven and market support is unknown (for now), sophisticated investors may be better off building up their own spread trades with established offerings that exist on the marketplace. The recommended leading brands for leveraged funds are Direxion and ProShares. Both firms have extensive product supporting mechanisms and best-in-class education. To protect its intellectual capital, FactorShares has filed for a number of trademarks. On Tuesday, February 8, 2011, a U.S. federal trademark registration number 85237286 was filed for SPREAD ETF by FACTOR ADVISORS, LLC with the description financial investment in the field of securities. The firm also filed for 4 other trademarks including:
Stuart Rosenthal, CEO of Factor Advisors has a background as a trader and director for Credit Suisse. Wholesalers and distribution teams are advised to hold off on new orders for iPad. That is because Apple just announced it will hold a special event on March 2 in San Francisco. According to the invitation received by FPR, the event will be held at the Yerba Buena Center for the Arts at 10:00 am. Historically, this is the same venue Apple has used to introduce other new products. With the specs of iPad 2 being tightly guarded secret, it is widely believed that the device will be announced there. In terms of new attributes, it will feature a front-facing camera. Its size should be thinner too. Fund firms have been very aggressive in supplying iPads for their heavy-traveled wholesalers. For instance, John Hancock supplied 200 iPads for its distribution team in January. TD Ameritrade, Dreyfus and Hartford's annuity wholesalers reportedly spent undisclosed ammounts on iPads. JP Morgan's i-bankers are also active users. Last, the SPDRs team was spotted carrying a few. Back in the September, FPR advised all ETF distributors to purchase the device. Most likely iPhone 5 will not be introduced at this event. (the ETF Business Review) To order the ETF Business Review and other research click here Global commodities investor Jim Rogers says the gold bull run is far from over. "The gold bull market has a long way to go, all commodities have a long way to go - in the end we will end up with a hysterical bubble, at which point I hope I am smart enough to sell, but that is years away," he said. "The US has been giving the signal that it is going to print more money and Japan has recently said they are going to print more money - what is happening is that money printing is starting again and the market knows it," he told Kitco News. Rogers recounted that a few months ago when speaking to a room full of high-end money managers, they were asked how many of them owned gold. "75 % of the people had never owned gold, or silver. So you can see most people still do not own gold. For most people in the world gold is still an unknown entity," said Rogers, Chairman of Rogers Holdings. During gold's hysterical phase, which Rogers said could take place in 5 to 7 years; everyone will be buying the yellow metal, he said. In the interim, Rogers said we will see more Asian banks buying gold, citing Bangladesh's recent purchase of 10 tones of the IMF gold. (Sept 18, Commodity Online)
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