ETF assets hit an all time high

The ETF benefits have attracted many institutional investors and retail investors since the first launch in U.S. in 1993. U.S. ETFs enjoyed $47.4 billion inflow in the first seven months of 2009 while regular mutual funds suffered an outflow of $50.6 billion, reports SmartInMoney.

During the first seven month of 2009 global net sales of ETFs was $65.7 billion, which was still lower than the net sales of mutual funds of $97.5 billion, according to Strategic Insight.

A worldwide trend has seen global ETF assets hit an all time high of $891 billion at the end of August 2009 according to the September 2009 edition report from Barclays Global Investors (BGI). The new high of global ETF assets is 3.9% above the previous all time high of $858 billion set in July 2009. Year-to-date assets have risen by 25.3% which is more than the 18.0% rise in the MSCI World Index in US dollar terms. The universal ETF industry had 1,773 ETFs with 3,137 listings from 95 providers on 41 exchanges at the end of August 2009.

The U.S. ETF assets also hit an all time high of $607 billion at the end of August 2009, a 4.3% increase from the previous all time high of $582 billion set in July 2009. Meanwhile, the U.S. ETF industry had 710 ETFs, from 22 providers on 3 exchanges.

Big gains followed a brutal bear market

Stock markets closed its best quarter since 1998 on Wednesday and posted big gains following a seventeenth months of cruel bear market. Stock markets have rallied since the early spring and gained steam over the summer, wrote SmartInMoney.com.

The Dow Jones Industrial Average index is up 48% from its March 9 low and up 11% this year, although still down 31% from its October 2007 record.

The Standard & Poor's 500-stock index is up 17% for the year and up 56% from its March low but off 32% from its October 2007 high.




For the past seven months, it has been a beta-driven rally. As investors took advantage of the easy money and moved back into riskier assets, many of the biggest decliners during the crisis posted the largest gains. Buying volatile stocks is known as a beta trade. A financial statistic called beta is a measure of an individual stock's moves in relation to the market. A stock with a beta of two, it historically moves twice as much as the market.

Read the full article at SmartInMoney

September effect mystery

We are in the beginning of September, a well known month among investors with its September seasonal effect on stock markets around the world. Investors will find an interesting article about the September anomaly in SmartInMoney.com. Next are excerpts from the article.

... there is a puzzle whether the stock market will continue its upward momentum or will fall to follow the seasonal pattern of the September effect anomaly. According to the efficient market hypothesis (EMH), the stock return should not be predictable and thus, the behavior of the stock returns inconsistent with the EMH is considered an “anomaly”.

Jeremy J. Siegel in his book “Stocks for the Long Run” shows that September is by far the worst moth of the year. Dow Jones Industrials has an average negative return of 1% for the period of 1885 to 2006. Furthermore, the September effect has not only prevailed until recently, but it has actually been stronger since 1990 with an average negative return of 1.5% from 1990 to 2006.



The poor returns in September also prevail in the rest of the world. September is the only month of the year that has negative returns in a value-weighted index. September has been the worst month in 17 of the 20 countries analyzed and all the major world indexes, including the EAFE Index and the Morgan Stanley all world index.

A dissertation presented by Hyung-Suk Choi from Georgia Institute of Technology in December 2008 mentions that the U.S. stock market return in September was negative 0.24 % over the last two hundred years, and it is the only month with the negative mean return. The September average return is significantly negative in 15 out of 18 developed countries over the whole sample period, which varies from 38 years to 208 years upon data availability. Moreover, the September return is negative in all 18 countries over the period 1970 to 2007.

ETFs keep flourishing

SmartInMoney.com wrote in the article "ETF Structure and Advantage" that Exchange-traded funds (ETFs) keep flourishing as they recorded their largest month on record in July with US$646-billion in assets, according to Birinyi Associates

Exchange traded funds in their basic form are baskets of securities that are traded, like individual stocks, on an exchange. Funds can track any number of indexes from the large-cap S&P 500, small-cap Russell 2000, or even commodities. Most of ETFs on the market currently are passively managed, tracking a wide variety of broad to narrow market indexes.

As of July, SPDR (SPY) remains the largest ETF at US$69-billion. SPDR Trust is an exchange-traded fund that holds all of the S&P 500 Index stocks

Exchange traded funds have grown rapidly to cover most broad investment purchases and many niche markets. Funds that drill down into specific sectors, industries, regions, countries, and asset classes make up a great percentage of the ETF universe, offering relatively inexpensive access to investments such as currencies, precious metals, or emergent industries that thus far have been the sole province of larger institutional and wealthy investors.

Recently, fund companies have also launched actively managed ETFs. These funds are not tied to a benchmark, but continue to sport the familiar benefits of ETFs.

ETFs attract both investors and traders who do not wish to make individual stock selections but only capture the broad movement of the market. ETFs appeal to different types of do-it-yourself investors. Investors who prefer index funds over actively managed offerings find ETFs appealing because many of them are very cheap. Some day-traders like ETFs because of their stock-like qualities and their focus on individual sectors or markets.

Read full article at smartinmoney.com

Flash orders will be banned

The Securities and Exchange Commission (SEC) is moving toward banning a trading practice, called as “flash orders”, that gives some brokerages a split-second advantage in buying or selling stocks.

Flash orders give certain members of exchanges including Nasdaq, Direct Edge and BATS the ability to buy and sell order information for milliseconds before that information is made public. High-speed computer software can take advantage of that brief period to allow those members to get better prices and profits.

Investing in bear market by dollar cost averaging

At times like these you may even admit that shares are probably pretty cheap now. But what if things get a lot worse?

Investing by dollar cost averaging can facilitate your investment appetite and your worry about the risk. The idea is that you put exactly the same amount of money into mutual funds or stocks every month or certain interval of time.

Choosing to dollar cost average strategy, you are giving up any attempt to time or catch the market bottom. Trying to catch the bottom is like attempting grasp a falling knife.

To see how dollar cost averaging might have helped an ordinary investor during the worst meltdown in history, Brett Arends looked at the Great Depression data from Ibbotson Associates. He looked at total shareholder returns, which includes reinvested dividends, for a basket of the top 500 companies on the market. He wrote the following results on the Wall Street Journal.

At the worst moment in the crash of 1929-1932, someone who dollar cost averaged had still lost about two-thirds of his or her money.

That is plenty scary. Terrifying, even. But before you bolt from your mutual funds, never to return, let me add several things.

First, these are the numbers for the unluckiest investor - the guy who began dollar cost averaging at the absolute worst moment in history, namely Sept. 3, 1929. Those who started later in the crash did at least slightly better.

Second, the performance in real terms wasn't quite as bad as it seems. That's because of deflation - the phenomenon of falling prices that helped cause the crash in the first place. A dollar in 1932 bought a lot more than a dollar in 1929: Average prices fell by about a third. So in real terms even the unluckiest investor - one who started in September 1929 - was only down, at the low point, by just over a half.

Third, they recovered fast. When the market turned, those who stuck quietly to their plan got repaid quickly. Forget that stuff about 1954. According to Ibbotson data, someone who dollar cost averaged was back on level terms by 1933. And by 1936 he had doubled his money (though the crash of 1938 then knocked him back to evens for a while).

Incidentally, while Wall Street plummeted 89% at its lows, overseas markets did not do quite so badly. They fell, overall, about two-thirds according to data from Philippe Jorion, an economics professor at University of California-Irvine. That's still bad, but it is very different from 89%.

It's an argument for sticking to regular investments through this crash: Not bailing, and not jumping in with both feet either. The simplest strategy worked; investing the same amount, every month. It's also an argument for investing globally, and not just in the U.S., which is a lot easier to do today than it was in 1929.


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Madoff goes to jail for running Ponzi scheme

Bernie L. Madoff pleaded guilty to all charges against him for running the largest Ponzi scheme at a hearing in Federal District Court on Thursday, Mar. 12. He also said he was deeply sorry and ashamed.

Mr. Madoff delivered a plea allocution, essentially an explanation of his crime and an acknowledgment of guilt. “I am painfully aware that I have deeply hurt many, many people, including the members of my family, my closest friends, business associates and the thousands of clients who gave me their money,” he said in his statement. “I cannot adequately express how sorry I am for what I have done.”

Madoff was also pulled away to jail, after the judge Denny Chin refused to let him remain free until sentencing. “I don’t need your statement,” the judge told prosecutors, who were waiting to argue against setting Madoff free until his sentencing time in June. “It is my intention to remand.”

Here's the AP's list of the government’s 11 counts and possibly penalties:

Count 1: Securities fraud. Maximum penalty: 20 years in prison; fine of the greatest of $5 million or twice the gross gain or loss from the offense; restitution.

Count 2: Investment adviser fraud. Maximum penalty: Five years in prison, fine and restitution.

Count 3: Mail fraud. Maximum penalty: 20 years in prison, fine and restitution.

Count 4: Wire fraud. Maximum penalty: 20 years in prison, fine and restitution.

Count 5: International money laundering, related to transfer of funds between New York-based brokerage operation and London trading desk. Maximum penalty: 20 years in prison, fine and restitution.

Count 6: International money laundering. Maximum penalty: 20 years in prison, fine and restitution.

Count 7: Money laundering. Maximum penalty: 10 years in prison, fine and restitution.

Count 8: False statements. Maximum penalty: Five years in prison, fine and restitution.

Count 9: Perjury. Maximum penalty: Five years in prison, fine and restitution.

Count 10: Making a false filing with the Securities and Exchange Commission. Maximum Penalty: 20 years in prison, fine and restitution.

Count 11: Theft from an employee benefit plan, for failing to invest pension fund assets on behalf of about 35 labor union pension plans. Maximum penalty: Five years in prison, fine and restitution.