Risky Volatility Funds Set to Make a Comeback; Personal Finance: Era of Expensive Mutual Funds Is Dying. Long Live ETFs.

Oct 11, 2021

Observations & Insight

Most equity markets trek higher, undaunted by debt ceiling debate, jobs report; A fresh take on the Term of the Week
JohnLothianNews.com

– Stocks up on the week, put options dominate amid roller-coaster moves;

– An all-new look at the Term of the Week with Alex Perry.

Watch the video »

Lead Stories

Risky Volatility Funds Set to Make a Comeback; Two new ETFs that offer leveraged or inverse bets on the VIX set to debut, despite criticism that they are too risky
Michael Wursthorn and Alexander Osipovich – WSJ
Funds that track stock-market volatility are making a comeback, despite concerns they are too complicated for some investors.
Two new exchange-traded funds that let investors make leveraged or inverse bets on a popular barometer of market fluctuations are set to start trading later this fall. Similar products devastated investors in a high-profile blowup less than four years ago.
/on.wsj.com/3oLGsCF

Personal Finance: Era of Expensive Mutual Funds Is Dying. Long Live ETFs.
Nir Kaissar – Bloomberg
The battle between mutual funds and exchange-traded funds is over. ETFs won.
It wasn’t easy. ETFs have been around for nearly three decades, and hardly anyone noticed for a long time. The first ETF, State Street’s SPDR S&P 500 ETF Trust, debuted in 1993. By the mid-2000s, there were roughly 350 ETFs, but the industry had gathered just $320 billion from investors from 1996 to 2006, according to Morningstar’s earliest available numbers. Meanwhile, mutual funds scooped up close to $2.3 trillion during the same time, their ranks swelling to 6,500 funds at the end of 2006.
/bloom.bg/3jbag8f

Column-Hedge fund oil trades are becoming crowded
John Kemp – Reuters
Climbing oil prices continue to attract fresh buying interest from hedge funds while piling pressure on bearish portfolio managers, but the trade is becoming crowded and at risk of a sudden reversal.
Hedge funds and other money managers purchased the equivalent of 24 million barrels in the six most important petroleum-related futures and options contracts in the week to Oct. 5, regulatory records show.
/reut.rs/3oRnL09

Exchanges

The Big Interview: Natan Tiefenbrun; Cboe Europe’s head of equities, Natan Tiefenbrun, sits down with Annabel Smith to discuss ongoing market trends and events that are impacting the European equities landscape.
Annabel Smith – The Trade
Annabel Smith: How does consolidation impact the market?
Natan Tiefenbrun: Consolidation is a natural response to competition as operators seek out more efficiencies to remain competitive. Efficiency is one of the key metrics on which the entire sector should be judged; the less we cost issuers and investors to facilitate their activity then the better job we are collectively doing.
/bit.ly/3lqwy7f

Binance wants to set up HQs in Ireland, halts derivatives trading in South Africa
Steve Kaaru – Coingeek
After years of ducking any regulatory crackdowns by not having any physical headquarters, Binance exchange could finally be looking for a home in Ireland. However, in South Africa, regulatory warnings have forced the exchange to stop offering derivatives trading and leveraged tokens as regulatory walls close in on the cryptocurrency exchange.
For a long time, the digital currency industry has not had clear regulations to guide firms on what services they can and can’t offer. As such, some have taken full advantage, flouting basic banking and financial laws to offer services that put the average retail investor at great risk, none more so than Binance.
/bit.ly/3iR6Gjr

Regulation & Enforcement

FMA censures derivatives issuer Firma over ‘persistent’ breaches
RNZ (New Zealand)
The Financial Markets Authority (FMA) has put the derivatives issuer, Firma Foreign Exchange Corporation NZ, on notice for failing to meet basic regulatory requirements.
Stacks of coins money and faded stock trading board in golden light and soft bokeh with digital world map on backgroundPhoto: 123RF
The authority found that the company did not carry out checks to see if derivatives were suitable products for its customers, repeatedly failed to hold minimum levels of financial assets and did not provide appropriate financial statements to customers regarding their investments.
/bit.ly/3Bz1jg3

Strategy

How to Trade Crypto, Stocks, Credit to Make Money: 5 Traders on Disrupted Markets
Bloomberg
Trading requires constant vigilance and the ability to adapt and profit from disruptions. But what happens when the act of trading itself is disrupted? To get a glimpse of the life of a trader in 2021, Bloomberg Markets asked five reporters—Justina Lee in London, Divya Balji in Toronto, Liz Capo McCormick and Sonali Basak in New York, and Rebecca Choong Wilkins in Hong Kong—to interview traders. They quizzed them about how they got into the business, what their typical day is like, how their market and investing strategy is changing, and what advice they’d give to budding traders. All are grappling with the Covid-19 pandemic, the rise of new asset classes and technologies, the unprecedented flood of money from the world’s central banks, and the age-old challenge of keeping their emotions in check. The interviews, conducted in late August and early ­September, have been edited and condensed for clarity.
/bloom.bg/3at6guS

Why Now Is a Good Time to Hedge Long Positions
Todd Salamone – Schaeffers Research
VIX|SPY|SPX
“…unlike previous instances in which buyers emerged at the SPX’s 50 or 80-day moving averages, immediately pushing the index back into its channel, the buying at the 80-day moving average this time around proved to be only a short-lived bounce.”
– Monday Morning Outlook, October 4, 2021
“As the technical backdrop has become less orderly in terms of buy-the-dip, we are seeing evidence of pessimism growing, a condition that is necessary for a bottom. But in our experience using sentiment indicators, it is not only the absolute level of sentiment measure, but also the direction that the sentiment measure is heading. In other words, the most bullish conditions occur after a relative extreme in pessimism is achieved, and there is evidence that such pessimism has climaxed.”
– Monday Morning Outlook, October 4, 2021
/bit.ly/3iRknyH

Education

When the Pandemic Forced Young Adults to Move Back Home, They Got a Financial Education
They weren’t the only ones who benefited. Their parents got some money lessons as well.
Hannah Frohling’s move back home to Southampton, N.Y., came with some financial conditions from her parents, Matthew Frohling and Jennifer Schlueter.
Taylor Nakagawa – WSJ
Countless young adults have moved back home during the Covid-19 pandemic. At first it was mostly a good way to navigate the lockdowns, spend time with family and save money. But for many parents and children, it turned out to be something more: an opportunity for both of them to learn some important financial lessons.
/on.wsj.com/2YFVG12

Miscellaneous

Market breadth is improving
Cherukuri Kutumba Rao – The Hans India
Ignoring heightened global volatility and surge in global crude oil prices; and enthused by the Dovish policy measures by RBI in their bi-monthly policy announcement and expectations over Q2 earnings numbers, the markets closed on a positive note during the week ended. The BSE Sensex closed above 60,000 mark again, rising 1,293.48 points or 2.20 percent to 60,059.06 points, and the NSE Nifty jumped 363.15 points or 2.07 percent to 17,895.20 points. The broader markets continued to outperform the benchmark indices with the BSE Midcap and Smallcap indices gaining 2.43 percent and 3.95 percent respectively during the week.
/bit.ly/3FDr4yc

Look Out for Cops in the Pump and Dump
Matt Levine – Bloomberg
This is not legal advice or anything, but one good rule of thumb is that if you are on an internet message board looking to hire a hit man, and you end up chatting with an enthusiastic poster who seems like he might do a good job of murdering the person you want murdered, the odds that he is in fact an undercover police officer are nearly 100%. Same with lots of online crimes, though with different probabilities. Are you buying illegal drugs on a message board? You might get the drugs, or you might get arrested, hard to say. Are you buying a missile launcher on a message board? You are definitely getting arrested, nobody is selling a missile launcher on a message board, that is cops.
/bloom.bg/2YFT1V6

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