Mark McSherry’s Post

Terrific op ed piece in the Financial Times by Toby Nangle entitled “The Hidden Power of Index Providers” noting that inclusion within an index may not be so programmatic or algorithmic as one might think, and that indeed there may be ulterior motives for why or why not a particular country, industry, sector, or security is added or not added to an index. Please see the article published in COIReview that I wrote on this subject entitled “Index Investing Isn’t Just About Being Passive Anymore” which is listed on my LinkedIn profile. Both pieces note that in 2022 the U.S. Securities and Exchange Commission discussed and sought public comment on whether to require index providers to register as investment advisers and be subject to greater regulatory oversight. https://lnkd.in/eCzAAv57

You can’t regulate expert judgement There has been much discussion on the need to regulate index providers but what should this look like? Most large index providers follow the IOSCO Principles which require an annual assurance review focused on policies and procedures that ensure the benchmark determination process is not manipulated or impacted by conflicts of interest. In Europe, where actual regulation is in the process of being implemented, there is reliance on the IOSCO Principles as the basis for the regulatory oversight. It is appropriate to regulate the process of managing indices but not their design. This is best determined by market forces. An index methodology needs to be clear as to its inclusion rules, weighting scheme, treatment of corporate actions and there should be a well-defined process for making changes to the methodology. If regulated, index providers should be subject to penalties if there is a deviation of policies and procedures commensurate to the importance of the index. Regulation should not substitute the judgement of regulators for the wishes of the free market. Methodologies can differ. A critical factor is that a methodology be transparent and replicable. For example, one index provider can use a methodology that rebalances an index once a year while another can add stocks on an “as needed” basis. Another example would be whether a country should be classified as developed or emerging. Investors can agree or disagree with a methodology and if they disagree, they can switch benchmarks. There are many factors that go into a methodology. These factors make each index provider’s offering unique. There will always be some discretion in developing and maintaining indices even if they are touted as “formulaic” or “rules based”. This discretion is referred to as “expert judgement” and most index providers try to minimize discretion, but it is necessary. In fact, part of the value proposition for using an index from one of the large index providers is that it is developed and maintained based on years of experience and technical knowledge. As the inevitable increase in index regulation continues, it should not creep into what makes an index unique which is the IP created by the index provider. Importantly, while aspects of regulation can be propionate to the importance of an index, in general, regulation should treat all index providers the same. The European approach will result in a multi-tier BMR with some index providers escaping regulation. In the US, the current approach of regulating investment products but not directly regulating index providers results in a “regulation by sanctions” regime where it is not clear what activities are problematic and not all index providers operating under the same control and risk management framework. The index industry is ready for regulation, but it is important to understand what should be regulated and what should not. #index #indexinvesting Toby Nangle Robin Wigglesworth

"Applying SOL to large-cap US equities, for example, can result in higher risk-adjusted returns compared to conventional indices. This concept can be extended to various solutions, accommodating specific investor preferences, including value, growth, momentum, ESG, and custom index strategies, which can accommodate granular investor preferences. In each instance, utilising the same optimal security weights, simply pro-rated, can lead to higher risk-adjusted returns, all without requiring additional computational efforts." Via: https://lnkd.in/etqEdP_2 Index One built the phaseinvest US-PI-MOM50 that holds securities with the best risk-adjusted momentum attribute in large cap US equities as identified by its proprietary regime identification model. View the index here: https://lnkd.in/epWqmnDg

Financial Times highlights a surge in European investors' interest in bond ETFs, witnessing €15.9bn inflows in Q2. These ETFs, particularly in the mid-to-long yield curve, are sought after due to rising bond yields and the anticipation of rate stability and potential lower rates, making them an attractive choice amid the evolving investment landscape. This surge in interest underscores fixed income ETFs' significant role in diversifying investment strategies amid market complexities. Overbond fills the gaps in the fixed-income market by providing live data aggregation and real-time analytics for the fixed-income market. With traders increasingly relying on AI applications to aggregate data and price fixed-income securities in live trading, Overbond’s market leading refresh rate of sub 3 milliseconds is currently the fastest and most accurate bond pricing source in the market. This technology is made possible through AI enhanced data aggregation and serverless cloud elastic computing. Read more here: https://lnkd.in/gVxAZDgw

Vietnam to immediately attract $2.5 billion when market upgraded In the latest update report, SSI Securities stated that global equity funds continued to experience net inflows for the third consecutive month, but at a slower pace. The total value of capital inflows into equity funds reached $29.0 billion (a 23% decrease compared to December). The money flow into equity funds has been relatively steady over the past 6 months, although the trend has been much more positive than in the 2022 period and the first half of 2023 due to better-than-expected financial results of listed companies. However, the cautious message from the Fed during the February meeting has prompted the market to reassess the pace of interest rate cuts in 2024 and also consider the intensity of capital inflows into equity funds. SSI assesses the asset allocation into Equity Funds to be at a neutral level, indicating that equity capital still has potential for breakthrough, especially if investors restructure from Money Market Funds as the trend of interest rate cuts becomes clearer. In addition, Equity Funds in non-U.S. markets may benefit from the story of economic recovery from the bottom. Regarding the Vietnamese stock market, investment capital inflows from funds to Vietnam have shown differentiation. Net selling is still the dominant trend of ETF funds in January, but the intensity has cooled compared to December. On the contrary, actively managed funds invested in the Vietnamese market pushed net buying to VND 1.1 trillion in January. In addition to the emergence of new open-ended funds since December 2023, the remaining actively managed fund groups have been much more active, possibly due to the seasonal trend at the beginning of the year. In the medium term, SSI Research believes that investment capital inflows into the Vietnamese market may benefit from the shift of capital to developing markets, but this is likely to only occur after the Fed begins to cut interest rates. In addition, the market upgrade process also needs to be noted. Currently, the biggest obstacle for Vietnam to be upgraded by FTSE Russell to an Emerging Market (EM) is the issue of pre-trade collateral for institutional investors. While domestic individual investors have already had a securities lending business to resolve this issue, under current regulations, institutional investors must all fully collateralize before trading, which is not in line with international norms. To address this issue, SSI can implement two methods. Firstly, in the long term, by applying the Central Counterparty (CCP) Clearing Partner model. Secondly, in the short term, securities companies will provide payment support for institutional investors (Non Prefunding Solution – NPS). The Ministry of Finance plans to amend some relevant legal documents in 2024 to be able to implement the NPS model. FTSE Russell will rely on feedback from investors to assess the effectiveness of the NPS model. SSI forecasts...

Sometimes you do the most idiotic things without taking any time to consider why you do them. In my case, it has been almost 20 years of spending too much time looking at Europe and the UK over the US. This was partially because I believe that more alpha exists in Europe, the UK and Asia, but also as a result of of local and hometown bias. In 2004 I moved to Paris to start trading global credit (investment grade, high yield, financials, derivatives, even CDOs, CDO^2, and even CPPIs). At that time, our exposure was about 45% US, 45% Europe and 10% ROW. I then moved to my first hedge fund trading position in London in 2007. Since this time, I have always invested globally. Earlier this year, I had an epiphany: while I am globally focused and invested, my day-to-day attention is more likely to be on Europe, the UK and occasionally my homeland of Australia. Yet, the US is the starting and the end point of all financial markets. US Treasury bonds, the US dollar and the US stock market are by a huge margin, maybe even by a factor, the most important markets in the world. While we may be moving to a bio-polar global economy, I doubt this is going to change any time soon for a wide range of reasons. I have attached an excellent piece of research from the team at NewFinancial that addresses, "The problem with European Stock Market", which is the other side of this equation. I wholly agree with their conclusions, particularly: 1) The complex patchwork of European equity markets is a huge obstacle to building bigger and better capital markets at a time when the European economy needs them more than ever. 2) Europe should keep chipping away at making it easier for companies to go public, easier for investors to invest in them, and easier for intermediaries to trade them. Individual countries can make equity more attractive by addressing the tax differential with debt funding and rethinking capital gains tax. 3) Stock exchanges could also be nudged and encouraged to consolidate – our research shows small exchanges that are part of wider groups perform better than standalone exchanges. 4) Consolidation needs to go a step further and filter down from merging exchange groups to creating genuine single markets with the same rulebook within those groups. I love the variety and rich cultural history of Europe, but economically and politically, it has been left behind over the past century by the US. At Fairwater, we have been seeking to reduce and potentially eliminate bias by developing a systematic approach to Credit Relative Value. In eliminating bias we can identify mispriced securities and unstable relationships that provide us with consistent opportunities to create alpha. #alpha #credit

A Strategic Pivot: Refocusing on Trading, Yet Eagerly Exploring New Horizons 2023-08-23 Dear esteemed colleagues, clients, and friends, I trust this message finds you in the pinnacle of health and spirits. As many of you are cognizant, my professional odyssey has been a rich tapestry of varied experiences, from spearheading Zaree Partners to adeptly navigating intricate transactions. Today, I am reaching out to apprise you of a pivotal shift in my professional trajectory. Given the evolving market dynamics and the transformative currents of global finance, I've chosen to recalibrate my focus towards my trading pursuits. This decision is informed by: Market Dynamics: We stand at a juncture where capital accessibility is becoming notably constrained. The evolving financial milieu necessitates proactive adaptation. Optimal Yield: My acumen in swing trading uniquely positions me to leverage the prevailing market conditions. The allure of substantial yields in this climate is palpable, and I am poised to optimize this potential. Geopolitical & Macroeconomic Landscape: The confluence of global fundamentals and geopolitical intricacies poses certain challenges. With elevated CAPEX across the supply chain and escalating corporate and governmental debts, I anticipate potential contractions in several sectors. While this pivot might come as a surprise to some, I assure you it is a well-considered move. My passion for trading, combined with the clear opportunities presented by the current market, makes this decision an evident one. The allure of the trading world, with its myriad strategies and risk management opportunities, is as clear to me as the stars on a cloudless night. Yet, it's imperative to note that this shift doesn't denote a full retreat from my erstwhile ventures. My allegiance to my expansive network, encompassing both cherished clients and friends, remains unwavering. I am perpetually receptive to stimulating dialogues, keen to share my insights, and eager to chart potential future trajectories. In this vein, I am wholeheartedly open to fresh ventures and collaborations. My approach might be more discerning, especially concerning avant-garde technologies or monumental infrastructure endeavors, but I ardently welcome conversations that resonate with my expertise and aspirations. To encapsulate, while my present endeavors see me deeply immersed in macrodata, intricate charts, and sophisticated algorithms shaping my market strategies, my calendar and mind remain open for enriching interactions. Be it an informal coffee catch-up or a structured discussion, your outreach is always valued. I extend my gratitude for your unwavering understanding and support. Here's to embracing new chapters and scaling greater heights. Warm regards, Moses Zaree #marketanalysis #trading #hedgefunds #analysis #algorithmictrading #daytrader #swingtrader #equities #stocks #indices #currencies #commodities #bonds #futures #cryptos #financialmarkets

For investors contemplating a separate allocation to EM ex-China equities, members of our iStrat Team share their research on the composition of the opportunity set, the growing divergence in the behavior of EM ex-China equities and Chinese equities, and the long-term market outlook.

For investors contemplating a separate allocation to EM ex-China equities, members of our iStrat Team share their research on the composition of the opportunity set, the growing divergence in the behavior of EM ex-China equities and Chinese equities, and the long-term market outlook.

Have a look on unique examples of financial market 📍FINANCIAL MARKET Financial market is a place or system that provides buyers and sellers the means to trade financial instruments. Eg of a financial market is the "Art market" The art market involves the buying and selling of fine art and collectible objects, such as paintings, sculptures, drawings, prints, photographs, and other artistic works. Unlike traditional financial assets, art is considered an alternative investment class, and its value is determined not only by its inherent aesthetic appeal but also by its rarity, historical significance, and cultural value. 📍CAPITAL MARKET Capital market is a market where mid and long term securities are traded. Eg within the capital market is the "Venture Capital Market." Venture capital (VC) is a form of private equity financing that is provided to early-stage,high-growth startups or emerging companies with promising business ideas or innovative products/services. 📍BOND MARKET The bond market is a platform where debt securities are traded by investors. Eg of the bond market is "catastrophe Bonds,"also known as"𝐂𝐀𝐓𝐬."Catastrophe bonds are a type of insurance-linked security that allows insurance and reinsurance companies to transfer the risk of potential catastrophic events,such as hurricanes,earthquakes, or other natural disasters, to investors. 📍DERIVATIVES MARKET Derivatives market is a financial market where investors trade in financial instruments whose value is derived from and underlying asset. Eg In derivatives market is "Weather Derivatives." Weather derivatives are financial instruments used to manage the risk associated with weather-related events. 📍STOCK MARKET Stock market is where investors buy and sell shares of companies. Dividend Aristocrats: Dividend Aristrocats are a specific group of blue-chip stocks that have a track record of increasing their dividends for at least 25 consecutive years. These companies are known for their commitment to returning value to shareholders through regular dividend hikes. 📍COMMODITY MARKET A commodity market involves buying and selling or trading a raw product. Eg within the commodity market is "Water Futures." Water futures are financial contracts that allow investors and water users to hedge against water price fluctuations, providing a way to manage the risks associated with water scarcity and its impact on various industries and regions. 📍FOREIGN EXCHANGE MARKET It is global decentralized market where currencies are bought and sold. Eg within the foreign exchange (forex) market is the concept of a "Carry Trade." it is popular among institutional investors, hedge funds, and experienced forex traders. However, it requires careful consideration of interest rate trends.Due to the leverage involved in forex trading, carry trades also carry a higher level of risk, and traders need to be mindful of potential losses if the market moves against their positions. #financialmarkets #Ib #examples