Perhaps it was because I was so young at the time, but I came away from those hearings thinking surely no financial fraud resulting from complex, shadowy financial instruments would ever be perpetrated again in the U.S.
Nearly a decade later, I realize youth was not my folly, it was the accompanying naïve nature. Now I’m too wise to expect anything more than a waste of time when a Senate Banking subcommittee explores ETFs and their impact on financial markets Wednesday in our nation’s capitol.
Of course, Wednesday’s hearing will feature the requisite industry luminaries. Noel Archard, managing director at iShares, the world’s largest ETF issuer, will be in the house. Eileen Rominger of the SEC and Eric Noll, vice president of transaction services for Nasdaq will also be there. Harold Bradley, chief investment officer of the now-infamous Kauffman Foundation, will also give testimony.
In my opinion, the presence of anyone from the Kauffman Foundation discredits this entire charade. It was Kauffman that issued a scathing, yet ill-informed report on ETFs last November, which among other ideas, suggested that small-cap companies be allowed to chose to be a part of a particular ETF. If you’re the CEO of a small-cap public company that is starved for decent average daily trading volume, arguably you want your stock included in as many ETFs as possible so investors start seeing your company name on the roster of holdings on an ETF issuer’s Web site. It’s free advertising, but Kauffman takes issue with this.
Oh yeah, Kauffman has deep ties to the mutual fund industry so it is in their best interest to see ETFs fail, not flourish. In other words, savvy investors should be convinced the Kauffman Foundation is not the best of witnesses for this particular hearing. Not surprisingly, the subcommittee will likely spend the bulk of its time probing leveraged and inverse ETFs. After all, these are the little devils of the financial world. Please sense my sarcasm. Someone on the committee staff should have asked this question: How much in assets do leveraged and inverse ETFs represent in the ETF universe?
Well, not much. If we COMBINE the assets under management at the end of September for ProShares and Direxion, the two largest issuers of inverse and leveraged ETFs, we get $32.74 billion and that’s slightly skewed because ProShares sponsors some ETFs that aren’t leveraged or inverse. That number isn’t much in the world of ETFs. Comparatively speaking, the SPDR Gold Shares (NYSE:GLD) has more than double the AUM ($66.4 billion as of Oct. 17) than ProShares and Direxion combined!
Normally, I would have entitled a piece like this “How To Profit From…” However, I don’t see any profitable opportunities coming up Wednesday on the Hill and that’s just par for the course.
Todd Shriber is an ETF fanatic, a former hedge fund trader, and a journalist. Todd started his professional career with Bloomberg News, where he covered banks, energy and technology. After leaving Bloomberg, Todd became a trader at a California-based hedge fund where he specialized in trading financials, energy, basic materials, and ETFs.
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