Tuesday, July 26, 2011

Profits from ETF

FT.com: "Why are ETFs so profitable when they appear to be so cheap? Annual management fees have been driven down by price wars, which have been particularly fierce in the US. Synthetic ETFs obviously offer scope for profitable derivative trading and collateral management, but the opportunity to extract revenue is less obvious with physical ETFs, being mainly confined to securities lending. Perhaps running an ETF business is at least in part a means of running a securities lending operation, in which case providers should reveal what proportion of stocks in a portfolio are lent, as the associated counterparty risks are material to investors."

Wednesday, July 06, 2011

2011 World’s Most Ethical Companies | Ethisphere™ Institute

Useful for the selection of 'ethical companies'.

2011 World’s Most Ethical Companies | Ethisphere™ Institute: "The World’s Most Ethical Companies designation recognizes companies that truly go beyond making statements about doing business “ethically” and translate those words into action. WME honorees demonstrate real and sustained ethical leadership within their industries, putting into real business practice the Institute’s credo of “Good. Smart. Business. Profit.”"

Monday, July 04, 2011

Bond market liquidity

The reduction in bond market liquidity due to the decline in bank risk appetite and increased capital requirement.

Lack of liquidity bad for big bond funds - FT.com: "In 2007 bond fund managers were able to trade bonds at bid/offer spreads of 0.25 per cent. That widened to 2-3 per cent at the height of the crisis from September 2008 to March 2009. Trading spreads subsequently fell back to 0.4-0.5 per cent but have since crept up again to about 1 per cent on fears of the European sovereign debt crisis. Mr Davidson says: “It’s clear the banks don’t want any credit instruments on their books, especially given everything that’s going on in peripheral Europe.”

As a result, he adds, anyone managing a bond fund with assets of £1bn ($1.6bn) or more – with individual holdings of £10m plus – has their hands pretty much tied, “unless they resort to the euro market for greater cash liquidity or the CDS [credit default swap] market for greater active liquidity – but they’d be giving away yield in both cases. It is taking people a long time to trade out of an accumulated position of over £100m in a single, not very liquid bond.”"

Pension fund exposure

Two interesting aspects of this FT report: The decline in equity share and the increase in alternative assets.
Reductions in equity exposure to continue - FT.com
: "UK pension funds have been gradually reducing their allocation to equities in the past decade from 74 per cent in 2000 to 55 per cent in 2010, according to Towers Watson. The equity exposure of UK funds remains the highest of all the large markets; compared with 49 per cent in the US, 37 per cent in Japan, 33 per cent in the Netherlands and 28 per cent in Switzerland. But a decline in equity allocations is common, with the net overall allocation across the largest pension fund
markets down by 13 per cent in the past five years, as pension funds diversify into alternative asset classes, which now account for 19 per cent of all portfolios."