Author Bio

The increasing popularity of exchange-traded funds throughout the past two decades has spawned a new breed of asset management: ETF model portfolio firms.

A June 13 article published on Reuters examines how these establishments have caught the attention of private equity firms looking to provide them with venture capital funding. In short, ETF model portfolio firms manage investor portfolios comprised predominantly of ETFs. The irony here is that one of the biggest draws to ETFs are their low-maintenance nature that doesn’t call for outright active money management to maintain performance.

Because they are not trying to outperform the market, but instead match it, they require minimal direct human upkeep and involvement. This administration style is known as “passive management,” and because the investment behaves independently, fewer fees are inflicted upon the investor. By investing in the strength of the market itself, as opposed to a fund manager, ETFs are able to evade almost any managerial risk normally associated with traditional investments or mutual funds.

So now enter ETF model portfolios, and while the investor is gaining greater exposure to a mix of passively managed index ETFs, the mix itself is under active management. But this isn’t necessarily a bad thing; with the strong influx in ETF usage arising, an investor needs some structure on how to best use them – something the ETF model portfolio firm can provide.

Also, today’s volatile markets have called for an element of agility amongst the way money managers operate within different asset classes. Mutual fund managers generally have very limited ability to perform tactical allocation and switch from one asset class to another to generate returns, while ETF model portfolio managers can easily do so.

There’s no doubt that due to their recent entrance on the financial scene these firms are still green. But given the prior success of exchange-traded funds, the need for managers of an ETF-laden investment portfolio will continue to grow. And as they become increasingly more mainstream, one can’t help but wonder: could this mean danger for the mutual fund?

-------

Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

Author Bio

Back in March I penned the post Gold is not glittering so much these days which made the case that gold was not performing very well and had some significant downside risk. With all of the risk aversion we have seen running through the markets of late, the question has come up as to why gold hasn’t been more of a beneficiary and why money isn’t flowing into that market as it had done before when the markets have gotten really nervous. I think there are two ways to address that.

Not as much fear as in prior times
As much as things have gotten crazy in the markets at different points of late, they haven’t been as bad as you might think. Yes, we’ve seen interest rates moving rapidly, especially in the Treasury markets. That, though, can be at least partly explained by Fed ownership there as I discussed last week.  And yes, other risk markets have taken losses. Things haven’t gotten too bad in the stock market, though. If the markets were really fearful, we’d see stocks being sold aggressively as well.

No money printing by the central banks
The big thing that drove gold in its long uptrend was the money being printed by the central banks such as the Fed and Bank of England while doing their quantitative easing programs. We are not seeing that sort of activity anymore (despite some calling for it). It is important to note that programs like Operation Twist where the Fed buys long-dated Treasury securities and sells short-dated ones does not expand money supply. Gold has basically gone sideways since QE 2 ended last year.

Flagging participation
In my previous gold post I noted that open interest in the front month gold futures contracts had declined, indicating that fewer positions were being held in the market. Also, the volume pattern had changed from surges on up moves to surges on down moves. Both of these patterns have continued in the last few months.

What’s interesting in all this is that gold is clearly sensitive to money supply issues, but hasn’t reacted positively to the talk in the markets recently about central banks doing more policy easing. That suggests two potential conclusions. The first is that the gold market doesn’t really buy the idea that the Fed, BoE, ECB, etc. will be doing big money supply expansions as were done previously. The second is that gold got ahead of itself when it rallied previously, so doesn’t have it at this point to start moving up again. And maybe both factors are part of the story of flat gold.

Looking at the prospects
If anything, I think gold looks worse now than it did when I wrote about it back in March. I said then that the 1500 level was key and that continues to be the case. If the market falls through there we could see a long-term downtrend play out. The interesting thing to watch there is whether the open interest starts rising as the market falls. That might indicate shorts coming in.

In the mean time, the USD Index cup-and-handle pattern I wrote about last month has been broken, creating a strong upside prospect for the greenback. That’s not the sort of thing which tends to be supportive of gold on general principle.

-------

Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.