January 11, 2012
Tax Issues and ETFs

My latest (last?) story at WSJ is a primer on the tax issues affecting ETFs. For the most part, they are straight forward. Equity ETFs are as efficient (or slightly more so) than equity-indexed mutual funds.

Bond ETFs, especially with cash create/redeem during a year of rising bond prices, had some capital gains to distribute.

IndexUniverse put out two compendia on ETFs and taxes late last year. Truly yeoman’s work and incredibly helpful. Check out the complete guide to ETF Taxation as well as their summary of 2011 distributions.

Also, with the help of some folks at WisdomTree and Teucrium, I learned a little more about the nuances of futures-based commodity ETP taxation.

One of the WisdomTree funds I looked at —WisdomTree Brazil Real Fund— paid out a large distribution. According to the company, the fund has an August fiscal year end, at which point it had distributions to pay out (and paid those out in December.) Those distributions amounted to 29% of the NAV by December.

Another hitch for futures funds, realized gains (or losses) are marked to market for the individual investor at the close of the tax year at 60% long-term, 40% short-term and then used to increase/decrease the basis.

There’s no actual distribution from the fund, just a distribution of the tax liability.

4:49pm  |   URL: http://tmblr.co/ZaxaYyEc-oW9
(View comments) 
(Notes: 2)
  
Filed under: ETFS taxes 
January 10, 2012
ETFidelity

In early December, Fidelity Investments went “state of the art” in updating its exchange-traded fund application, according to one of my sources.

While I detailted in my story at The Wall Street Journal that filing is very preliminary (as was pointed out in Index Universe in early December and Barron’s more recently), there is no reason to think that Fidelity can’t take market share in ETFs almost immediately. Schwab’s growth to $5 billion in ETF AUM in less than 2 years is the proof Fidelity needed.

Granted that the simplicity of ETFs is that they are exchange-traded, meaning that anyone with exchange access can trade the products, Fidelity has access to a giant community of individual investors and advisors that many start-up ETF providers do not. While other brokers - including Schwab, Scottrade and TD Ameritrade and now E-Trade - have teased their own ETFs with low-cost or zero commission trades, Fidelity knows from its current relationship pitching 30 iShares ETFs at $0 how well that works.

At Charles Schwab, they will gladly take long term assets under management (even at 0.06 bps) against the friction of a $9.95 trade.

Fidelity closed November with $93 billion in indexed assets under management, less than 10% of its total mutual fund assets. The company also has the solid Fidelity Select mutual fund franchise that could mimic (with a twist) the Select Sector SPDRs from SSgA.

Many have asked me what this may mean for Fidelity, the ETF market or even their Fidelity-administered 401(k) plan. At this point, it’s too early to tell, but there’s no doubt that interested parties should take notice.

9:47pm  |   URL: http://tmblr.co/ZaxaYyEawvSH
(View comments) 
Filed under: ETFs 
December 13, 2011
ETF Tools for ETF Tools

My latest story at SmartMoney.com, How to Sift Through All Those ETFs, sheds light on some new and interesting tools for ETF investors, or any investor. While I didn’t approach portfolio theory and risk profiles, these tools can constitute a good second step for adding ETFs to your investments.

The ETF market has grown significantly this year, some might even say to its own detriment, but shouting about ETFs with few assets is noise on top of new and innovative products trying to gain traction.

12:43pm  |   URL: http://tmblr.co/ZaxaYyDCjTkF
(View comments) 
Filed under: ETFs 
September 26, 2011
Understanding My ETF Coverage

Following on my coverage of ETFs for The Wall Street Journal’s monthly “Investing in Funds,” I’ve been writing every few weeks at SmartMoney.com as well.

You can find my recent work stories at my author page.

Unlike the pieces I write for WSJ, the stories at SmartMoney are designed to be  timely and actionable. The stories in WSJ are necessarily deeper and more about the mechanics of exchange-traded funds.

The work I’ve done over the past 1.5 years has helped inform my understanding of the situation on the UBS Delta One desk. The first thing I thought when the allegations of fraud broke was that the trade settlement and structure of European ETFs might be involved.

I was also not surprised to see ETFs at the center. Frauds are often hidden right in front of our eyes, masked by either liquidity, lax oversight or both. And, as we have seen before, they can be uncovered quickly by counter-trend or six-sigma deviations.

How a loss that large and seemingly over many positions was uncovered at $2.3 billion is the most baffling. To lose that much, you must have even more at risk.

Let’s hope that woke up every delta one desk around the world.

10:53pm  |   URL: http://tmblr.co/ZaxaYy9_fdlu
(View comments) 
(Notes: 3)
  
Filed under: ETFs 
August 30, 2011
Where’s My Money (Fund)?

Watching weekly money market fund flows at ICI, the mutual fund industry group, can be confusing. Too many variables go in to flows to actually divine something meaningful. But the past few weeks (and years) have started to bear out divergent issues. 

Investors continue to dump prime and tax-exempt funds, on all levels, and move in to government funds. The why is all over the map: most funds are saddled with high expenses, a consequence of rapidly moving money. Historically low yields hit these ultrashort, highly regulated funds the most. Operational costs for the funds are being widely supported by the investment managers, to the point that BNY Mellon now has enough gumption to charge fees on non-money fund corporate cash.

To wit, ETFs have been floated as alternatives to money market funds. Get rid of mandating $1 per share NAV and externalize the accounting and you remove a lot of the costs. (In the June Investing in Funds report, WSJ looked at the money fund debate.

So far, only three ETFs have come up as viable money-fund alternatives. One - PIMCO’s MINT appeals to the yield-chasers. Two others contain ultra short term Treasurys, for the ultimate cash bear. The industry is starting to take notice. Federated Investors is looking to launch a MINT-like fund and could just be starting the next wave of ETFs.

10:32am  |   URL: http://tmblr.co/ZaxaYy8xSG-n
(View comments) 
Filed under: ETFs