Goldman Smacks ..It’s Lips re: ETFs; In Discussions to Acquire ETF Issuer IndexIQ Reply

MarketMuse update courtesy of exclusive reporting by Reuters’ Jessica Toonkel

On the heels of this week’s announcement by Janus Capital to acquire ETF Issuer VelocityShares, presumably as a vehicle for Bill Gross to further package his fixed-income strategies, and this past June’s announcement from the London Stock Exchange to acquire index specialist Frank Russell Company, the bubbling market for ETF platforms is bubbling even more..as evidenced by this scoop from Reuters’ Jessica Toonkel:

(Reuters) – Goldman Sachs Group is in discussions to acquire IndexIQ, a Rye Brook, New York-based exchange-traded fund provider, according to three sources familiar with the situation.

The deal, if finalized, would enable Goldman to introduce passively managed and actively-managed exchange traded funds within months.

A Goldman Sachs Asset Management spokeswoman declined to comment. A call and e-mail to Adam Patti, the chief executive of IndexIQ, was not immediately returned.

Read more: http://www.businessinsider.com/r-exclusive-goldman-sachs-in-talks-to-acquire-etf-provider-indexiq—sources-2014-10#ixzz3GLUDoUrf

Bill Gross Hire Further Bolstered by Janus; Announces Purchase of ETF Firm VelocityShares Reply

Janus Capital Group Inc. said Monday it agreed to acquire exchange-traded product firm VelocityShares for at least $30 million.

The acquisition comes on the heels of Janus’ hiring of Bill Gross, one of the most successful bond investors in history, from Pacific Investment Management Co., the firm he co-founded in 1971. It positions Janus, a traditional mutual fund provider, in the fast-growing exchange-traded fund market.

“This acquisition positions Janus within the rapidly growing rules-based and active ETF universe, enhancing the customized solutions we can provide to our clients and enabling us to work with the growing segment of financial advisers and institutions focused on these instruments,” said Richard M. Weil, the Janus chief executive, in a statement.

Denver-based Janus will pay an “initial upfront cash consideration of $30 million” to buy VelocityShares parent company VS Holdings Inc. The Darien, Conn.-based firm manages $2 billion in ETFs.

Through the acquisition, Janus is adding clients including hedge funds as well as mutual and pension funds. Janus shares have risen 26 percent since Gross announced he would work for the Denver-based firm on the expectation that he would attract new investors to the company’s funds.

Volatility Bets and ETNs: Be Careful What You Bet On Reply

Extract courtesy of Spencer Jakab, Wall St. Journal. Full article available via clicking on WSJ logo on left side..

“..Now that volatility has emerged not only as a concept but an investment in its own right, there probably is no putting the genie back in the bottle. And while portfolio managers largely welcome the products, the droves of speculators drawn to VIX notes may be in for a wilder ride than they realize…”

The latest big worry to hit markets is an unusual one: calm. With stock prices high and various gauges of risk low, investors appear to have thrown caution to the wind.

That isn’t entirely true, though. Exchange-traded notes that profit handsomely from market-shaking events have boomed since the financial crisis. But they have two big shortcomings: They may not work as designed in another financial crisis since their value depends on the bank backing them. And due to the way the products work, anyone holding these for the long term will inevitably see their value erode.

ETP Volatility Report from Velocity Shares Reply

VelocityShares is pleased to present the October 2012 Volatility Report, providing insights into the volatility landscape.

Highlights from this report include:

• Year-to-Date Performance for the VIX Index is -21%.
• Year-to-Date Performance for the S&P VIX Futures Indices:
  • Short-Term: -74% (SPVXSP)
  • Mid-Term: -47% (SPVXMP)
  • Tail Risk: -20% (SPVXTRSP)
• VIX spot increased steadily in October, opening at 15.73 before closing the month at 18.40.
• VIX Call Option Volume once again reached its second highest levels ever (and the most in over a year) on October 17th, 2012, nearing $850MM traded.
• The Short-Term S&P 500 VIX Futures Tail Risk Index (SPVXTRSP) ended the month with a long-vol bias of 23.87% long, its greatest long exposure since June 2012.
• Due to Hurricane Sandy, the stock exchange was closed for two days and reopened on October 31st. While a catastrophic event might be the cause of a spike in volatility, the following was observed:.
  • Short-Term VIX Futures gained 3.62%, which is within one standard deviation of the daily returns observed in October 2012
  • VIX Futures Dollar Volume on the 31st was greater than its 20-day moving average ($2.7B vs. $1.9B)
  • ETP Dollar Volume on the 31st was the same as its 20-day moving average ($1.4B each)
  • VIX Options Trading Volume on the 31st trailed its 20-day moving average (378K vs. 479K)

  For the full report, visit TABBForum.com

   

TVIX: Case Study ETNs & ETFs to be Wary Of- Reply

Credit Suisse’s volatility-flavored ETN,  the VelocityShares Daily 2x VIX Short-Term ETN, aka “TVIX” is, for lack of a better phrase, broken.  And it ‘got broken’ in mid Feb when CS halted the creation process for this product.

Observed Chris Hempstead, the head of ETF trading for WallachBeth Capital, “the halt in the creation process caused the product to trade at an unnatural premium–as much as 80%– to the underlying NAV since the creation halt announcement was made.  For more than a month, hedge fund traders have been attempting to arbitrage the dislocation in pricing-and more than a few had based their strategies on the premise the creation process would not be resumed.  ”

Credit Suisse threw a fly into that ointment on Thursday night, when the firm announced it was re-opening the issuance of new units and, as Hempstead pointed out in desk notes to clients of his firm late Thursday night, “you can expect TVIX premiums to NAV to evaporate significantly, if not entirely when trading re-opens.”

Are there other products that display the same  unusual premium to NAV ‘features’?. Hempstead suggests that hedge fund traders who are dabbling in volatility-flavored products should take a second look at Market Vectors China ETF (PEK)  as well as ProShares Trust Ultra VIX Short:  UVXY