July 5, 2013

Top Portfolio Products: Winklevoss Twins File Bitcoin ETF

Thornburg launches Developing World Fund; more

Portfolio Products logoNew products introduced over the last week include the filing of papers for a Bitcoin ETF; the reassignment of portfolio managers for five Vanguard funds; and Thornburg’s Developing World Fund went global.

In addition, publicly traded REIT Chambers Street Properties was added to the Russell 3000 and Russell Global indexes; and Pacific Life launched a fixed-income promotional campaign.

Here are the latest developments of interest to advisors:

1) Virtual Bitcoin Subject of Actual ETF Filing by Facebook’s Winklevoss Twins

Risk-taking investors skilled in understanding abstract concepts may be excited to hear about the fact that the Winklevoss brothers, best known for their Facebook connection, have with the SEC on Monday to launch a Bitcoin ETF.

Bitcoin is a virtual currency “mined” by people carrying out extremely complex mathematical problems. At present, those who can’t do the math pretty much can’t have the currency, but if Cameron and Tyler Winklevoss, popularly known as the Winklevii, have their way, that may change—sort of.

Those familiar with the virtual money may remember that its value has fluctuated rather spectacularly this year, most particularly in April. Much ado was made of it as a means of evading the Cyprus haircuts on large depositors’ accounts, since Bitcoin has nothing to do with governments and everything to do with hackers (it was reportedly invented by one, or more than one, in 2009). Its value soared, then crashed, leaving a lot of empty purses—oh, wait, they were already empty, since Bitcoin is a virtual currency.

And therein lies the rub. With no physical existence, no stable value (well, as stable as any currency can be) and little real utility in the marketplace—since it’s difficult to buy things with Bitcoin, because it’s not widely accepted—the currency might not seem to be the proper target for an ETF. However, Kathleen Moriarty, a lawyer at Katten Muchin and one of the masterminds of gold and silver ETFs, and even the very first ETF, is involved in the proposal filed with the SEC, and that gives the whole issue a bit more, er, substance. (However, the news calls to mind Cyrano Jones’ statement in Star Trek’s “The Trouble with Tribbles”: “Twice nothing is still nothing.”)

Substance or not, the financial press is full of naysayers heaping scorn on the notion, going so far as to say that the very proposal is going to further blacken the eyes of the ETF industry, already under scrutiny to determine whether ETFs accurately tracked their underlying markets during recent volatile trading. After all, Bitcoin is nothing if not volatile.

Bloggers are pointing out numerous drawbacks, such as the fact that the filing takes 12 pages to explain the concept of a Bitcoin (complicated!) and 18 pages to discuss risk factors (scary!). Also, some governments might take the extraordinary step of banning use or ownership of Bitcoin, thereby rendering it less attractive as a freewheeling currency and lessening its draw as a potential investment.

In addition, since one of the attractions of Bitcoin is the ability to avoid taxes, one columnist pointed out that prospective investors in the ETF should realize that any ETF profits, however unlikely they may be to anyone but the Winklevii, would be taxed—thereby negating one of the purposes of Bitcoin.

Thrillseekers may appreciate the roller-coaster effect of the currency, but the smart money (in nonvirtual currency) may be on abstainers rather than investors. At least for now.

3) Thornburg Launches Developing World Fund

Thornburg Investment Management, distributor for Thornburg Global Investment, announced the global launch of the Developing World Fund (THDEVWI), the newest addition to its range of UCITS funds domiciled in Ireland.

THDEVWI, managed by Lewis Kaufman, a managing director, seeks long-term capital appreciation by investing in developing market companies with strong domestic demand. Kaufman seeks companies with ample free cash flow that won’t need to rely on the stock or bond markets for funding during periods of economic distress. The Developing World strategy was launched as a U.S. mutual fund (THDAX) in December 2009.

4) Chambers Street REIT Added to Russell 3000 and Russell Global Indexes

Chambers Street Properties, a publicly traded REIT (CSG) focused on acquiring and managing income-producing industrial and office properties, announced that the company was added as a member of the Russell 3000 and Russell Global indexes after the equity markets closed on June 28.

Chambers Street was included on a preliminary list of additions posted by Russell Investments on June 14.

5) Pacific Life Funds Launches Fixed-Income Promotional Campaign

Pacific Life Funds has launched a new promotional campaign, “Diversify with Corporate Income.” The campaign’s goal is to educate investors about the importance of diversifying their fixed-income investments through corporate income. In exchange for increased risk, says the campaign, corporate fixed-income securities can provide greater opportunities for income as compared to U.S. government securities and thus the strategy can help maintain more stable overall returns in varying economic and market environments.

All five of the PL fixed-income funds — PL Short Duration Income Fund (PLDSX), PL Income Fund (PLIDX), PL Strategic Income Fund (PLSFX), PL Floating Rate Income Fund (PLFRX), and PL High Income Fund (PLHIX) — provide investors with an opportunity to realize the benefits of corporate income. Fund holdings include a combination of investment-grade corporate bonds, high-yield corporate bonds, floating-rate loans, and short-term debt securities.

Pacific Asset Management, the manager of the PL Fixed-Income Funds, specializes in institutional fixed-income asset management, with a focus on corporate income. The members of this team have worked together for over a decade and possess, on average, more than 15 years of investment experience.

Read the June 28 Portfolio Products Roundup at AdvisorOne.

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