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Portfolio Products Round-Up: ‘Black Swan’ Events Saved Bonds in Q1, Lipper Says

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Nobody could have predicted political revolution in the Middle East or natural and nuclear disasters in Japan, and it was that unpredictability that brought bond funds back into play versus equities in the first quarter of 2011.

“These black swan events were exactly the headline risks that sent the Dow Jones Industrials Average down nearly 800 points between mid-February and mid-March. In that time the BarCap high-yield bond index fell 1% and the investment-grade index climbed 1.5%,” wrote Jeff Tjomehoj, Lipper’s head of Americas research, in an executive summary on Wednesday.

Bond Funds Narrow Q4 Gap With Equities

In the fourth quarter of 2010, equity and exchange-traded funds (ETFs) outdrew bond funds $44.3 billion to $15.9 billion, Tjomehoj said. But after the uprisings in Tunisia spread across the Arab world, net flows for Q1 2011 appear very close, with equity funds outdrawing bond funds $59.7 billion to $54.1 billion.

Meanwhile, Lipper senior analyst Tom Roseen reported last Tuesday that equity closed-end funds (CEFs) strung together their fourth consecutive month of plus-side returns in March, adding 1.12% on a NAV basis and 1.62% on a market basis to their February month-end values.

But strengthening economic reports “put a little fear into fixed income investors” that the Federal Reserve may increase interest rates sooner rather than later, Roseen noted. “For the fourth month in five, fixed-income CEFs posted a negative NAV-based return, declining 0.21%, while their market-based return managed to remain in the black, rising 0.80%, with municipal bond funds causing all of the downside damage.”

In the world of hedge funds, March proved to be a challenging month as hedge funds held roughly flat, advancing only 0.30% on the Hennessee Hedge Fund Index, which was up 2.50% year to date as of Thursday. In comparison, the S&P 500 declined -0.10% (+5.43% YTD), the Dow Jones industrial average increased +0.76% (+6.41% YTD) and the NASDAQ Composite Index fell -0.04% (+4.83% YTD).

“March was challenging as markets initially sold off sharply on escalating conflicts in the Middle East and tragic events in Japan.  However, markets were able to rally back during the last couple weeks to finish the month roughly unchanged,” said Charles Gradante, co-founder of Hennessee Group, which manages the index, in a statement. “Many hedge funds were whipsawed as they became more defensive mid-month as risks increased, which resulted in less participation during the late month rebound.”

New Fund Launches From Goldman, Arrow, Van Eck Global, ProShares

A host of fund launches have been announced in the last couple of weeks, including:

Goldman Sachs Asset Management on April 4 announced the launch of the Goldman Sachs High Yield Floating Rate Fund (Class A shares: GFRAX), a portfolio of non-investment grade floating-rate loans and other variable-rate

securities issued by U.S. and foreign companies. The Fund is offered in Class A and Class C shares, both with $1,000 minimum initial investments. The Fund also offers Institutional and Class R & Class IR Shares.

The fund’s investment objective is to seek a high level of current income and to help investors navigate a changing interest rate environment by uncovering attractive income opportunities relative to their risk within the non-investment grade loan market.

“We believe floating-rate loans are appealing to investors because they combine relatively moderate price volatility with attractive income that rises along with interest rates,” said Rachel Golder, co-head of the High Yield and Bank Loan team, in a statement.

Mutual fund company Arrow Funds announced March 30 its launch of a commodity fund, the Arrow Commodity Strategy Fund (Class A shares: CSFFX). Benchmarked to the Longview Extended Commodity Index (LEX), the alternative investment mutual fund is designed to appeal to long-term investors who seek broad-based commodities exposure, but with less of the asset class’ characteristic volatility and turnover.

Created by Longview Strategic Research, the LEX is calculated and published daily by Dow Jones Indexes. As a benchmark, the LEX takes a long-term view of the commodities markets and uses far-dated futures contracts. Unlike other commodity indexes, which tend to use monthly rolls of futures contracts one to three months out, the LEX follows an annual roll cycle of futures contracts that are 12 to 15 months away from expiration. As a result, the LEX covers longer-term holding periods with lower turnover.

“As more investors are drawn to commodities for their potential diversification benefits, they may wish to mitigate some of the asset class’s potential drawbacks, such as short-term volatility swings and the unintended effects of frequent contract rolls,” said Arrow Funds CEO Joseph Barrato in a statement. “We are pleased to offer investors a purer form of commodity exposure based on an index that was designed to address these issues.”

In ETF news, Van Eck Global on April 5 announced the launch of its Market Vectors Germany Small-Cap ETF (NYSE Arca: GERJ), designed to give investors pure-play exposure to Europe’s largest economy. Germany, which has the world’s fourth-largest economy as measured by gross domestic product, expanded at an annual rate of 3.6% after the 2010 recession that continues to have lingering effects on other European countries.

GERJ seeks to replicate, before fees and expenses, the performance of the Market Vectors Germany Small-Cap Index (MVGERJTR). As of March 8, the index comprised 95 companies with an average market capitalization of $1.2 billion. Many of the companies are in specialized industry sectors such as machine tools, auto parts, printing presses and electrical equipment.

“The German economy has rebounded quite strongly from the global economic downturn and appears well positioned to continue to expand,” said Jan van Eck, principal at Van Eck Global, in a statement. “With its history of innovation and

niche market strengths, the country’s small-cap sector may continue to benefit from strong export-driven demand as well as domestic consumption. Our new ETF gives investors a focused vehicle for gaining exposure to this vibrant segment of the German economy.”

Alternative ETF company ProShares on April 5 presented two new ETFs that provide inverse exposure to the U.S. Treasury market, both listed on the NYSE Arca.

The ProShares UltraShort 3-7 Year Treasury (NYSE: TBZ) provides inverse exposure to the 3-7 year segment of the U.S. Treasury market.  TBZ seeks to provide -2x the daily performance of the Barclays Capital U.S. 3-7 Year Treasury Bond Index, before fees and expenses.

The ProShares Short 7-10 Year Treasury (NYSE: TBX) seeks to provide -1x the daily performance of the Barclays Capital U.S. 7-10 Year Treasury Bond Index, before fees and expenses.

“Our lineup of inverse bond ETFs have been extremely popular, garnering more than $7 billion of assets since launching less than three years ago,” said Michael Sapir, chairman and CEO of ProShare Advisors , in a statement. “We are pleased to add two additional ETFs to the set of tools available to investors concerned about a possible pullback in bonds.”

Gemini’s Northern Lights Fund Reaches $5 Billion in AUM

Gemini Fund Services announced on April 5 that its Northern Lights Fund Trust has reached $5 billion in assets under management, including more than $1 billion in assets added in the past three months.

The Northern Lights Fund Trust is a shared mutual fund trust comprised of independent funds, all managed by separate investment advisors. Advisors have joined the trust, administered by Gemini, to counteract the increasing costs of doing business and increased level of regulatory compliance in the mutual fund industry. Fund trusts help small- to mid-sized mutual funds compete and remain profitable.

 “Gemini’s mission is to serve as a full partner, and resource, to advisors looking to develop pooled investment products. We enable advisors to focus on managing portfolios and raising assets, while reducing the costs of bringing their products to market,” said Andrew Rogers, president of Gemini Fund Services, in a statement.

“Our Northern Lights Fund Trust is experiencing robust growth as new funds continue to launch and existing funds add new share classes. Managed futures funds are especially seeing success in raising assets, reflecting the growth of that sector as well as effective marketing and distribution," Rogers said.

Read last week’s fund products round-up at


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