Advanced Investing

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iShares Now Commission-Free For Yanks with Fidelity

I just saw an ad on TV for Fidelity’s trading accounts (available in the United States only). What was interesting is that they are now offering commission free trading on 25 of some of the most popular iShares ETFs.
Charles Schwab also offers commission-free trading on their own lineup of proprietary ETFs, but I don’t believe [...]

22Feb2010 | Preet | 2 comments | Continued
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New Firm Focusing On Reducing Currency Conversion Fees For Canadians

Canadians can pay as much as 2.5% in currency conversion fees which are hidden in what is known as “the spread”. If you are a small business and you convert $5,000,000 per year between US dollars and the loonie, a 2.5% spread means your bank earned roughly $125,000 before costs (which I think we can [...]

15Feb2010 | Preet | 8 comments | Continued
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Severing The Link Between Price And Weight Part IV

Last post on this topic (at least for a while). Click on the following links for Part I, Part II, and Part III.
The final thoughts I wanted to share with you about this refer to the assumptions under which market cap-weighting an index suffers a drag when linking portfolio weight to price. We have already [...]

1Feb2010 | Preet | 2 comments | Continued
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Hedge Fund Gating

A hedge fund can decide to suspend the redemption rights of investors, usually whenever it feels it is necessary, which means you won’t be able to get your money out until a later date. The hedge fund would be considered to be “gated” at this point.
Why would they do this? It is a provision in [...]

31Jan2010 | Preet | 2 comments | Continued
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Severing The Link Between Price And Weight Part III

Continuing from Part I and Part II…
Actually, tonight I`m going to share some thoughts that struck me in the shower this morning when I was thinking about inverse cap-weighting a slice of the market (as reader Jordan had suggested to avoid market capacity constraints). Another reason this won`t work in practice is that you are [...]

27Jan2010 | Preet | 1 comment | Continued
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Severing The Link Between Price and Weight Part II

In the first part of this series we discussed the impracticality of inverse cap weighting (also note Michael James’ comments at the bottom of that post.) In this part we will look at what needs to be done to sever the link between price and weight so as to avoid overweighting overvalued stocks and underweighting [...]

26Jan2010 | Preet | 1 comment | Continued
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Severing The Link Between Price and Weight Part I

In a recent post about market-cap weighted fixed income indices, it was noted by reader Xenko that one way to overcome overweighting overvalued companies and underweighting undervalued companies (counter to what a rational investor would desire) could be to inversely weight constituents of an index. While the original post was about fixed income indices, I’m [...]

25Jan2010 | Preet | 15 comments | Continued
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Efficient Market Hypothesis

Regular reader Jordan mentioned he was interested in my personal opinion on what is known as EMH, or Efficient Market Hypothesis. From a 30,000 foot perspective, EMH basically means that the market is efficient enough that it is very hard to outsmart. It doesn’t preclude the notion that people can beat the market, but that [...]

19Jan2010 | Preet | 3 comments | Continued
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The Counter-Intuitivity of Fixed Income Indices

Mainstream fixed income indices suffer from the same quirk as most equity indices. Click here for more info, but in a nutshell a market capitalization weighted index assigns more weight of a stock in an index based on the relative market capitalization of the stock in question compared to the overall index. So if stock [...]

18Jan2010 | Preet | 9 comments | Continued
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Fama French Three Factor Model Challenged…

I’ll be blunt: beginners may want to skip this post.
I realize that many people in the investment industry look at the capital markets in a CAPM framework. In 1993, Eugene Fama and Kenneth French released their landmark paper The Cross Section of Expected Stock Returns which showed that, historically, a model that incorporated sensitivity to [...]

13Jan2010 | Preet | 11 comments | Continued
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Modified Dietz Return Calculations

A reader sent in a question asking about the Modified Dietz Method for reporting portfolio performance. Specifically, her investment statement noted that this was the method used to calculate returns for clients and she just wanted to know if this was normal or not. It’s a good question. How many people have ever heard of [...]

9Dec2009 | Preet | 8 comments | Continued
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How the new ETN+ Notes can catch investors off guard

At first blush, it seems Barclay’s new ETN+ notes provide a better mechanism for leveraged exposure to an underlying index without the path-dependency concerns of daily-reset, leveraged ETFs. However, it is useful to use an example provided by Barclay’s themselves to highlight a potential problem: the interest on the financed capital compounds.
Let me explain. The [...]

1Dec2009 | Preet | 4 comments | Continued
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The Saga Continues: New ETN+ Notes try to address Leveraged ETF criticisms

Barclay’s (the proprietor of iShares ETFs) has just introduced a new leveraged exchange-traded vehicle known as the ETN+ notes. First, it is important to note that these products are not technically ETFs, but ETNs. ETN stands for Exchange-Traded Note as opposed to ETF which stands for Exchange-Traded Fund. An ETN is a debt obligation of [...]

29Nov2009 | Preet | 7 comments | Continued
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Tax Advantages of Segregated Funds versus Mutual Funds

Following from yesterday’s post on year end mutual fund distributions, I should point out that Segregated funds (which are very similar to mutual funds in that they are essentially investment funds but with certain guarantees on capital over time or upon death) are markedly different. Specifically:
1. Segregated funds (seg funds for short) can flow through [...]

25Nov2009 | Preet | 7 comments | Continued
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The High Frequency Trading Arms Race

The High Frequency Trading (HFT) Arms Race is a term that has been bandied about lately. This refers to the insatiable consumption of the latest technology in trading infrastructure for HFT firms in order to stay ahead of the competition. One of the main advantages of an HFT firm is the speed at which they [...]

12Nov2009 | Preet | 3 comments | Continued
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