SEC warns of potential for industry fragility and interconnectedness: News Scan
Our weekly roundup of industry highlights
SEC: Potential for industry fragility and interconnectedness looms
Concern of potential market instability is high despite recent reform from the SEC aimed at addressing run risk with funds believed to have contributed to market fragility during the financial crisis.
The global asset management industry currently accounts for 65% of market-based financial activity that that carries stability risks, noted Scott W. Bauguess, the acting director and acting chief economist at the SEC's division of economic and risk analysis, citing a recent Financial Stability Board report at Buy-Side Risk USA 2017.
There were $2.5 trillion in open-end funds that invest in fixed income securities and alternatives at the end of 2016, products susceptible to the risk of fire sales during a future shock, he added. These are up 673% in assets since 2000, an annual growth rate of roughly 14% — three times greater than the growth of domestic equity over the same period, Bauguess noted.
"In times of market or fund stress, if redemptions arrive at a rate faster than fund managers can reasonably liquidate the underlying assets, they may be required to sell assets at prices below their intrinsic value," he said. "On a large scale, fire sales could pose financial stability concerns."
Citigroup expands ETF business
Citigroup has created three more business entities to meet demand for ETF funds, according to Bloomberg.
The three units are global fixed-income and currencies beta trading, global ETF research and regional ETF sales and business development, Bloomberg reports.
"We believe that ETFs will become part of the toolkit for every asset class and these organizational changes are a crucial step in positioning Citi at the forefront of this trend,'' said Citi's head of markets and securities, Paco Ybarra.
Demand for global ETF assets are expected to surpass $7 trillion by 2021, according to PricewaterhouseCoopers.
Half of investors have not changed investment strategy
Investors are split when it comes to re-evaluating their investments strategies, according to a study.
Nearly half (49%) have yet to account the possibility of a shifting investment environment, according to a new study from Dreyfus.
"With an increase in inflation, the rise of U.S. nationalism and record-low volatility, investors would be well-served to reevaluate their portfolios in light of changed circumstances to determine if they will continue to meet their investment objectives," said Dreyfus CEO Mark Santero.
Even though the only major economic downturn younger investors have experienced is the 2008 market meltdown, 65% of those surveyed between the ages of 21 and 34 have factored changes in investing trends into their strategies.
In comparison, only 39% of investors 55 and older have factored economic shifts into their strategies. Dreyfus surveyed 1,250 investors with $50,000 or more in investable assets for the report.
Of investors who worked with an adviser, 65% said they reevaluated their strategies.
ETF platform from BNY Mellon's Pershing
BNY Mellon's Pershing launched a no-transaction-fee ETF platform called FundVest ETF.
The platform, which pairs with Pershing's mutual fund FundVest NTF platform, is only available to Pershing's clients, the firm said. Using FundVest ETF Pershing's clients can offer multiple ETFs to investors with cost savings, according to the firm.
The platform doesn't require purchase minimums or fixed holding periods.
Russell Microcap Index to add Aviat Networks
Aviat Networks will now be listed on the Russell Microcap Index starting on June 26.
As a member of the Russell Microcap Index, Aviat will now be included in growth and value style indexes, according to firm.
"Our addition to the Russell Microcap Index is a testament to the progress we have made in building shareholder value and we believe, will help expand awareness of our company," said Aviat president and CEO, Michael Pangia in a statement.
Innovative Solar Systems to offer renewable energy funds
Innovative Solar Systems is negotiating with managers to open renewable energy funds in anticipation of ISS's planned projects for the year in 35 states.
The company is working to create separate funds for its three types of projects: those that are in the early stages of development, those that have received a notice to proceed and those that have finalized construction.
ISS currently has over 200 solar farm project scheduled for 2017.
Pacer adds ETFs to Cash Cows Index
Pacer released two ETFs as a part of its Cash Cows ETF Series.
The Pacer Developed Markets International Cash Cows ETF (ICOW), which has an expense ratio of 0.65%, chooses from the top 100 companies with the highest free cash flow yield in developed international markets, Pacer said. The Pacer US Small Cap Cash Cows 100 ETF (CALF), which has an expense ratio of 0.59%, is aimed at small-cap U.S. companies with the highest free cash flow.
There are two that hold stocks that have boosted dividends for 20 years or more.July 17
The positive net flows of U.S. mutual funds was driven by taxable bonds.July 5
How new competing international and small-cap ETFs stack up.June 12
"With our two new funds, we can help investors gain exposure to high quality companies both in US small-cap and internationally," Joe Thomson, president of Pacer Financial, said in a statement.
Goldman partner said to leave the firm's asset management unit
Goldman Sachs head of asset management is leaving the bank, according to a company memo.
Jim McNamara's branch of the bank sold mutual funds and ETFs to third parties such as retail brokerages. McNamara remained the head of the branch until the end of the year.
McNamara will continue to work for the bank as an advisory director and president of Goldman Sachs Assessment Management board.
McNamara has worked as Goldman Sachs for over two decades. He became a partner in 2006.
Prudential names foundation chair
Prudential Financial has named its head of corporate social responsibility as chair of the Prudential Foundation.
Reddy previously served as president of the foundation.
"The elevation of her role and this important organizational shift recognizes that the integration of Corporate Social Responsibility and business strategy is foundational to creating true long-term value," said Prudential CEO John Strangfeld.
State Street names new head of sales
State Street Global Advisors, the asset management division of State Street Corporation announced Kathryn Sweeney will be its head of SPDR sales in the Americas.
Kathryn Sweeney's responsibilities include developing a SPDR sales strategy for the Americas. In her new role, Sweeney will report to the co-head SSGA's global SPDR business, Nick Good.
"Given Kathryn's visibility and relationships within the ETF industry we are confident that she will continue to advance the SPDR position in the institutional market," Good said.
Sweeney worked Goldman Sachs for 19 years in the ETF business.