Synthetic ETFs – an efficient way to use modern financial technology to do something useful for investors or a sinister investment banking kinda plot to cream off extra revenue from naive investors who just want to track an index?
In Monday’s FTfm, former Eurizon chief executive Francis Candylaftis called for these evil instruments to be cast into the outer darkness. This sparked a thoughtful explanation by FT Alphaville of precisely where the problem might lie (hint – it’s about the bit where you need collateral), using db x-trackers’ own diagram of how it all works.
Then blogger Andrew Clavell picked up the theme, suggesting a much firmer regulatory hand on the collateral would solve the problem.
Does anyone else have any suggestions?
This is very odd – instead of talking about how the last year has destroyed the efficient markets hypothesis and its friend modern portfolio theory, here’s someone pointing out that they couldn’t have been disproved because Nobody Believed In Them anyway.
It’s not the first time someone has pointed this out, but it is a nice succinct summary. This disposes very usefully of a strawman that has been brilliantly used by both sides to divert attention from the real problem, which is that markets have always been and always will be inefficient and clever greedy people like to capture the economic rent from this fact.
In the balance: are ETFs 'good', 'bad' or 'I dunno'
ETFS – are they low cost, simple investment tools for the retail saver (GOOD), or a complicated device for enhancing the profitability of investment banks (BAD), or even a bewildering mix of the two (UH- dunno)? If the recent wave of commentary on the blogosphere has left you feeling confused, here’s a helpful guide from the Aleph blog – The Good ETF.
But remember, according to Tadas Viskanta at Abnormal returns, size really does matter for ETFs.
Is there an equity risk premium? Can investors take advantage of it? Yes, according to Jeremy Siegel. No, according to a delightfully scornful riposte from sometimes FTfm writer John Keefe.
Feel free to join in the fight in comments, but bear in mind that in the long run, we’re all dead.
How many penny sweets can you buy with a billion dollars?
For a financial journalist, one of the major challenges of the past couple of years has been to convey the scale of the numbers we are dealing with on a daily basis. What is a billion dollars? How many penny sweets can you buy with it? Pints of milk? And we know a trillion is bigger, but how much bigger?
An innovative and practical attempt to solve this problem has been recognised with one of the greatest international accolades, an IgNobel prize.
Asset managers like to boast of their lovely cushiony profit margins, but their profitability is another matter entirely. According to a survey by SimCorp Strategy Lab, nearly half of investment management businesses are struggling to break even.
They calculate a cost rate by subtracting ebit (earnings before interest and tax) from gross revenue and expressing the result as a percentage of gross revenue. Less than 20 per cent managed to keep that cost rate below 85 per cent, while 41 per cent saw it rise to 99 per cent or above.
FTfm reports the results of the survey but we would like to know what you think. Is asset management industry really this difficult to make a profit in? Is this a reasonable way to think about profitability? And are investment managers really as clueless about cost control as the survey authors think?
Gillian Tett of this parish is wondering why more bankers are not in jail. She thinks it’s partly because all this finance stuff is too complicated for the poor little lawyers to understand. But there may be other reasons, like judges who think they should take the working environment of wrongdoers into account. Like the fantasy judge imagined by the Jets in Westside Story, who lets off a hoodlum because he pleads a tough childhood, this New Jersey judge seems to think working in a “pernicious and pervasive … culture of corruption” is a mitigation of accuseds’ offence.
You’ve probably wondered before now how FTfm keeps its sense of purpose in A World Gone Mad. Is it possible that we rely on the mystic guidance of the world’s foremost financial shaman?
Well, no, not really, but wouldn’t it be funny if we did?