By William Davis
The best-recognized and oldest ETF in the universe tracks, simply enough, the massively popular S&P 500.
The fund’s AUM, we hear, hovers around a million bazillion dollars. Then, there’s the wildly successful offering that effortlessly follows the MSCI EAFE index, which represents all the major developed markets outside of North America. That fund we see has attracted around a half a million bazillion in assets. And let’s not forget the hugely popular ETF that provides easy exposure to the NASDAQ 100, one of the world’s most widely-followed equity benchmarks. Maybe a quarter of a million bazillion there.
But you know what some marketing genius thinks the world really needs: A technically complex fund that tracks an incomprehensible index representing a strange market few even know exists.
Mom and Pop, we’re told, are gonna’ love it.
Proving once again there’s no idea too absurd for Wall Street product developers to ignore, the good folks at Invesco just unveiled the unimaginably-named “PowerShares AT1 Capital Bond UCITS ETF EUR Hdg.” We think the ticker is ‘XAT1 GY’ but who knows. The new ETF, like it matters, will follow the ‘Markit iBoxx Contingent Convertible Liquid Developed Europe AT1 Index,’ which, aside from its spellcheck issues, tracks contingent convertible bonds issued by financial institutions from developed European countries.
Look out Mom!
For the AT1 uninitiated…
…a group that includes just about everybody, ‘contingent convertible’ debt issues are known as “Coco” bonds. These sweet-sounding beauties are built to with a mechanical trigger that can write down the value of the bond or convert it to common equity based on the issuing firm’s level of capital. Reassuringly enough, zero is as low they can go. One ‘innovative product’ specialist was heard to say that Cocos should be attractive to investors who are “comfortable moving up the risk curve in the search for higher yields.” Folks who don’t mind losing their money, in other words.
Keep your hand on your wallet Pop!
Over the years, we’ve seen a good number of brilliant innovations amid the plethora of exchange-traded fund launches — actively-managed ETFs, for example. But as the number of new fund introductions has spiked, so too has the frequency of fund failures. Some more likely than others.
From where we sit, it’s hard to imagine the retail market will have much of an appetite for Cocos.
We have to think Mom and Pop are a lot smarter than that.
What politicians who know something about the investment markets are saying…
“We’re going to go through some bumps in the road, but the target is elimination of tariffs or other barriers. The net effect will be much more freedom and more global trade.”
- Wilbur Ross, U.S. Secretary of Commerce
What the numbers are saying…
- $800 billion
The approximate value of stock that S&P 500 companies are on track to repurchase this year, which would eclipse 2007’s record $589 billion. Among the biggest buyers: Oracle, Bank of America, and JPMorgan Chase.
What guys who played point guard on the Bentonville High School basketball team are saying…
“Society expects things of leading companies and sometimes we should take a stance on something.”
- Doug McMillon, Chief Executive of Walmart