A recent USA today article highlights the fact that investment scams usually increase when there is an economic downturn. The article refers to The North American Securities Administrators Association’s recently released list of Top 10 Investor Traps: The list and discussion points, which are located at http://www.nasaa.org/nasaa_newsroom/current_nasaa_headlines/13048.cfm are as follows:
Continue reading "NASAA's Top Ten Investment Scams for 2010" »
Scams will always be with us but they are especially plentiful when traditional investments like stocks and bonds are not doing well, according to John Waggoner of USAToday in his August 5, 2010 article, “Investment Scams Thriving.”
"It's pretty bad out there," Texas Securities Commissioner Denise Voigt Crawford was quoted as saying. The primary victims are those trying to make up losses in their 401(k) plans and stock portfolios, she added.
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Exchange Traded Funds have morphed from their origins as more liquid versions of broad-based stock index mutual funds into more extreme varieties that mimic high-risk hedge funds. Edward Robinson described them as “ETFs Gone Wild” in his recent Bloomberg article, and wonders whether they are a financial disaster in the making.
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Two recent Wall Street Journal articles may cause investors to reconsider their assumptions about the supposed benefits of exchange traded funds: “Flash Crash May Prove Blemish for ETFs,” by Ian Salisbury (May 13, 2010), and “Danger: Falling ETFs,” by Eleanor Laise (May 29, 2010).
The Securities and Exchange Commission is conducting a review of certain types of exchange traded funds. The SEC’s primary focus is on leveraged and inverse leveraged exchange traded funds and actively managed exchange traded funds, especially derivatives-based exchange traded funds. See John Spence’s Wall Street Journal article, “Leveraged ETF’s Are Under SEC Scrutiny.”
Continue reading "SEC Scrutinizes Use of Derivatives by Exchange Traded Funds (ETFs)" »
In today’s low-interest-rate environment and with investors rightly suspicious of stock and bond investments, investment scams are flourishing. Investors should pay attention to the warnings of state securities regulators, whose list of Top 10 Investor Traps is featured on CNBC.com’s American Greed.
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Uncertainty about the corporate stock and bond markets is fueling growth in exchange traded funds, particularly bond exchange traded funds, according to a recent CNBC.com post by Jeff Cox. High-yield corporate bond funds comprise 10 percent of the total exchange traded fund market, up from 1 percent two years ago, while high-grade bond funds comprise 15 percent, up from 6 percent in 2008, according to the article (citing BofA Merrill Lynch Global Research).
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Bond exchange traded funds carry hidden risks. In a recent Wall Street Journal article, Sam Mamudi cautioned investors seeking safety in bond exchange traded funds to be aware of hidden risks that can magnify the losses and limit the gains in such investments. See “Bond ETF Buyers Must Stay on Guard for Hidden Risks,” March 1, 2010.
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Recently released figures show that colleges across the nation suffered a 19 percent decline in their endowments in 2009. Some school endowments have reported even steeper declines, including Georgia Tech (26%), the University of Georgia Foundation (23%), and Emory University (21%). While the financial markets as a whole experienced a significant downturn in 2008, the stock market began rebounding in early 2009 and many investment portfolios have since regained much of their value—but not all. According to an article in the Atlanta Journal Constitution, Emory has had to cut its expenses by $50 million a year and eliminated 500 administrative positions, despite having one of the richest endowments in the country. Smaller schools with more modest endowments are in a more precarious position, because a single bad investment may threaten the very survival of the institution.
Continue reading "Have College Endowment Funds Been Victimized by Unscrupulous Brokers?" »
Sellers of exchange traded funds are pandering to the latest investment fad and putting investors at peril, according to David K. Randall in his March 1 Forbes article, “Rearview ETFs.”
They are taking advantage of an unfortunate quirk of human nature, which leads investors to chase last year’s hot sector in an effort to replicate eye-popping returns. This phenomenon is so well-known that it even has a name: "recency," the tendency to assume the near future will look a lot like the recent past. Unfortunately, recency often leads investors to climb into hot sectors just as they're cooling, according to the article.
Continue reading "Beware the Hidden Risks of Exotic Exchange Traded Funds ("ETFs")" »
What is an exchange traded fund? John Waggoner explains in his Feb. 12 column in USAToday, “What the heck are ETFs? It’s complicated.” Waggoner is USA TODAY's investing columnist, and formerly was senior editor at The Independent Investor, then the nation's third-largest investment advisory newsletter.
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Ordinary (i.e., unleveraged) exchange traded funds or ETFs are supposed to be lower-risk cousins of closed-end mutual funds, but some of them are just as risky as closed-end funds, and for the same reasons, according to a recent Wall Street Journal article by Eleanor Laise, “Risks Lurk for ETF Investors.”
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There has recently been a spate of litigation and regulatory activity surrounding exchange-traded funds (ETF’s), particularly leveraged or inverse ETF’s. Both the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) have issued warnings that leveraged and inverse exchange ETF’s are not suitable for most retail investors, and at least one state has announced an investigation into the sales practices of ETF’s. More recently, several class actions have been filed against specific EFT providers, notably ProShares Trust, which is one of the largest providers of leveraged and inverse ETF’s.
Continue reading "Have You Lost Money in ETF's?" »
There have been various developments over the past several weeks which investors may consider relevant in allocating their resources or evaluating alternatives that are available to them. Some of the more significant developments include, but are not limited to, the following:
• The Dow Jones Industrial Average opened the week at 9605 and, on Monday, moved up 22 points.
• On Tuesday, the Dow Jones Industrial Average rose 57 points.
• On Wednesday, the Dow Jones Industrial Average soared 108 points.
• On Thursday, the Dow Jones Industrial Average dropped 8 points.
• On Friday, the Dow Jones Industrial Average rebounded 36 points and closed the week at 9820.
Continue reading "Page Perry's Market Monitor - September 18, 2009" »
The Securities and Exchange Commission (SEC), the North American Securities Administrators Association (NASAA), and the Financial Industry Regulatory Authority (FINRA) have all recently warned that leveraged exchange traded funds (ETFs) are very dangerous investments and not suitable for most retail investors. Moreover, the State of Massachusetts has announced an investigation into the sales practices of brokerage firms selling ETFs.
Continue reading "Concerns about Leveraged Exchange Traded Funds (ETFs) Increase" »
The North American Securities Administrators Association (NASAA), the organization of state securities regulators, has published its annual list of top 10 investor traps to avoid. NASAA identified Leveraged Exchange-Traded Funds (ETFs), real estate investment schemes, private placement offerings, natural resources investments, and Ponzi schemes as the greatest potential threats to investor safety. Regarding leveraged ETFs, NASAA warns: “Given their volatility, these funds typically are not suitable for most retail investors.” NASAA also warns investors to be wary of pitches for investments in gold bullion and currency scams, life settlements, entertainment investments, short-term commercial promissory notes, and speculative inventions and new products.
Investors have filed a class action complaint against Proshares Advisors LLC and others for violating anti-fraud provisions of the federal securities laws by misrepresenting and failing to disclose material risks associated with an inverse leveraged exchange traded fund (“ETF”), reported Evan Weinberger in his recent 360Law article entitled “Class Alleges ProShares ETF Is ‘Defective Product.’” That fund is the UltraShort Real Estate ProShares fund offered by ProShares Trust. The Complaint notes that sales of such products have “exploded in popularity” in recent years, that ProShares Trust is the fifth largest provider of ETFs in the United States and managed 99% of the inverse and leveraged ETFs in the country.
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Fidelity Investment has joined Charles Schwab and Morgan Stanley Smith Barney in warning customers about the complexity and risks of Leveraged Exchange Traded Funds (ETFs), reported Daisy Maxey in her article, “Fidelity the Latest to Caution on ETFs,” published in the August 4 Wall Street Journal. Fidelity’s web site now states: “Most [Leveraged ETFs] reset daily and seek to achieve their objectives on a daily basis. Due to compounding, performance over longer periods can differ significantly from the performance of the underlying index.”
In her recent article in the Wall Street Journal, Eleanor Laise reports that sales of Leveraged and Inverse Exchange Traded Funds (ETFs) have exploded to $32.8 billion as of June 2009, almost tripling the $11 billion held at the start of 2008. The number of such ETFs has increased to 119, an increase of 86%, over the same period. “The explosive growth in this area over the past year reflects an aggressive sales effort,” said William F. Galvin, Secretary of the Commonwealth of Massachusetts. These products are unsuitable for and should not have been sold to most investors.
Continue reading "Regulators Investigate Sales of Leveraged and Inverse ETFs" »
In the wake of a FINRA Regulatory Notice and a number of articles in the financial press, some brokerage firms say they are either issuing warnings about the products or silently following the discussions surrounding them. So reports Daisey Maxey of the Wall Street Journal in her July 30 article entitled “Warning Signs Up for Leveraged ETFs. Morgan Stanley Smith Barney says its sales of leveraged and inverse ETFs is “under review.” Charles Schwab says it is warning clients to “proceed with extreme caution” because “these funds may not give you the returns you may be expecting.” Schwab says that, while it does not “recommend” leveraged ETFs, investor may purchase them on their own through Schwab. Likewise, TD Ameritrade says it does not “actively sell” leveraged ETFs but they are available on its web platform.
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