The following audio is from a conference call that will begin on January 27, 2015 at 09:00 AM ET. The audio will stream live while the call is active, and can be replayed upon its completion. Now that you’ve read this, are you Bullish or Bearish on ? Bullish Bearish Sentiment on ( ) Thanks for sharing your thoughts. Why are you ? Submit & View Results Skip to results » Share this article with a colleague
In this edition of Fund Watch, we preview new fund filings from: Eccles Street Event-Driven Opportunity ETF Transamerica Event Driven Fund ALPS Advanced Put Write Strategy ETF Gotham Index 500 and Total Return Funds Highland Files for 17 Alternative ETFs Eccles Street Event-Driven Opportunity ETF Eccles Street Asset Management filed paperwork with the Securities and Exchange Commission (SEC) on January 9, announcing its intention to launch the Eccles Street Event-Driven Opportunity ETF. Eccles Street will invest the fund’s assets in “event-driven” credit instruments, mostly corporate bonds and bank loans with an average maturity of 3-5 years. The instruments are considered “event-driven” because their issuers are involved in corporate “events,” such as mergers, acquisitions, bankruptcies, credit downgrades, proxy fights, or other restructuring. The Eccles Street Event-Driven Opportunity ETF will also invest in equities, especially credit-related ETFs and ETNs. Investments will be selected after Eccles Street Management, the fund’s sub-advisor, performs a credit analysis of the issuers of potential investments. The fund’s objective will be current income, with a secondary objective of capital appreciation. Transamerica Event Driven Fund Transamerica Funds filed a Registration Statement with the SEC for the Transamerica Event-Driven Fund on January 15. The fund will be sub-advised by Advent Capital Management, and it will pursue an event-driven strategy by investing in companies involved in corporate events or special situations. Absolute return is the fund’s objective. The Transamerica Event-Driven Fund will be available in A- and I-class shares, with net-expense ratios of 1.6% and 1.35%, respectively. Advent Capital Management’s Odell Lambroza, Tracy Maitland, and Doug Teresko are listed as the fund’s portfolio managers. ALPS Advanced Put Write Strategy ETF On January 6, ALPS ETF Trust filed a Form N-1A with the SEC announcing its plan to launch the ALPS Advanced Put Write Strategy ETF. The fund will seek total return, with an emphasis on income, by writing one-month put options on the SPDR S&P 500 Trust ETF (NYSEARCA: SPY ) . To write a put option is the same thing as short-selling a put option, and the ALPS Advanced Put Write Strategy ETF earns income by writing (short-selling) puts, effectively on the S&P 500. Put options rise in value as the value of their underlying instrument declines, and fall in value as their underlying instrument appreciates. The objective of a put writer is for the put contracts he or she sells short to expire worthless. The ALPS Advanced Put Write Strategy ETF will give investors the opportunity to earn income from unrealized fears as the S&P 500 climbs higher. Gotham Index 500 and Total Return Funds On January 15, Fundvantage Trust filed paperwork with the SEC for a pair of new alternative mutual funds: the Gotham Index 500 Plus Fund and the Gotham Total Return Fund. Author and former hedge-fund manager Joel Greenblatt is a co-portfolio manager of both funds. The Gotham Index 500 Plus Fund seeks to outperform the S&P 500 over most investment periods by using a long/short equity strategy. In addition to shares of common stock, its investments may include preferred stock, convertible bonds, rights, and warrants – all of which are featured in portfolio manager Joel Greenblatt’s 1997 book You Can Be a Stock-Market Genius . The Gotham Total Return Fund will be a non-diversified fund aiming to outperform the top-ranked university endowments over a full market cycle. Its assets will be allocated across other Gotham mutual funds, particularly the Gotham Absolute 500 Fund, the Gotham Enhanced 500 Fund, the Gotham Neutral Fund, and the new Gotham Index 500 Plus Fund. The fund’s long equity exposure is expected to be between 40% and 80%. Highland Files for 17 Alternative ETFs Highland Capital Management has made a big commitment to liquid alternatives space with a new filing for 17 ETFs that span across four broad hedge funds styles, including equity hedge, event driven, macro and relative value. The full list of funds is as follows: Highland Equity Hedge Fundamental Growth ETF Highland Equity Hedge Fundamental Value ETF Highland Equity Hedge Multi-Strategy ETF Highland Equity Hedge Technology ETF Highland Equity Hedge Healthcare ETF Highland Event-Driven Activist ETF Highland Event-Driven Credit Arbitrage ETF Highland Event-Driven Merger Arbitrage ETF Highland Event-Driven Multi-Strategy ETF Highland Macro Discretionary Thematic ETF Highland Macro Multi-Strategy ETF Highland Relative Value Fixed-Income Asset Backed ETF Highland Relative Value Fixed-Income Convertible Arbitrage ETF Highland Relative Value Fixed-Income Corporate ETF Highland Relative Value Fixed-Income Sovereign ETF Highland Relative Value Volatility ETF Highland Relative Value Multi-Strategy ETF Highland currently has one ETF in the market, the Highland iBoxx Senior Loan ETF (NYSEARCA: SNLN ), along with a range of alternative strategy and alternative income mutual funds. The launch of 17 alternative ETFs will make Highland one of the largest managers of alternative ETFs in the market.
Two-and-a-half years back, the U.S. Federal Reserve, placed that percentage at 2%. Yet the U.S. has failed to hit the bulls-eye. In spite of the media hype that surrounds the notion of imminent Fed rate hikes, history suggests that the Fed will need to remain exceedingly “patient.” As much as the Fed might like to get us all off the drug of ultra-low borrowing costs, there are other risks with raising rates too soon. Since the Reserve Bank of New Zealand first formerly targeted inflation rates roughly 25 years ago, other central banks around the globe have followed suit; that is, many banks have been setting medium-term rates that prices should rise on an annualized basis, and then presenting those percentages publicly. Two-and-a-half years back, the U.S. Federal Reserve, placed that percentage at 2%. Yet the U.S. has failed to hit the bulls-eye. Trillions in electronically created dollars over 30 some-odd months, coupled with zero percent overnight lending rates during the Fed’s inflation targeting period, and the U.S. is still a long way from the stated goal. In spite of the media hype that surrounds the notion of imminent Fed rate hikes, history suggests that the Fed will need to remain exceedingly “patient.” In the quarter century of inflation targeting (at least as far as I have been able to determine), the Fed has never kicked off a rate tightening period when inflation sat below 2%. In truth, the Fed is not oblivious to the fact that dogged determination to move towards the normalization of overnight lending rates is more likely to hinder economic progress than ensure price stability or advance employment objectives. Who but a few members of Congress will grumble at Janet Yellen’s Fed deciding to push back into Q3 or Q4? After all, haven’t we already lived with zero percent rate policy (ZIRP) for six-plus years? As much as the Fed might like to get us all off the drug of ultra-low borrowing costs, there are other risks with raising rates too soon. With both Japan and Europe injecting trillions of QE dollars in an effort to boost inflation and improve economic prospects abroad, the money inevitably finds its way into market-based securities of relative value. The German 10-year? 0.35%. Spain? 1.3%. What overseas institution or money manager would not look at those 10-year yields and consider the safety of U.S. 10-year treasury bonds at 1.8% instead? Or our ultimate safe haven prospect, the 30-year at 2.37%. Granted, those are obscenely low yields that barely compensate for historical cost of living. On the other side of the ledger, though, the U.S. bond market has plenty of room to run on price before comparable yields match those of overseas sovereign debt securities. Yet these facts epitomize the Fed’s dilemma. The 30-Year (TYX):10-Year (TNX) spread has moved from 0.90 one year earlier to 0.57 today; the spread between the 10-Year and the 2-Year has shifted from 2.43 to 1.28. The yield curve continues to compress, and may get close to partial inversion if the Fed fails to exercise patience. Inverted yield curve? Partial inversion? What’s the big deal? Well, you’re talking about a circumstance where the odds of a domestic recession increase dramatically. Inverted yield curves have a near-perfect record of forecasting recessions in the U.S. For that matter, raising local rates before determining whether Europe, Japan and the rest of the world are capable of escaping respective recessions and stagnation is akin to suggesting the U.S. is self-sustaining island. Decoupling theories notwithstanding, the well-being of the United States is still very much dependent on what happens on the world stage -from China to Russia to Germany to Saudi Arabia. The investing implications may be as simple as supply and demand. Wouldn’t intermediate and long-term rates naturally go higher if demand for government bonds were waning? Similarly, with prominent proxies like the German 2-year heading further and further into negative returns, why on earth would foreign institutions and/or wealthy foreigners stop buying U.S. debt? The Vanguard Long-Term Bond ETF (NYSEARCA: BLV ) is still a winner when it comes to the probability of price gains. Meanwhile, if you’re looking to ensure higher monthly distributions, munis still offer relative value. The SPDR Nuveen Barclays Municipal Bond ETF (NYSEARCA: TFI ) works, and for those who welcome a little leverage and are not afraid of some volatility in the space, consider closed-end muni bond funds like the Nuveen Municipal Opportunity Fund (NYSE: NIO ) or the Eaton Vance National Municipal Opportunities Trust (NYSE: EOT ). As much as U.S. investors would like to believe in the miraculous, never-say-die, resilience of the U.S. economy, the facts about our “low” unemployment rate and our “accelerating” gross domestic product (GDP) are entirely misleading. Only 46% of 16-54 year olds are working; it was closer to 52% at the eve of the Great Recession in December 2007. Tens of millions of retirees in the early 50s? Not bloody likely. And what about the acceleration of GDP in the last few quarters? It is primarily due to an undesirable increase in household debt. Here is a brief history lesson. Americans held $6.3 trillion in household debt in June of 2002. Due to the housing bubble in which anyone could borrow any amount to get rich quick, that number swelled to $12.6 trillion by June of 2008. The Great Recession required that consumers had to deleverage, refinance or default, but total household debt only dropped to $11.3 trillion by December 2012. Perhaps ironically, the reamarkble stock gains that occurred in 2013 and 2014 are partially attributable to household debt climbing back up once more, up to $11.7 trillion at the latest figures of September 2014. Some argue that this proves that U.S. consumers have been happily consuming. Well, yes… on borrowed dollars. After all, real wages have been declining and are actually lower than they were in December of 2007. Isn’t it true that the lower interest rates make the cost of servicing $11.7 trillion in September 2014 much more sustainable than the cost to service debt back in June 2008? Absolutely. Unfortunately, this notion of debt servicing costs being the only important factor means interest rates need to stay permanently lower for U.S. consumers to borrow-n-spend. If rates go higher, the only way that picture does not get ugly is if Americans start earning a whole lot more from their employers. In other words, either rates have to stay exceptionally low for households and the U.S. government to service the monstrous debts, or households and the U.S. government need to earn a whole lot more than they’ve been earning. Which scenario do you see as most probable – employers paying workers higher real wages in the months and years ahead, or the Federal Reserve barely touching the overnight lending rate? In 15 years, the Bank of Japan (BOJ) has not been able to get their overnight lending rate above 0.5%. When you combine the reality of low rate addiction/necessity with limited supply/extraordinary demand for longer-term sovereign debt, you conclude that yields will keep falling. Investment possibilities should include: BLV, TFI, NIO, EOT, as well as the Market Vectors Long Municipal Index ETF (NYSEARCA: MLN ) and the SPDR Nuveen S&P High Yield Municipal Bond ETF (NYSEARCA: HYMB ). Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.