Tag Archives: pro

ALPS To Launch NextShares Via Turnkey ALPS ETMF Trust

By DailyAlts Staff Denver-based ALPS is the latest company to license Eaton Vance’s NextShares-branded exchange-traded managed funds (“ETMFs”) via Eaton Vance’s Navigate Fund Solutions subsidiary. The agreement between ALPS and Eaton Vance runs both ways, though: The ALPS NextShares ETMFs will be launched through the ALPS ETMF Trust, which is designed to provide turnkey solutions for investment managers looking to launch new NextShares Funds. “It’s clear to us that NextShares can offer certain advantages as vehicles for active investment strategies,” said ALPS CEO Ned Burke, in a recent statement. “As pioneers in product development, we look forward to working with Navigate to bring this new product initiative to the marketplace.” “We believe that the improved performance and tax efficiency of NextShares is what fund investors have been waiting for,” said Stephen W. Clarke, President of Navigate Fund Solutions, in the same press release. “We look forward to working with ALPS to introduce this game-changing idea to investors and the financial advisors who serve them.” NextShares, which received regulatory approval in November 2014, facilitate active management within funds that trade intraday, much like shares of stock. Unlike mutual funds, which can only be bought or sold at the end of each trading day, ETMFs trade when the stock market is open. But unlike ETFs and shares of stock, ETMFs aren’t price in “dollars and cents” per share, but instead, at a premium or discount to the net assets of the fund. This quirk allows ETMF managers to avoid disclosing their holdings on a daily basis, which would undermine active-management performance. ALPS has been steadily growing its presence in the industry in 2015. In April, the firm acquired Red Rocks Capital , a firm specializing in listed private equity funds. Then in July, ALPS launched a pair of equal-weighted (“EW”) ETF products that offered a “twist” on the conventional EW approach by equalizing weightings among sectors. The launch date of ALPS’s first NextShares products is unknown at this time. According to a statement from ALPS, the timing will depend on final regulatory approval and “market readiness.” For more information, visit nextshares.com . Share this article with a colleague

Stocks Are Like Hamburgers: Be Bullish When Prices Go Down

Companies that buy back shares favor declines. So do bargain-hunters like Warren Buffett. Sellers should prefer price increases. The recent stock market decline was certainly disheartening for many investors, such as those needing to sell positions in order to fund retirement living expenses. Others, especially those building up a portfolio, or companies buying back shares, and with an eye out for the long term, reacted more gleefully. Why is it bad for some, and good for others, when the market goes south occasionally? Part of the answer can be gleaned from a 1997 letter written by Berkshire Hathaway ( BRK.A , BRK.B ) Chairman Warren Buffett: But now for the final exam: If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have increased for the ‘hamburgers’ they will soon be buying. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices. Buffett roots for stocks to fall when he, or the company, is buying. The Oracle of Omaha owns a $12B chunk of International Business Machines (NYSE: IBM ), a company with a long history of buying back its own stock, which among other things makes the remaining shares more valuable. And occasionally he will add to his own holdings when he feels the time is right. Recently Berkshire increased its position in Phillips 66 (NYSE: PSX ). IBM is blue The Armonk, N.Y.-based IBM reduced its share count by 10% over the last two years, and by a fifth over the past half decade. However, by its own admission Big Blue is in a funk and has been unable to grow revenue and net income over the past few years. The company has been able to boost EPS only through the use of buybacks and other financial moves. The stock has dropped by 20% over the last two years. Management, led by CEO Virginia Rometty, is trying to right the ship and reinvent itself like it did after getting out of the PC business years ago. Today it is making bets in the fast growing cloud computing industry and with Big Data technology. IBM created a separate division for its Watson supercomputer and the Jeopardy! game show champion has found applications in the healthcare industry. In another potential lucrative move the company recently hooked-up with Apple, Inc. (NASDAQ: AAPL ) in a deal in which IBM will sell Apple products to its corporate clients. An investment in IBM could pay off for patient shareholders, like Buffett, willing to hold on for a long period of time. Indirectly, Berkshire investors can also expect a nice return. No oil shock here Not all of the players in the oil patch are in trouble. One niche, the refinery industry, has not been affected as much as the upstream and midstream segments of the business. And as the U.S. economy continues to improve demand for gasoline, diesel, and other refined fuels will probably increase and provide an opportunity for growth going forward. Phillips 66 is positioned well to benefit from the trends. Berkshire took advantage of a slight drop in Phillips 66 stock over the past year and increased its position to about $5B, including two purchases totaling about 3M shares over the past 10 days. After the recent, albeit small, pullback and with a price to book of 2.0, shares are reasonably priced at about 12x forward earnings estimates. A yield of 2.6% and payout ratio less than 30% might be attractive to investors needing a bit of extra income. Other financials, such as a debt to equity ratio of 39%, indicate that things are going well at Phillips. All things considered this might be a good entry point for any investor, not just Buffett. Conclusion Stocks are like hamburgers. Whether it is a company like International Business Machines wanting to reduce share count or an investor like Warren Buffett on the prowl for solid companies like Phillips 66 buying makes more sense at lower prices. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

The Big, Bad Floating NAV Is Coming Your Way

Summary Prime money market funds are going to be reporting their net asset values on a floating basis due to recent SEC rules. The effect will be to render these funds costlier, both on an accounting and a tax basis, and might lead to an outflow from these funds. However, the weighted average maturity of these funds, one measure of their riskiness, is well within SEC guidelines. The big, bad floating NAV is coming your way In 2014 the SEC adopted amendments to rules that govern certain types of money market funds. In particular prime money market funds – those that invest in corporate debt securities will have to report floating Net Asset Values (NAVs) instead of posting fixed NAVs as has hitherto been the case. Thus at any given time, capital appreciation or depreciation will have to be reported, leading to a move towards money market funds with a Treasury or municipal bond focus. Instead of assuming a fixed NAV of $1.00, investors will have to confirm the posted NAV price. There will also be liquidity management issues, since the use of these money market funds for intra-day liquidity management will be much diminished, given the uncertainties about the NAVs for these funds. Companies would have to monitor the marking-to-market value of these funds on their balance sheets. Finally, all sales of money market fund shares would become taxable events. Rule 2A-7 risk limiting provisions amended Traditionally SEC’s Rule 2A-7, adopted in 1983, allowed money market funds to use amortized cost to value the funds so long as they kept within very strict parameters. Since money market funds are not insured by the FDIC, they have traditionally had to keep within limits about the three primary risks they face. Of course, the first was interest risk, credit risk and liquidity risk (the risk that a borrower will not pay its obligations when due). Of course, the first two kinds of risks do not affect money market funds which invest in Treasuries or municipal bonds. But all three risks affect prime money market funds. With a fixed NAV based on amortized cost, investors did not need to track their capital gains and losses, since all of the return of a money market fund is paid out in dividends. In addition, a stable NAV allowed these funds to offer such services as check-writing and the other general features available to deposit accounts, while allowing investors to have access to some upside features. The daily dividend on the fund is based on the accrued interest based on amortized cost. At least that was the situation before the recent amendments by the SEC. On Weighted maturities and interest rate sensitivities. Given the above mentioned advantages of the stable NAV for money market funds, it was imperative to keep the funds within certain risk bounds. One way to do this was to limit the maximum weighted average maturity (WAM) of the funds. An increase in interest rates would decrease a fund’s shadow price. One measure of the sensitivity of any fund with respect to a change in interest rates is the fund’s weighted average maturity (the WAM). The WAM is the measure of the average maturity of the bonds in the fund’s portfolio, and the SEC rules provided that funds, in order to use amortized cost, could have a maximum WAM of 60 days. The higher the WAM, the more sensitive the shadow price of the fund would be to changes in interest rates. When redemption of funds is high, especially in times of crisis, (as was the case between 2007 and 2008), then shadow prices will fall below $1, and the WAM is especially helpful to understand the riskiness of these funds. Recent measures of WAM show relatively low riskiness. Money market funds are obligated to disclose their net assets, 7-day interest rates and WAMs on a monthly basis. Extracting some of this data from the SEC web site for four representative prime money market funds (those of BMO, BNY Mellon, Legg-Mason and Fidelity) show that all of these funds have WAMs well below 60 days. The shadow prices (not shown) are $1 for BMO and BNY Mellon, $1.002 for Fidelity and $1.0001 for Legg Mason in the period shown. Legg Mason, with a WAM over the period for its prime funds of 6 days, carries a 7-day rate on average of .23%. (The figures below come from the N-MFP disclosures on the SEC website). Does this mean there is no cause for concern? The above-mentioned trends do not mean that there is no cause for concern. Shadow prices of these funds are notoriously resistant to reflecting trends in markets. In September of 2008, 90 percent of prime money market funds had shadow prices within 5 basis points of $1, as reported by the ICI. Nevertheless, when floating NAVs become part of the investor’s framework, it is likely that they will not be as volatile as feared if current trends in the weighted average maturity are any indicator. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.