Get Smart: LSE Looking To Smart Beta
Doug Ashburn – JLN
The word “smart” has been drilled into the marketing lexicon for so long it is sometimes hard to tell what is and isn’t actually, well, smart.
Smart phones, smart cars, smart watches and even a smarter planet. The investment world has seen its own branding with so-called smart beta, which was examined in depth by FTSE Russell in May, the first time the LSE’s FTSE index division put its names together with Frank Russell since the exchange purchased the US index and asset manager last year. Five years ago, LSE bought out Pearson’s share of FTSE to gain full control of Britain’s flagship index line.
Around the same time as the LSE’s $2.7 billion Russell acquisition, Russell published its 2014 “smart beta survey” – a questionnaire targeting various types of institutional investors to better understand how the perception and adoption of smart beta have continued to evolve globally.
Now one year later, “Smart Beta: 2015 global survey findings from asset owners” has been released. A copy may be downloaded HERE. The results show that smart beta interest and usage continues to grow and there is a trend toward strategy indices that incorporate smart beta strategies.
Quote of the Day
“I am disappointed by the significant gap between the promises you made during and shortly after your confirmation and your performance as S.E.C. chair.”
Senator Elizabeth Warren in a letter in the story, “Elizabeth Warren Calls S.E.C. Chief’s Tenure ‘Disappointing'”.
Reflections on Stress and Long Hours on Wall Street
Andrew Ross Sorkin, NY Times
Earlier this year, a 24-year-old first-year analyst at the Goldman Sachs office in San Francisco was feeling overwhelmed by the all-nighters and 100-hour workweeks.
Goldman executives take victory lap in debate over business model
Senior Goldman Sachs Group Inc (GS.N) executives took a victory lap on Tuesday, telling an investor conference that the bank’s recent results show they have been right all along about its trading-heavy business model.
Goldman’s top brass have been arguing for years that a business lull that began in 2010 was “cyclical” and would eventually end. Volatility would pick up again, they said, and clients would go back to trading and doing big deals. The bank might regret dramatic changes that rivals were making, like exiting certain trading businesses, they said.
Goldman Sachs to Companies: Stop Buying Back Your Stock
It looks like Goldman Sachs doesn’t agree with Carl Icahn on at least one big issue: share buybacks.
While the billionaire activist investor has continued to push Apple to purchase more of its stock, Goldman has published a note recommending companies stop spending their cash on buying back their overpriced shares and instead use those overpriced shares to buy other companies’ equity. As the bank puts it, “U.S. equity valuations look expensive on most metrics,” with the typical stock in the S&P 500 now trading at a price equal to more than 18 times forward earnings.
Stanley Fischer pushes for harsher banker penalties
Barney Jopson, Washington, FT
A top Federal Reserve official has called for bankers guilty of wrongdoing to be punished individually as he warned that the banking industry was making headway in its fight against tougher regulation.
US dealmaking hits $243bn monthly record
James Fontanella-Khan and Robin Wigglesworth in New York, FT
US dealmaking hit an all-time monthly record in May, surpassing the previous highs seen during the peak of the dotcom bubble and the zenith of the debt boom that led to the 2008 financial crisis.
Dan Loeb Ignored ‘Sell in May and Go Away’ and It Paid Off
Billionaire Dan Loeb said at the start of last month that he planned to disregard the market proverb to “sell in May and go away.”
His decision proved prudent. Third Point rose 1.9 percent last month and is up 5.7 percent in 2015, almost double the gain in the Standard & Poor’s 500 Index. Other managers who trade mostly stocks did even better. Larry Robbins’s main fund at Glenview Capital Management jumped 6.2 percent last month; David Einhorn’s Greenlight Capital rose 3.6 percent and Mark Kingdon’s stock fund at Kingdon Capital Management returned 4.7 percent, according to people with knowledge of the returns who asked not to be named because the returns aren’t public.
UK markets regulator warns against systemic risk label for funds
Philip Stafford, FT
Asset managers fighting proposals that could see them labelled as potential threats to the financial system have received backing from the UK markets regulator.
Greece Challenges Creditors With New Proposal to Break Debt Impasse
Greece elevated the game of brinkmanship with its international lenders on Tuesday, as Prime Minister Alexis Tsipras announced that his government had sent creditors a new proposal, on Greece’s own terms, to unlock financial aid that the struggling nation desperately needs.
IMF economists say some countries can ‘just live with’ high debt
Some countries with high public debt levels might be able to “just live with it,” because cutting back carries its own risks, three IMF officials said in a paper that disputes decades of dogma about the benefits of austerity.
The euro zone and other advanced economies have struggled with ballooning debt in the wake of the 2007-09 global financial crisis. Some have faced pressure to satisfy markets through fast fiscal consolidation.
BofA’s Merrill fined $11m over short selling
Ben McLannahan in New York, FT
The Securities and Exchange Commission has fined Bank of America’s Merrill Lynch unit $11m for failing to keep proper records of stock available to borrow, after irregular trades were carried out over at least six years.
Elizabeth Warren Calls S.E.C. Chief’s Tenure ‘Disappointing’
Dealbook – NY Times
Senator Elizabeth Warren, the Massachusetts Democrat who has taken on Wall Street banks and the issue of income inequality, is now going after Mary Jo White, the chairwoman of the Securities and Exchange Commission.
In a 13-page letter to Ms. White on Tuesday, Ms. Warren called her two-year stewardship of the S.E.C. “extremely disappointing” and not in keeping with the kind of leadership that Ms. White had promised to deliver during her Senate confirmation hearing.
Too big to succeed? Investors want ‘radical surgery’ at HSBC
No longer feared as “too big to fail”, shareholders are weighing whether HSBC is now “too big to succeed”, and want to know next week how the bank’s bosses propose to increase profitability at a sprawling group beset by huge costs.
Investors believe CEO Stuart Gulliver and Chairman Douglas Flint need to announce bold moves to restore the London-based bank’s flagging fortunes at a strategy day on June 9.
HSBC Adds Two Independent Directors to Board
Dealbook – NY Times
The British bank HSBC said on Tuesday that it was adding two independent directors to its board.
Irene Yun Lien Lee, the executive chairwoman of the Hong Kong property investment company Hysan Development Company, will join the lender’s board of directors on July 1, while Pauline van der Meer Mohr, the president of the executive board of Erasmus University Rotterdam, will join HSBC on Sept. 1.
Janet Who? Ben Bernanke Says Stocks Aren’t Expensive
MoneyBeat – WSJ
Ben Bernanke doesn’t seem to think the stock market is too frothy.
In his latest blog post for the Brookings Institution, the former Federal Reserve chair said the easy-money policies deployed during his tenure at the central bank have arguably only returned stock prices to “normal” levels.
BlackRock’s Fink predicts Fed to raise rates in September
BlackRock Inc’s Chairman and Chief Executive Officer Laurence Fink believes that the U.S. Federal Reserve will raise interest rates in September, he told attendees of Deutsche Bank’s Global Financial Services Conference on Tuesday afternoon.
The Federal Reserve Board’s Payroll Tax on our Children | Dean Baker
The deficit hawks appear to be making a comeback, at least in the media, if not among the public at large. This isn’t surprising since we have billionaires prepared to spend large chunks of their money to scare people about the deficit, regardless of how unimportant it might be as an economic concern.
Indexes & Index Products
Questions and Answers from our Passive vs Active Webinar
S&P Dow Jones Indices
In the last post I wrote, I mentioned that I recently moderated a global webinar for financial advisors on the topic of S&P DJI research on passive vs active. We received 20 questions during the course of this webinar. I thought that it would be interesting to share some of those questions from advisors and the answers that our panelists provided. The replay of the webinar is available if you missed it.
Q&A: MSCI considers China A-shares
Josh Noble in Hong Kong, FT
On June 9, index provider MSCI will announce whether it plans to include Chinese A shares — those listed in Shanghai and Shenzhen — in its global emerging markets index from May 2016. The decision, says MSCI, will not really be its own, but rather a “reflection” of the views of its clients, and follows a year-long consultation that began last May. MSCI decided not to include A shares at its last review in June 2014 after pushback from investors.
MSCI Launches Saudi Indexes Following $500+ Billion Equity Market Opening
MSCI also launched the MSCI GCC Countries International Indexes, the first indexes of their kind that represent the full investable opportunity set available in the Gulf Cooperation Council (GCC) countries: Saudi Arabia, Qatar, United Arab Emirates, Kuwait, Oman and Bahrain. All indexes incorporate Saudi Arabia’s foreign ownership limit restrictions.
New liquidity requirements for Straits Times Index (sti) stocks
FTSE Global Markets
Singapore Press Holdings (SPH), Singapore Exchange (SGX) and FTSE Russell announced today tighter liquidity rules governing the selection of index constituents of the Straits Times Index (STI). STI components will be required to have a higher percentage of their issued shares traded in a given period.
Smart-Beta Indexes: Simplicity Is Not Always a Virtue
So-called smart-beta equity indexes have proliferated in the last several years. Products now number in the hundreds, with most seeking to capture the excess returns of a handful of well-defined risk factors.
Public Gets Chance To Buy Royal Mint Gold
The Royal Mint is offering members of the public their chance to own a piece of gold, with tiny fractions of gold bars being sold for £20 a time.
Customers will have full legal title over every ounce of gold they buy and can sell it back to the Mint through its trading website which provides latest buying and selling prices.
Swiss slammed over ‘gold laundering’ case
The Swiss attorney general’s office decided in March to close a case against Argor-Heraeus, which faced allegations of “complicity in war crimes and pillage” after it refined three tonnes of gold ore pillaged from the conflict-torn country in 2004-2005.
In its ruling, which was quietly made public a month later, the prosecutor’s office said there was not enough evidence that the Swiss firm, one of the world’s largest processors of precious metals, was aware of the illegal origin of the gold.
US Government Lost 7 Fort Knox Gold Audit Reports
Every year the gold in Fort Knox is ‘audited’ by checking the official joint seals that were placed on all vault compartments during the continuing audits of U.S.-owned gold from 1974 until 1986, when allegedly 97 % of the gold was inspected. However, a Freedom Of Information Act request (FOIA) I’ve submitted in order to obtain all audit reports could not be honored. Seven reports can not be found.
J.P. Morgan Hangs Up on Voicemail – MoneyBeat
MoneyBeat – WSJ
J.P. Morgan Chase & Co. is starting to cut voicemail services for some of its employees in a continued effort to trim expenses and grow profitability at the nation’s largest bank.
Gordon Smith, the bank’s consumer chief, said at a financial conference Tuesday that the $10-per-month service per person has become obsolete for many at the bank. “We realized that hardly anyone uses voicemail anymore…we’re all carrying something in our pockets that’s going to get texts or e-mail or a phone call to you,” he said.
A 99-Year-Old Wall Street Veteran Reveals the Secrets of Her Success
As she nears 100, Irene Bergman has some advice for enjoying a long career on Wall Street: Don’t do anything stupid.
Consider investment returns, the financial adviser at Stralem & Co. said in an interview at her New York apartment, where, surrounded by paintings from Dutch masters, she telephones her clients. While many investors nowadays obsess over quick profits, it’s best to wait at least three years, or better yet, many more, before evaluating holdings. But don’t be afraid of revising your thesis, she said. If thorough research favors a portfolio shift, have courage and make changes.