Waddell Mutual Fund Among First Flash Crash Trades
It wasn't a hedge fund, a proprietary trading desk at an investment bank or a rogue trader that may have been the key trigger behind the May 6 one-thousand-point Flash Crash drop in the Dow. Rather, it may have been a futures index trade by none other than Overland Park, Kan.,-based Waddell & Reed.
A Chicago Mercantile Exchange document showed a 2:30 p.m. trade for 75,000 contracts by Waddell & Reed, and Commodity Futures Trading Commission Chairman Gary Gensler testified before Congress that a single futures trader accounted for 9% of the volume on that fateful day in the 500 e-mini futures contract, which bets on the direction of the Standard & Poor's 500 and is the most actively traded stock index derivative contract. Without naming the trader or their affiliation, Gensler told Congress: "One of these accounts was using the e-mini contract to hedge and only entered orders to sell. That trader entered the market at around 2:32 and finished trading by around 2:51."
Waddell confirmed it traded stock index futures that day as a "normal" hedging technique for its flexible porfolio funds-but denied those trades set off the downward spiral. "Like many participants, Waddell & Reed was affected negatively by the market activity of May 6," the 70-year-old company said. CME and CFTC declined comment.
The Securities and Exchange Commission, Financial Industry Regulatory Authority and U.S. national exchanges are proposing stock-by-stock circuit breakers that would kick in whenever a security moves 10% or more in a five-minute period.
Putnam Reveals DC Fees
Putnam Investments will reveal all of the fees in the defined contribution plans it manages through a new sponsor website that launches early next month.
There, employers will see, in real dollars rather than percentages, all of the fees charged in their 401(k)-including investment management, servicing/advisory and recordkeeping fees. The asset management fees will also be differentiated from servicing charges, and Putnam will also reveal all of the revenue paid to asset management firms on the DC platform.
Later this summer, plan participants will be provided with information on fund expense ratios, transaction fees and "other information that will enable them to determine their own individual cost," Putnam said.
"We believe working people and employers have a right to know exactly what they are paying for all elements of their 401(k)s and other retirement plans," said Putnam President and CEO Robert L. Reynolds.
"Full, clear disclosure is a vital element in building a stronger retirement savings system for America," Reynolds added. "The commitment we're making to enhanced fee and expense disclosures is our answer to that need, which we hope will set new standards for transparency in our industry. Plan sponsors and participants need detailed, useful, actionable information to make the right decisions."
Commenting on the disclosure, Dallas Salisbury, president and CEO of the Employee Benefit Research Institute, said: "I have actually sat down and experienced the software, and it is extraordinarily thorough and impressive, and will set a very high standard for all 401(k) providers." Another industry insider added, "Putnam is clearly seeking to regain a major position in the 401(k) marketplace."
Fidelity Survey Finds B/D, RIA Re-Focus on Growth
A Fidelity Investments poll of broker/dealers and RIA firms found 86% intend to accelerate growth and profitability this year by hiring more advisers and brokers, in addition to building new and existing client relationships. Only 2% say eliminating or cutting non-essential costs will be the biggest driver of profitability this year, compared to 27% in 2009.
Still, the financial services sales professionals don't expect the renewed uptick in business to be easygoing. For 47% of B/Ds and RIAs, client acquisition and retention is the biggest concern for 2010. Sixty-four percent do not expect the S&P 500 to fully recover to its October 2007 high of 1,576 until after 2010.
"After 18 months of cutting costs, broker/dealers and RIAs have clearly shifted their attention to accelerating growth through acquisition," said Michael R. Durbin, president of Fidelity Institutional Wealth Services. "Not only are firms aggressively recruiting top-producing brokers and advisers, but they are focused on actively wooing affluent investors away from large wirehouse firms, while expanding relationships with existing clients."
Fidelity and National Financial conducted the poll on April 26-27 at their annual Executive Forum client conference in Naples, Fla., on hand-held Audience Response System devices provided by Turning Technologies. On average, 186 attendees answered each question.
Sun Life Launches Canadian Fund Family
In an effort to develop its wealth management arm, Toronto insurance giant Sun Life Financial Inc. in the fall will open a proprietary mutual fund company in Canada.
This will bring the investment capabilities of MFS Investment Management, Sun Life's Boston-based asset management arm, to Canadian retail investors. MFS had over $195 billion of assets under management as of March 31.
"We are expanding our wealth business in Canada by bringing more choices and innovative products to retail investors," said Kevin Dougherty, president of Sun Life Financial Canada and president of Sun Life Global Investments. "Combined with our life insurance options, Sun Life is uniquely positioned to provide broad-based wealth management and protection solutions for Canadians through our trusted advisers."
Sun Life, which had $426 billion in assets under management as of March 31, said the new funds will be added to the funds already available to Sun Life advisers through its strategic partnership with CI Investments.
Ohio Ends 529 Contract With Putnam Investments
Putnam Investments' 10-year partnership with Ohio Tuition Trust Authority will come to an end on Oct. 1. The existing assets in the Putnam CollegeAdvantage 529 advisor plan will transition to exclusive management by BlackRock.
"We appreciate the experience of working in partnership with the Ohio Tuition Trust Authority and financial advisers to help families save for higher education over the last decade," said Putnam President and CEO Robert L. Reynolds.
Putnam has been the program manager for the Ohio advisor plan since October 2000.
Fidelity Launches Corporate Bond Fund
Fidelity Investments has launched a corporate bond fund with retail and adviser shares. The fund seeks to provide high levels of current income with at least 80% of assets in investment-grade corporate bonds and other corporate debt securities, as well as repurchase agreements for those securities.
"We currently offer investment-grade bond funds that invest in the entire market, as well as those that focus on specific underlying sectors or maturity ranges," said John McNichols, senior vice president of investment product management at Fidelity Personal Investments. "With this new fund, we're able to offer investors targeted exposure to corporate bonds, which represent about 20% of the investment-grade bond market.
"Through the fund, investors and advisers will gain access to the debt of many of the largest and most successful companies in America," McNichols added.
State Street, Nuveen Offer Build America Bond ETF
State Street Global Advisors and Nuveen Investments have launched an exchange-traded fund tracking Build America Bonds, as investment vehicles devoted to taxable municipal debt continue to proliferate.
The passively managed SPDR Nuveen Barclays Capital Build America Bond ETF is at least the 29th municipal bond ETF, and the second BAB ETF, and tracks the Barclays Capital Build America Bond Index.
The index, which is a subset of a broader taxable bond index, tracks all investment-grade BABs of $250 million or more, plus some other criteria. It tracks 85 bond issues, with those sold by California, New Jersey Turnpike Authority and Los Angeles Unified School District the biggest holdings.
Many BAB funds and indexes are heavily exposed to California, which has been the biggest issuer of the bonds. About 22% of the roughly $100 billion in BABs that have been issued since inception have been floated by issuers in the Golden State, according to Thomson Reuters.
The $10 million SPDR fund owns 31 bonds, with California, the LAUSD, and the Illinois State Toll Highway Authority as the biggest holdings.
Daniel J. Close and Timothy T. Ryan are the portfolio managers. The fund will pay monthly dividends and charge fees of 0.35% of assets annually.
SSGA and Nuveen now run six municipal bond ETFs. The two companies cut a deal in March for Nuveen to sub-advise SSGA's municipal ETFs.
Enacted under the stimulus legislation last year, the Build America Bond program enables state and local governments to forego the customary tax exemption on their debt and instead sell taxable bonds and receive a federal subsidy equal to 35% of the interest costs.
Invesco Powershares in November launched the first ETF dedicated to BABs, now at nearly $300 million and based on the Bank of America Merrill Lynch Build America Bond Index. It is up 1.6% since launching.
HSBC: Time for Wealthy To Re-Jigger Allocations
The last two years have taught affluent investors and financial professionals that change is often unexpected, swift and brutal. But despite taking severe double-digit losses on their portfolios, affluent investors HSBC surveyed still have the same portfolio allocations they did at the onset of the financial crisis in 2008.
In February and March, HSBC surveyed 2,044 affluent respondents in 11 major cities around the world. Americans suffered the worst losses, with 56% of those respondents saying the value of their portfolios had decreased. And yet, the investors had not changed allocations. Mutual funds accounted for 25% of their portfolios, individual stocks 17%, cash products 16%, retirement products 14% and real estate 10%.
U.S. investors might also take note of foreigners' portfolio diversification, including about 6% invested in art, fine wine and coins.
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