January 3, 2014

Top Portfolio Products: SAC Capital Hedge Fund Closes With a Bang

First Trust to launch three ETFs; more

SAC Capital headquarters in Stamford, Conn. (Photo: AP) SAC Capital headquarters in Stamford, Conn. (Photo: AP)

This week, the disgraced SAC Capital Advisors hedge fund shut down after posting 20% gains. New products introduced this week included three ETFs from First Trust and nine new funds from BMO. A social impact partnership among Bank of America Merrill Lynch, New York state and Social Finance Inc. closed.

In addition, Flexible Plan Investments announced that its second Principled Investing Give Back distribution has increased the number of organizations to which it gives by more than 20%.

Here are the latest developments of interest to advisors:

1) SAC Capital Advisors Hedge Fund Gains 20%, Shuts Down

The hedge fund run by Steven Cohen, SAC Capital Advisors, ended its life with gains of more than 20% for the year, according to the figures reported to investors on Dec. 30. That's despite the firm's guilty plea to insider trading in November and its bowing to a penalty of $1.2 billion.

While Cohen himself never faced criminal charges, one of the conditions of the plea deal was for him to stop managing money for outsiders and wind down the hedge fund. SAC Capital has already settled with the SEC for $616 million. Cohen still faces an SEC civil action that charges him with failing to properly supervise his employees.

As the firm moves back to family office status, it has also divested itself of SAC Re, its reinsurance group; in December it was announced that the unit would be bought by Hamilton Reinsurance Group.

2) First Trust Announces Launch of Three ETFs

First Trust Advisors L.P. has announced that it will launch three ETFs, the First Trust High Income ETF (FTHI), the First Trust Low Beta Income ETF (FTLB) and the First Trust Nasdaq Rising Dividend Achievers ETF (RDVY).

FTHI seeks to provide current income, with a secondary investment objective of capital appreciation, while FTLB seeks to provide current income. Both will invest in large-cap equities listed on U.S. exchanges, favoring high-dividend-paying common stocks. They will also use an options strategy in which they will write (sell) U.S. exchange-traded covered call options on the S&P 500 Index seeking to generate additional cash flow in premiums on the options that may be distributed to shareholders on a monthly basis. FTLB may use a portion of the options premiums to buy U.S. exchange-traded put options on the S&P 500 Index. This hedging strategy will seek to provide this fund with downside protection and reduce the fund’s price sensitivity to declining markets.

RDVY seeks investment results that correspond generally to the price and yield (before the fund’s fees and expenses) of an equity index called the Nasdaq US Rising Dividend Achievers Index. The index is made up of 50 companies with a history of raising their dividends and that exhibit the characteristics to potentially continue doing so in the future.

Rob Guttschow and John Gambla are senior portfolio managers of FTHI and FTLB. All three are expected to begin trading Tuesday.

3) New York, Merrill, Social Finance to Fund Job Services for ex-Prisoners

Bank of America Merrill Lynch has partnered with New York State and Social Finance Inc. to create a social impact partnership that will use $13.5 million raised from private and institutional investors to fund a 5½-year program focused on comprehensive reentry employment services to 2,000 formerly incarcerated individuals in New York City and Rochester, N.Y.

The "pay for success" program model provides funding (for such programs, the funding is often in the form of fixed income or private equity offerings, and generically termed “social impact bonds”) for selected nonprofits with a successful track record, and enables governments to save money and pay only for positive results. If a pay-for-success program meets identified success metrics, private and institutional investors have the potential to earn positive financial returns.

This particular social impact investment opportunity was available only to qualified high-net-worth and institutional clients of Merrill Lynch and U.S. Trust, as well as other investors identified by Social Finance. The proceeds of the project will finance programs delivered by the Center for Employment Opportunities (CEO), a provider of training and employment service programs to formerly incarcerated individuals in New York.

4) Flexible Plan's Principled Investing Give Back Program Delivers 20% Increase

Flexible Plan Investments, Ltd. has announced that the second distribution of Principled Investing Give Back payments have been made to 86 religious organizations elected through Faith Focused Investing and 10 charities elected through For A Better World on behalf of clients invested in these strategies. This is more than a 20% increase in organizations from the first year.

Launched in 2011 and with its second year of distributions, Flexible Plan's Give Back program provides clients who invest in either strategy the option to direct FPI to pay out, in the investor's name or anonymously, 10% of its net advisory fees collected to a client-designated charity, church or religious institution. Principled investing, also known as socially responsible investing (SRI), has become an increasingly popular investment option. Flexible Plan, with its For A Better World and Faith Focused Investing strategies, adds the "pay it forward" concept and give-back program. Clients can use active management to seek to achieve their investment goals without compromising their principles while giving back to the organization of their choosing.

5) BMO Announces Nine Additional Funds

BMO Global Asset Management has announced the launch of nine funds. Four of the new funds seek to provide capital appreciation while mitigating risk; the other five are target date funds.

They are: BMO Small-Cap Core Fund (BSCNX); BMO Pyrford Global Equity Fund (BGENX); BMO Multi-Asset Income Fund (BMANX); BMO Global Natural Resources Fund (BNRYX); BMO Target Retirement 2015 Fund (BRTDX); BMO Target Retirement 2025 Fund (BRTFX); BMO Target Retirement 2035 Fund (BRTKX); BMO Target Retirement 2045 Fund (BRTPX); and BMO Target Retirement 2055 Fund (BRTSX).

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Read the Dec. 19 Portfolio Products Roundup at ThinkAdvisor.

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