I’m all in favour of ETFs (most of them, anyway. Not the silly ones). By reducing friction, they make it easier for small investors to construct a well diversified portfolio. Trouble ensues when all these small investors collectively become a tidal wave of dumb money:
Investors are pulling money from exchange-traded funds that track emerging markets at the fastest rate on record, as China’s slowing growth and cuts to central-bank stimulus sink currencies from Turkey to Brazil.
More than $7 billion flowed from ETFs investing in developing-nation assets in January, the most since the securities were created, data compiled by Bloomberg show. The iShares MSCI Emerging Markets ETF has seen its assets shrink by 11 percent, while the Vanguard FTSE Emerging Markets ETF is poised for the biggest monthly redemption since the fund was started in 2005. The WisdomTree Emerging Markets Local Debt Fund is on track for an eighth straight month of withdrawals.
…
Withdrawals from the iShares fund and the Vanguard ETF, the largest such products by assets for emerging markets, totaled $1.9 billion on Jan. 27, the biggest one-day redemption since 2005, data compiled by Bloomberg show. About $58 million has been withdrawn from the WisdomTree debt fund this month, bringing the total redemption since June to $752 million.
It will be most interesting to see if any smaller, derivative-based ETFs get into trouble as a result of all this.
Assiduous Readers will remember that I am most interested in good statistics regarding actual default rates of AAA US RMBS, as opposed to downgrades. The politicians are always whimpering about downgrades and seek to make them sound like defaults in their speeches. Today I found – free! – S&P’s Global Structured Finance Default Study, 1978-2012: A Defining Moment For Credit Performance Stability. Yep, downgrades are awful! No less than 70.68% of US RMBS were downgraded in 2009, as shown in the table on page 19. More seriously, 57.3% of investment-grade global structured finance instruments issued in 2006 have defaulted (page 24) and, even more seriously the Global Structured Finance Five-Year Default Rate for AAA issues for the five years ending 2012-12-31 was 12.91% (page 35). Regrettably, it’s not clear to me whether the US agencies’ default is included in these figures, or what the recovery on default was. Still, it’s a fascinating topic and I continue to keep my eyes peeled for solid analysis.
David Parkinson of the Globe writes a good piece about wage inflation:
Average weekly earnings, including overtime, were up 2.5 per cent in November compared with a year earlier – the fastest pace in six months. In November alone, average weekly wages jumped 0.9 per cent.
…
Statscan data show that average hourly earnings excluding overtime have barely moved in the past six months, but average earnings including overtime are up 1.2 per cent.Curiously, though, the November wage growth came despite a drop in average weekly hours worked (to 33.1 from 32.8 a year earlier). This would seem to contradict the notion that overtime has been ramped up. However, given that most of the job growth in the past year has been in part-time positions, this could be a function of overtime shifts being spread among part-time workers.
It was a mildly negative day for the Canadian preferred share market, with both PerpetualDiscounts and FixedResets off 6bp and DeemedRetractibles flat. Volatility was very low. Volume was average.
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
|||||||
| Index | Mean Current Yield (at bid) |
Median YTW |
Median Average Trading Value |
Median Mod Dur (YTW) |
Issues | Day’s Perf. | Index Value |
| Ratchet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.3092 % | 2,448.0 |
| FixedFloater | 4.50 % | 3.75 % | 28,451 | 17.93 | 1 | -0.7519 % | 3,772.8 |
| Floater | 3.05 % | 3.06 % | 70,288 | 19.55 | 3 | -0.3092 % | 2,643.2 |
| OpRet | 4.61 % | 1.07 % | 77,636 | 0.33 | 3 | 0.0512 % | 2,679.4 |
| SplitShare | 4.87 % | 4.91 % | 62,663 | 4.38 | 5 | 0.0968 % | 3,008.2 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0512 % | 2,450.0 |
| Perpetual-Premium | 5.61 % | 1.93 % | 117,005 | 0.09 | 13 | 0.0917 % | 2,334.1 |
| Perpetual-Discount | 5.56 % | 5.63 % | 169,516 | 14.43 | 25 | -0.0600 % | 2,387.6 |
| FixedReset | 4.93 % | 3.73 % | 218,820 | 4.48 | 84 | -0.0613 % | 2,484.4 |
| Deemed-Retractible | 5.14 % | 4.14 % | 175,928 | 1.97 | 42 | 0.0021 % | 2,413.9 |
| FloatingReset | 2.67 % | 2.60 % | 197,210 | 4.44 | 6 | -0.2008 % | 2,440.1 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| CU.PR.D | Perpetual-Discount | -1.67 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-01-30 Maturity Price : 22.55 Evaluated at bid price : 22.93 Bid-YTW : 5.42 % |
| CU.PR.G | Perpetual-Discount | -1.07 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-01-30 Maturity Price : 21.25 Evaluated at bid price : 21.25 Bid-YTW : 5.39 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| RY.PR.Z | FixedReset | 1,429,936 | New issue settled today. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-01-30 Maturity Price : 23.13 Evaluated at bid price : 24.95 Bid-YTW : 3.76 % |
| TRP.PR.E | FixedReset | 109,700 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-01-30 Maturity Price : 23.05 Evaluated at bid price : 24.79 Bid-YTW : 3.98 % |
| RY.PR.I | FixedReset | 76,076 | Will reset at 3.52%. Scotia crossed 50,000 at 24.70. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.70 Bid-YTW : 3.73 % |
| RY.PR.L | FixedReset | 68,182 | Will reset at 4.26%. Yield to Deemed Maturity 2022-1-31 at 25.00 is 3.85%. RBC bought 11,500 from National at 25.75 and another 17,100 from TD at the same price. TD also sold 11,600 to CIBC at 25.80. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-26 Maturity Price : 25.00 Evaluated at bid price : 25.75 Bid-YTW : -15.92 % |
| BNS.PR.L | Deemed-Retractible | 55,225 | Desjardins crossed 10,500 at 25.50. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-04-28 Maturity Price : 25.25 Evaluated at bid price : 25.45 Bid-YTW : 3.80 % |
| BNS.PR.O | Deemed-Retractible | 50,400 | RBC crossed 50,000 at 26.10. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-04-28 Maturity Price : 25.75 Evaluated at bid price : 26.05 Bid-YTW : 0.47 % |
| There were 34 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| TRP.PR.A | FixedReset | Quote: 23.27 – 23.55 Spot Rate : 0.2800 Average : 0.1930 YTW SCENARIO |
| TD.PR.G | FixedReset | Quote: 25.23 – 25.44 Spot Rate : 0.2100 Average : 0.1359 YTW SCENARIO |
| CU.PR.G | Perpetual-Discount | Quote: 21.25 – 21.48 Spot Rate : 0.2300 Average : 0.1570 YTW SCENARIO |
| FTS.PR.J | Perpetual-Discount | Quote: 22.52 – 22.83 Spot Rate : 0.3100 Average : 0.2406 YTW SCENARIO |
| CU.PR.D | Perpetual-Discount | Quote: 22.93 – 23.20 Spot Rate : 0.2700 Average : 0.2014 YTW SCENARIO |
| CU.PR.E | Perpetual-Discount | Quote: 23.00 – 23.33 Spot Rate : 0.3300 Average : 0.2620 YTW SCENARIO |