Thursday, October 11, 2012

Quant is under the weather this morning and unable to convey its daily message, it is being attended to and we hope and expect a quick recuperation.  

We’ll use its absence to highlight another ETF Global feature, the ETP Liquidation Watch List.  This is where we try to keep you out of troubled funds that may close, sometimes with troubling consequences such as an inability to redeem shares at NAV. We have found a confluence of circumstances that can lead to such an event.  First, it rarely happens within a fund’s first two years of existence so we screen out all of those newer funds that haven’t had time to prove themselves to the market and their sponsors.  Next, we look at funds with less than $5 million in assets under management, that threshold usually makes it difficult to run the administrative functions necessary to operate and market an Exchange Traded Product.  Third and most importantly, we screen for all those funds that have negative fund flows for the trailing twelve months as that tends to be the final straw for a sponsor to pull the plug on a disappointing fund.  Some funds close without meeting these three criteria and some that meet all three remain open so inclusion is not a sure thing but a warning to check before building a new position.  We compile it monthly and you can see October’s list from the Liquidation Watch List link under the Risk Analytics button.  October’s list has 51 names on it and not surprisingly, they tend to be populated among the higher risk scores.  The average Risk Rating of the funds on this month’s list is 6.51, higher than most of Quant’s top rankers and skewed down by 5 currency funds that tend to have lower price risk as currencies don’t move like other asset classes.  Taking out those 5, the average rises to 6.73.  Those 5 currency funds have a Risk Rating below 5 and 8 more have Risk Ratings below 6, leaving 38 funds with a Risk Rating above 6 Red Diamonds.  If you are not swinging for the fences you probably won’t find any of your positions on this list but if you have some aggressive inclinations or are considering a narrow niche product, check out the ETFG Liquidation Watch List before putting on your trade.

As for Quant, check its page before the open, we hope to have it out of bed and working by then.

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