Non-Correlated…to Reality

Bullish Sign #56: Fund Industry Rolls Out Even More Bearish Products for the Retail

Hooray for the brain-dead mutual fund assembly line!

Seeing fund companies tripping over themselves trying to roll out all these “non-correlated” products makes a veteran like myself just want to buy and hold and hold and hold.  This ain’t my first rodeo after all.  I cannot even tell you how they choked us with “principle protection” funds and unit investment trusts in 2002 – we were up to our eyeballs in ’em!

We now find ourselves in the aftermath of another down cycle and the bear market products just won’t stop rolling off the conveyor belt…look here (Registered Rep):

In the aftermath of the financial crisis, alternatives are becoming more popular with the retail set as advisors seek non-correlated investments for their clients. To satisfy demand, asset managers have been busy rolling out new alternative products specifically designed for non-accredited investors—hedge funds and managed futures inside mutual fund wrappers, for instance.

According to Morningstar data, there were 29 distinct alternative strategy mutual funds launched in 2009, while 38 have been launched this year through Nov. 28.

Non-correlated hedgie-like funds for the little guy?  Sure, why not!  Because higher cash positions are way too conventional and money markets don’t pay any brokerage fees.  Gotta get those $20,000 accounts invested in something!

If I were a pure contrarian this kind of stuff would just send me screaming down the street in a bull costume.

But wait, there’s more…they’re also rolling out new volatility ETFs by the half-dozen.  Maybe this means the Vix will evaporate into thin air now.

I’m going to give you a product description below (from ETF Database), if you can translate it into English I’ll swing by and give you an uncomfortably-long man hug or something:

UBS became the latest issuer to introduce a product linked to a VIX-related index on Wednesday, launching the E-TRACS Daily Long-Short VIX ETN (XVIX). The new exchange-traded note, which is linked to the S&P 500 VIX Futures Term-Structure Index Excess Return, is the first U.S.-listed ETP to offer investors exposure to a strategy that includes both long and short exposure to VIX benchmarks. The underlying index is a composite that measures the return from taking a long 100% position in the S&P 500 VIX Mid-Term Futures Index Excess Return with a short 50% position in the S&P 500 VIX Short-Term Futures Index Excess Return. The positions are rebalanced on a daily basis.

UBS, are you serious?

A new entrant, someone called VelocityShares, just created six (count ’em SIX!) new volatility ETFs.  Here’s Index Universe on these long-overdue slices of heaven:

VelocityShares, a startup exchange-traded note firm co-founded by Greg King, who helped launch the iPath ETNs at Barclays, launched six VIX-related ETNs that are backed by Credit Suisse, including the first that offer investors double exposure.

Wait til you hear what these things are called – here’s the name of one of them along with the ticker and expense ratio:

  • VelocityShares Daily 2X VIX Mid Term ETN (NYSEArca: TVIZ), 1.65 percent

Have fun with that.

Am I too skeptical?  Is this post dripping with excessive sarcasm?  Aren’t any of these new products worthwhile?

Maybe, Yes and Maybe.  But I’ll let someone else go play and figure that out.  Most of these things will not exist a year from now, I can’t imagine how they’ll raise the assets – especially if the markets don’t fall apart.

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