ETF/Index Options Color:
HUGE options trade in XLP (SPDR Consumer Staples) early in the week, >250,000 January 38 calls were bought. Top holdings include names such as PG, PM, KO, WMT, PEP, etc. XLP closed at a new all time high yesterday, and if it continues higher through the $38 level, the call holder controls about 25 million shares of stock in XLP, so this situation is worth monitoring for at least the next few months. VXX (iPath S&P 500 VIX Short Term Futures ETN) calls continue to be accumulated, (note that VXX “reverse split” its shares last week), and is flirting with new all time lows despite the call buying. VIX (CBOE Volatility Index) itself briefly traded with a $13 handle on Friday before closing significantly higher on fallback in equities.
ETF Industry Notables
Last Thursday, ETFs collectively accounted for a new asset record ($1.315 trillion), passing the previous mark of 1.3111 trillion (9/19/12) according to IndexUniverse.com.
The Financials (sector) is challenging 52 week highs (although it reversed sharply with everything late on Friday). Financial Select Sector SPDR (XLF) is the largest ETF for this sector.
The “story of the week” was Vanguard’s departure from established, and well-benchmarked MSCI indexes in 22 of their existing ETFs, including prominent VWO and VEA, among others. Who is Vanguard going to? FTSE (a European based provider, whom is somewhat well-known in the industry) and virtually unknown index provider CRSP (I personally never heard of them until last week, and if I don’t know ETFs by now, I’d better find another day job.) The way we see this, is that if we, trafficking in ETFs every day, haven’t heard of the index provider, than bets are the average investor and/or retail advisor has certainly not heard of them yet.
The repercussions from a tracking (positive/negative tracking error standpoint), “benchmark of choice” standpoint (especially with institutional investors whom are benched to, and heavily concentrated in MSCI index/ETF products), and ultimately asset flows (will Vanguard gain or lose asset flows in this “price war”) are still unknown. This will be something worth watching closely throughout the 4Q, especially as we enter tax gain/loss selling season (with markets up nicely this year for once), and with RIAs/Institutional managers perhaps considering “tax swaps” from”like” ETFs/ETNs and considering things such as expense ratio, tracking error, designated benchmark, net of expense ratio returns, etc.
MSCI stock for the week was largely hammered on this news (although it crept back a bit from its weekly lows later in the week), down 24.94% for the week, while BLK, the parent company for iShares GAINED 5.09% on the week. Vanguard, being a private company, has no stock that trades in the public markets for us to “monitor.”
For more information on Street One ETF research and ETF trade execution/liquidity services, contact Paul Weisbruch at [email protected].
ETF flow data from IndexUniverse.com.