Deflationary collapse and the Reflation Cycle to Come.

[leonardratso]

8 minutes ago, fru-gal said:

NS&I Junior ISA rates have just gone up by .25% as of 13th March.

https://www.nsandi.com/junior-isa

nationwide dropped theres to 3% a couple a years ago, but strangely put them up to 3.25% last year;

 

Smart Junior ISA Cash ISAs Children's Savings For 16-17 year olds, or parents and guardians for a child under 18	3.25% AER/tax-free (variable)

[leonardratso]

1 hour ago, Sancho Panza said:

Why not just trade REITs?

Thanks Fence.Fascinating reading

i do, but that was part of my work pension, i shifted some old frozen ones into my current work one and needed somewhere to stash them, the CRE fund did ok, but then was frozen for about a month, well, i say frozen, you could buy em but not sell em out or rather switch.

 

[leonardratso]

Just now, fru-gal said:

They have some competition from Coventry BS whose rates are 3.5%

probably both due a thrashing, but i have 1 in nationwide with a good wodge in it, so im not complaining about a rise, means less for me to pay in to top it out.

[leonardratso]

3 minutes ago, fru-gal said:

I'm just wondering if it is safer to move a Stocks and Shares Child Trust Fund into a Cash ISA. It's been averaging about 6% pa but don't want it all to be lost if there is a crash.

yeah thats why i just kept it as a cash isa, i will have lost out on some good gains, but its ultimately not for me so i didnt want to risk it being worth less than what i had pumped in, and i especially didnt want the hassle of having to watch it like a hawk either, and then have problems with timing. Its ok as it is for me, if i could get a guaranteed 3.25% on my money i would definately do it myself.

[Sancho Panza]

51 minutes ago, fru-gal said:

They have some competition from Coventry BS whose rates are 3.5%

Which tells you a lot.

 

 

[StarsEnd]

14 hours ago, Thorn said:

Sounds tough. Go on then StarsEnd... what do you think right now of a passive tracker averaging-in strategy versus active picks?

and do you like ETCs..? 

I've never been a big fan of passive trackers as I prefer to pick my own stocks which I've had some success with over the years. I believe Buffet got rich by finding an outstanding company and then putting most of his money in. Prob not gonna work for me though as it seems pretty tricky finding outstanding companies these days 

I've just had a brief look at ETCs and it looks like it may be ETCs that I was holding when AIG went t1ts up. Not an expect on the differences but a brief read looks like ETCs may be riskier than ETFs although God knows what could be hidden away in the details.

http://citywire.co.uk/wealth-manager/news/the-crucial-difference-between-etfs-and-etcs/a315053

 

[StarsEnd]

3 hours ago, Sancho Panza said:

Cheers Errol.

Interesting to hear you say this.

Was there an obvious reason for this ie the ETF held the underlying physical and quite simply couldn't sell enough,fast enough to satisfy people withdrawing money? I can't think of why you'd be locked out of trading for so long.

These sort of lock ins are common with CRE funds who obviously -if they're holding physical CRE- are going to need to stagger withdrawals if they don't want to reinforce a downward vicious circle of the underlying.

 

I've just had another look and it look like it may have been ETCs I was holding:

http://citywire.co.uk/wealth-manager/news/the-crucial-difference-between-etfs-and-etcs/a315053

The problem was AIG, a gigantic US insurer threatening to go bust. They got bailed by the Government otherwise maybe I'd have lost the lot. Until the problem happened I had no idea that my money was held by a third party. Reading the link above it looks like ETCs may be riskier than ETFs but the devil is in the detail. Think you've got to really read the documentation carefully to try and ascertain how many third parties are involved.

Reckon if we have a big crash then a lot of people may end up losing money on this kind of stuff. The inflows into ETCs/ETFs has been huge since 2008 and the likes of AIG may not get bailed next time.

[Thorn]

33 minutes ago, StarsEnd said:

I've just had another look and it look like it may have been ETCs I was holding:

http://citywire.co.uk/wealth-manager/news/the-crucial-difference-between-etfs-and-etcs/a315053

The problem was AIG, a gigantic US insurer threatening to go bust. They got bailed by the Government otherwise maybe I'd have lost the lot. Until the problem happened I had no idea that my money was held by a third party. Reading the link above it looks like ETCs may be riskier than ETFs but the devil is in the detail. Think you've got to really read the documentation carefully to try and ascertain how many third parties are involved.

Reckon if we have a big crash then a lot of people may end up losing money on this kind of stuff. The inflows into ETCs/ETFs has been huge since 2008 and the likes of AIG may not get bailed next time.

Ok I reckon this needs a bit more digging because this article seems to say the opposite of what I thought which is less counterparty risk and at least there is a physical asset with ETCs...

Edited March 15, 2018 by Thorn

[Fence]

1 hour ago, StarsEnd said:

I've just had another look and it look like it may have been ETCs I was holding:

http://citywire.co.uk/wealth-manager/news/the-crucial-difference-between-etfs-and-etcs/a315053

The problem was AIG, a gigantic US insurer threatening to go bust. They got bailed by the Government otherwise maybe I'd have lost the lot. Until the problem happened I had no idea that my money was held by a third party. Reading the link above it looks like ETCs may be riskier than ETFs but the devil is in the detail. Think you've got to really read the documentation carefully to try and ascertain how many third parties are involved.

Reckon if we have a big crash then a lot of people may end up losing money on this kind of stuff. The inflows into ETCs/ETFs has been huge since 2008 and the likes of AIG may not get bailed next time.

I had a thoroughly enjoyable afternoon reading the ETFS and iShares prospectuses for their gold funds a few weeks ago! 

If I recall they were both ETCs.  I think I posted some of the results.  A few counter parties which is necessary given they don't hold the gold themselves (thank heavens!).  But the more parties, the potentially larger the risk.  Lot's of other risk type things to think about when reading the prospectus.  I bought a range of gold ETCs to diversify and only bought them because it was for a SIPP.  Otherwise I would mix it with physical (but the fees for SIPP based physical gold look silly).    

Commodities are a particular problem because they are presumably based on derivative (options) rather than the physical underlying (e.g. wool!).  Hence the ETFS Commodities ETF/ETC was higher risk.  My view - maybe OK for short term trading but investing may be better served (but not quite the same) with the producer shares (maybe via an ETF!). 

Edited March 15, 2018 by Fence

[Fence]

10 minutes ago, Fence said:

.......I think I posted some of the results......

I had a quick look but only found one for the SIL, silver miners ETF.  This is an ETF, not ETC, but nevertheless shows the need to read the prospectus!

On 01/02/2018 at 12:53 PM, Fence said:

As a follow up to silver miner ETFs (e.g. SIL) as a window into the world of ETFs.

I noted the following extracts from the SLVP prospectus:

. uses a representative sampling strategy to manage the Fund (does not hold all of the underlying index constituents)

. may or may not hold all of the securities in the Underlying Index

. generally will invest at least 90% of its assets in the component securities of the Underlying Index (incl. DRs)

. no single issuer of a component exceeds 25% of the Underlying Index weight

. all issuers with a weight above 5% do not cumulatively exceed 50% of the Underlying Index weight

. may invest up to 10% of its assets in certain futures, options and swap contracts, cash and cash equivalents

. the Fund may lend securities representing up to one-third of the value of the Fund’s total assets

. the Underlying Index is sponsored by MSCI, which is independent of the Fund

Note one key reason to lend securities is so that others can short them!

Not that any of this is wrong, just that is what you are actually buying.

This is no uncommon in the ETF world implying DYOR and due diligence.

 

[Democorruptcy]

4 hours ago, Fence said:

AIG were involved:

https://www.euromoney.com/article/b1322gf6mbkxnf/aig-collapse-hits-unsuspecting-etf-investors

I'm still underwater on my holdings!

That seems like price fixing, you can only sell to institutional investors at dirt cheap prices below the NAV of the ETF? Could still being underwater also relate to contango

[Fence]

13 minutes ago, Democorruptcy said:

That seems like price fixing, you can only sell to institutional investors at dirt cheap prices below the NAV of the ETF? Could still being underwater also relate to contango

Article mentions some people making money out of it from panicked investors.  Me , I'm right 'ard so held on but am still down (£1k to £2k):

I could have got out at a very small loss but held on so yes, contango and backwardisation makes most physical commodities more a trading play than an investment.  Lesson learnt!

Something else I noticed about ETxs, which happened here, is that they usually fall a lot a little while after they enter the market. I therefore never buy a new ETx but wait for the crash first!

Edited March 15, 2018 by Fence

[StarsEnd]

4 minutes ago, Fence said:

Article mentions some people making money out of it from panicked investors.  Me , I'm right 'ard so held on but am still down (£1k to £2k):

I could have got out at a very small loss but held on so yes, contango and backwardisation makes most physical commodities more a trading play than an investment.  Lesson learnt!

Something else I noticed about ETxs, which happened here, is that they usually fall a lot a little while after they enter the market. I therefore never buy a new ETx but wait for the crash first!

Interesting. I'm very sceptical of all things financial, everything is rigged to buggery and the one time when you might really want/need to sell you find they have some special conditions that prevent you from doing so.

For this reason I try to limit my exposure to complex instruments. I do need some ETFs but rather than buy an oil ETF I'd rather buy shares in Shell, much harder for TPTB to mess with them.

Wasn't that volatility thing that blew up the other an ETF or an ETC. The bank trousered all the money because it fell by 80%. Harder for them to steal your money if you hold simple shares.

[Thorn]

It's a balancing act between trying to mitigate risks and fees. The wee fees of some trackers are tempting.

[Fence]

44 minutes ago, StarsEnd said:

Interesting. I'm very sceptical of all things financial, everything is rigged to buggery and the one time when you might really want/need to sell you find they have some special conditions that prevent you from doing so.  For this reason I try to limit my exposure to complex instruments.......

My rule of investing: T = Function(C),  where: T=Degree of theft,  C=Degree of complexity

I have some accounts in which I hold income orientated portfolios.  Some are ETF based and some are individual equity based.  That spreads some risk.  It's also interesting to compare the yield and total return performances of the two types - not much in it once you get to 15+ shares.

I sleep far better with the share based portfolio.  However, it lacks the international reach of the ETF based portfolio, although the FTSE is not so bad in that regard.  I'm currently looking into how to identify and buy good overseas shares and maybe I'll just settle for an ETF here. The international ETFs are a good starter for a list of possible candidate shares as they list their holdings!  Take the top holdings of iShares Asia Pacific Dividend (IAPD):

 

Need to see if I can buy these easily and cheaply through my broker.

All well and good, and then I clicked on their "securities lending" link and lost me breath:

"Securities lending is an established and well regulated activity in the investment management industry. It involves the transfer of securities (such as shares or bonds) from a Lender (in this case, the iShares fund) to a third-party (the Borrower). The Borrower will give the Lender collateral (the Borrower’s pledge) in the form of shares, bonds or cash, and will also pay the Lender a fee. This fee provides additional income for the fund and thus can help to reduce the total cost of ownership of an ETF.  At BlackRock, securities lending is a core investment management function with dedicated trading, research and technology capabilities. The lending programme is designed to deliver superior absolute returns to clients, whilst maintaining a low risk profile. Funds participating in securities lending retain 62.5% of the income, while BlackRock receives 37.5% of the income and covers all the operational costs resulting from securities lending transactions.  Collateral Holdings shown on this page are provided on days where the fund participating in securities lending had an open loan.

12 Month Lending Summary as of 31-Dec-2017: 

Securities Lending Return*: 0.10,

Average on-loan (% of AUM): 29.41, 

Maximum on-loan (% of AUM)†: 36.69, 

Collateralisation (% of Loan): 111.16"

There's more on their website (including calculation bases for the above).

I had thought the lending limit under UCITS rules was 10%.

37% FFS!  They list a snapshot of the collateral they have but 111.16% collateralisation ain't enough for me given the risk of a market liquidation and the assumption everything works out as planned (AIG?).  For example, Boeing, Microsoft, HCA Healthcare are three collateral shares!   And who are the borrowers?  BlackRock themselves (for use in their other funds)?

C=too big for me!  I need to investigate and rethink.

Edited March 15, 2018 by Fence

[Sancho Panza]

1 hour ago, Democorruptcy said:

That seems like price fixing, you can only sell to institutional investors at dirt cheap prices below the NAV of the ETF? Could still being underwater also relate to contango

Contango can be the normal state of affairs for some futures curves,as with backwardation.iirc hard commodities tend toward contango due to delivery initiating storage costs etc and softs are in backwardation due to shelf life.

 

1 hour ago, StarsEnd said:

Interesting. I'm very sceptical of all things financial, everything is rigged to buggery and the one time when you might really want/need to sell you find they have some special conditions that prevent you from doing so.

For this reason I try to limit my exposure to complex instruments. I do need some ETFs but rather than buy an oil ETF I'd rather buy shares in Shell, much harder for TPTB to mess with them.

Wasn't that volatility thing that blew up the other an ETF or an ETC. The bank trousered all the money because it fell by 80%. Harder for them to steal your money if you hold simple shares.

Very much my view.ETF's are an opaque world when you look at the small print from Fences silver ETF.Lots to get shafted there imho-as if there isn't enough scope with just buying stocks.

Edited March 15, 2018 by Sancho Panza

[StarsEnd]

1 hour ago, Fence said:

My rule of investing: T = Function(C),  where: T=Degree of theft,  C=Degree of complexity

I have some accounts in which I hold income orientated portfolios.  Some are ETF based and some are individual equity based.  That spreads some risk.  It's also interesting to compare the yield and total return performances of the two types - not much in it once you get to 15+ shares.

I sleep far better with the share based portfolio.  However, it lacks the international reach of the ETF based portfolio, although the FTSE is not so bad in that regard.  I'm currently looking into how to identify and buy good overseas shares and maybe I'll just settle for an ETF here. The international ETFs are a good starter for a list of possible candidate shares as they list their holdings!  Take the top holdings of iShares Asia Pacific Dividend (IAPD):

 

Need to see if I can buy these easily and cheaply through my broker.

All well and good, and then I clicked on their "securities lending" link and lost me breath:

"Securities lending is an established and well regulated activity in the investment management industry. It involves the transfer of securities (such as shares or bonds) from a Lender (in this case, the iShares fund) to a third-party (the Borrower). The Borrower will give the Lender collateral (the Borrower’s pledge) in the form of shares, bonds or cash, and will also pay the Lender a fee. This fee provides additional income for the fund and thus can help to reduce the total cost of ownership of an ETF.  At BlackRock, securities lending is a core investment management function with dedicated trading, research and technology capabilities. The lending programme is designed to deliver superior absolute returns to clients, whilst maintaining a low risk profile. Funds participating in securities lending retain 62.5% of the income, while BlackRock receives 37.5% of the income and covers all the operational costs resulting from securities lending transactions.  Collateral Holdings shown on this page are provided on days where the fund participating in securities lending had an open loan.

12 Month Lending Summary as of 31-Dec-2017: 

Securities Lending Return*: 0.10,

Average on-loan (% of AUM): 29.41, 

Maximum on-loan (% of AUM)†: 36.69, 

Collateralisation (% of Loan): 111.16"

There's more on their website (including calculation bases for the above).

I had thought the lending limit under UCITS rules was 10%.

37% FFS!  They list a snapshot of the collateral they have but 111.16% collateralisation ain't enough for me given the risk of a market liquidation and the assumption everything works out as planned (AIG?).  For example, Boeing, Microsoft, HCA Healthcare are three collateral shares!   And who are the borrowers?  BlackRock themselves (for use in their other funds)?

C=too big for me!  I need to investigate and rethink.

Hard to work out what that actually all means but I would take that as meaning they trouser 37% of any dividends. Think I'd rather buy the shares.

 

[Fence]

21 minutes ago, StarsEnd said:

Hard to work out what that actually all means but I would take that as meaning they trouser 37% of any dividends. Think I'd rather buy the shares.

 

It means, I believe, they at one point in the reported period lent out about 37% of their ETF holdings to third parties (such as hedge funds so they could short the stocks!) and received back up to 116% of other securities (not necessarily within the scope of the ETF - eg. Microsoft) as collateral.  The ETF provider charged a fee for this which may or may not have been paid to the person buying the ETF (e.g. me).  The ETF provider also took 37.5% of any dividends from the loaned stock which it again may or may not have been paid on to the person buying the ETF (e.g. me again!).  Anyone, please tell me if this is incorrect.  Securities lending seems widespread and not limited to ETFs.  Also credit to iShares for being quite transparent (other than details about who they are lending to but then that would be sensitive).  I have done some research and so far have not found similar transparency.  Not that any of this necessarily makes it acceptable to you.  It does mean, as always, DYOR! 

[Thorn]

2 minutes ago, Fence said:

It means, I believe, they at one point in the reported period lent out about 37% of their ETF holdings to third parties (such as hedge funds so they could short the stocks!) and received back up to 116% of other securities (not necessarily within the scope of the ETF - eg. Microsoft) as collateral.  The ETF provider charged a fee for this which may or may not have been paid to the person buying the ETF (e.g. me).  The ETF provider also took 37.5% of any dividends from the loaned stock which it again may or may not have been paid on to the person buying the ETF (e.g. me again!).  Anyone, please tell me if this is incorrect.  Securities lending seems widespread and not limited to ETFs.  Also credit to iShares for being quite transparent (other than details about who they are lending to but then that would be sensitive).  I have done some research and so far have not found similar transparency.  Not that any of this necessarily makes it acceptable to you.  It does mean, as always, DYOR! 

It’s like a fee of 0.39% on the divis? 

I have been wondering about vanguard funds too- what they do with divis- must check the small print on HL.

Great digging all.

[Fence]

Just a bit more about securities lending from a quick internet search:

https://www.investopedia.com/articles/stocks/09/securities-lending-concern.asp

• The lending of securities has quietly become a big business.
• Proponents say securities lending makes financial markets more efficient and improves returns for investors.
• Critics say it raises questions about the fiduciary duties and poses risks to investor's as well as the financial system.
• They (institutional investors) are harvesting billions of dollars in profits.
• It may be administered by the institutional investor or facilitated by intermediaries such as banks and brokers.
• Hedge funds borrow securities to short sell them!
• Benefit - More efficient markets.
• Benefit - Potentially lower MERs.
• Risk - Potentially lower investment returns.
• Risk - Inequitable division of loan revenues.
• Risk - Heightened risk. 
• Risk - Lack of transparency. 

https://www.ft.com/content/3447d962-8883-11e5-9f8c-a8d619fa707c

• BlackRock has cut the amount of collateral required when loaning from its European funds.
• It has also scrapped the 50% lending limit on European domiciled funds.
• Banks are using lending to reduce their risk in response to regulatory demands.

https://www.ft.com/content/1b4cb0e0-977e-11e5-9228-87e603d47bdc

• One iShares Bond ETF helds about 1,000 equity stakes as collateral.
• Nearly 40% of loaned securities are government bonds and in Europe 90% of those loans have equity as collateral.
• Banks are effectively borrowing safer bonds and posting riskier bonds as collateral to reduce their risk.
• The bonds also improve the banks capital ratios (bonds score better than equities).
• Banks are offloading risk onto the rest of the financial system.

https://www.ft.com/content/1e8d3cfe-b496-11e5-8358-9a82b43f6b2f

• Securities lending is a growing concern to global regulators
• The lenders disagree.
• Pension funds also lend securities.
• Emerging market equities ("specials") earn the best rates for the lenders.
• Publicly available data on securities lending is sparse.

http://www.etf.com/sections/features-and-news/securities-lending-good-etf-investors

• Who's doing what.
• Collateral often put into money market funds - safe?
• The TAN ETF earned from lending almost twice what the fund earned from portfolio dividends.

https://www.fidelity.com/learning-center/investment-products/etf/securities-lending

• The Fidelity view.

Edited March 15, 2018 by Fence

[Fence]

1 hour ago, Thorn said:

It’s like a fee of 0.39% on the divis? 

I have been wondering about vanguard funds too- what they do with divis- must check the small print on HL.

Great digging all.

Having done some more reading it maybe that 62.5% of the income goes to the end customer.  Not sure.

I could find very little on the Vanguard UK website (unlike iShares).

Vanguard do lend according to:

https://www.fidelity.com/learning-center/investment-products/etf/securities-lending

Also note from the above that the ETF providers often use "affiliates" to manage the actual lending - another counterparty?

 

Edited March 15, 2018 by Fence

[leonardratso]

you should take a look at fundsmith, thats been my best performer, they are more of a mutual, but they do actually buy the shares.

Think OCF is aquite steep at about 1%? or so, but they dont seem to do a lot of the gouging that others do.

[Democorruptcy]

1 hour ago, Sancho Panza said:

Contango can be the normal state of affairs for some futures curves,as with backwardation.iirc hard commodities tend toward contango due to delivery initiating storage costs etc and softs are in backwardation due to shelf life.

 

I thought contango was caused by the difference in current and future price not storage costs. From the link I posted:

Quote

For investors wanting to own ETFs that use futures contracts, they better get know the concept of contango. By definition, contango occurs when the price of futures contract is above the expected future spot price. This creates an upward sloping curve for future commodity prices over time. Commonly, the reason behind this phenomenon may be due to the desire of people to pay a premium to have the commodity in the future rather than paying the costs of storage and carry costs of buying the commodity today. Storing barrels of oil, tanks of natural or even bushels of corn isn't a cheap proposition and the costs have to be passed down the line. The reverse state of contango is called backwardation.

Contango in the commodities markets is a normal occurrence and investors need to understand that it isn't a bad thing. The effect has little effect on returns if as an investor you purchase individual futures contracts, hold them until expiration or trade them.

However, depending on how some ETFs are structured, contango can cause losses for the fund.

ETFs based only on current prices - meaning they own the future contract for the current month - lose money if a market is in contango because they have to buy the higher-priced, longer-dated contract and sell the cheaper spot month. For example, if the ETF is holding natural gas futures contracts for March, at some point it will have to roll them over to April contracts. If the March contract is worth $2 and the April contract is worth $3, they are technically selling low and buying high.

Two of the most popular commodity futures based ETFS: the United States Natural Gas Fund (ARCA:UNG) and the United States Crude Oil Fund (ARCA:USO) have consistently been losers for investors based on the issues of contango. While the funds are fine for daily trading, holding them long term has spelled disaster. UNG has actually returned a whopping -95% since its inception.

What to do
As you can see, commodity ETFs based solely on buying the future contract for the next month can lead to loses. However, the concept of contango shouldn't prevent you from adding commodities to a portfolio. Like much of the ETF industry, commodity products are always changing and innovating.

To that end, several fund sponsors have unveiled new products specifically designed to tackle the contango problem head on. ETFs like the PowerShares DB Oil (ARCA:DBO) or UBS E-TRACS DJ UBS Commodity Index 2-4-6 Blended Futures ETN (ARCA:BLND) use flexible-futures trading strategies - such as blending contracts or optimized roll yields - instead of just automatically rolling to the next month's contract to create contango fighting returns. So far, many of these products have been successful at tracking rising commodity prices better than traditional roll yield products.

Investors can also get physical for a few select commodities. Funds like the SPDR Gold Shares (ARCA:GLD) or the iShares Silver Trust (ARCA:SLV) actually hold bullion in a vault on behalf of investors. There are no futures contracts or contango to worry about. While current physical offerings are just limited to precious metals, both copper and aluminum have physically backed ETFs in registration.

By using some of the newer or physically-backed ETFs, investors can navigate the negative effects of contango.

 

[Option5]

Is this bad?

Financial crisis rules for banks eased by US Senate - http://www.bbc.co.uk/news/business-43409985

[Fence]

37 minutes ago, Option5 said:

Is this bad?

Financial crisis rules for banks eased by US Senate - http://www.bbc.co.uk/news/business-43409985

".....Senator Elizabeth Warren, from Massachusetts - have strongly opposed repealing crisis-era banking regulations".

If that tiger says it's bad, it's bad.

Edited March 15, 2018 by Fence