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Goldman Sachs completes acquisition of physical gold ETF

Goldman Sachs Asset Management has finalized its takeover of the Perth Mint’s $500m gold ETF, AAAU. Renamed the Goldman Sachs Physical Gold ETF, the ETF’s fee remains unchanged, at 0.18%, as is its listing on NYSE Arca. But the product gets a new…

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Goldman Sachs Asset Management has finalized its takeover of the Perth Mint’s $500m New York-listed gold ETF.

Goldman Sachs completes acquisition of physical gold ETF

Goldman Sachs has completed its acquisition of the Perth Mint’s physical gold ETF.

Renamed the Goldman Sachs Physical Gold ETF (AAAU US), the ETF’s fee remains unchanged, at 0.18%, as is its listing on NYSE Arca.

The ETF also continues to provide the same fundamental function – namely physical exposure to gold bars meeting the specifications for “good delivery”, as defined by the London Bullion Market Association.

New custodian

But while the fee, listing venue, and investment objective are all unchanged, the original custodian, the Perth Mint, has been removed and along with it the ETF’s unique guarantee from the government of the State of Western Australia.

Also out with the Perth Mint is the ETF’s novel convertibility feature that allowed shareholders of the ETF to exchange their shares for delivery of physical gold in the form of bullion bars and coins issued by the mint.

In its place as custodian is the London branch of JP Morgan Chase – one half of a duopoly of banks that is home to an increasingly large and arguably alarming concentration (approx. 2,500 tonnes) of ETF-owned gold.

Rusty timing

GSAM’s acquisition of AAAU comes as gold sentiment appears to have turned negative on the back of growing confidence in the viability of Covid-19 vaccinations and ever greater clarity on the composition and direction of the incoming US administration.

Last month, gold ETFs recorded their first net outflows in twelve months and the second largest monthly outflows ever. Gold ETF holdings decreased by 107t over the month – equivalent to $6.8bn or 2.9% of assets under management – as the gold price had its worst monthly move (-6.3%) since November 2016.

But despite lacklustre performance in November, net inflows of 916t ($50.3bn) in 2020 remain well above the highest yearly amount on record, with total global holdings standing at 3,793t or $215bn at month-end, and gold continues to offer valuable portfolio attributes, including low correlations with other assets and inflation hedge characteristics.

Commenting on the transaction, Michael Crinieri, GSAM’s Global Head of ETFs, said: “We are pleased to complete this transaction and enter into this market, where we believe our size, scale and expertise can provide considerable value to investors.

“GSAM is committed to a thoughtful expansion of our ETF suite through high-quality products that meet unique investor needs, and Goldman Sachs Physical Gold ETF is an exciting addition to our product roster.”

AAAU becomes GSAM’s twenty-first US-listed ETF.

The post Goldman Sachs completes acquisition of physical gold ETF first appeared on ETF Strategy.

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Economics

Weekly Investment Update – Should We Listen to the Bond Market?

Since the beginning of the year, 10-year US Treasury yields have risen to an almost 11-month high as markets anticipate a normalizing economy and further, massive fiscal stimulus.

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This article was originally published by Investors Corner.

Since the beginning of the year, 10-year US Treasury yields have risen by 25bp to an almost 11-month high as markets anticipate a normalising economy and further, massive fiscal stimulus.

The 10-year Treasury yield hit 1.17% on 8 February, marking its highest point in nearly a year. In the eurozone, the benchmark 10-year Bund yield now stands at around -0.45%. That is about 12bp above where it stood at the end of 2020 and a level not seen since last September. The yield on the 10-year UK Gilt jumped from 0.32% in early February to 0.48% the day after the latest Bank of England monetary policy meeting.

Theory and practice

These higher yields reflect an environment that economic textbooks tell us justify upward pressure on long-term rates: widening budget deficits, accelerating inflation, and accommodative monetary policy.

In the US, the budget resolution approved last week authorises a USD 1.9 trillion coronavirus relief bill. This very large fiscal package could be passed quickly and without much change if the Biden administration chooses to proceed by the way of the reconciliation process. A bipartisan bill, which would need at least 10 Republican Senators supporting it, would likely be much smaller, but still significant in historical terms.

Eurozone bond yields reacted to news of an acceleration in core inflation from 0.2% year-on-year in December to 1.4% in January. Primarily idiosyncratic factors are behind the surge: base effects, the adjustment of the basket of goods and services used to measure price levels, and a VAT rise in Germany. Investors will nonetheless be taking a close look at the detailed inflation numbers due out over the next few days.

Gilt yields rose after more-positive-than-expected Bank of England comments on the economic outlook and indications that a move to negative interest rates was not imminent.

Unresolved questions

There are also inflation concerns in the US with surveys are pointing to upward price pressures. Market watchers have begun looking for clues in central bankers’ comments on when asset purchases by the Federal Reserve could be tapered.

Fed chair Jerome Powell had indicated that such action would be premature in the current environment. The central bank’s message has been clear: Monetary policy support remains in place.

The ECB has been equally transparent on its stance. In a recent press interview, President Christine Lagarde repeated: “Our commitment to the euro has no limits. We will act for as long as the pandemic is causing a crisis situation in the euro area.”

The crisis is not over

The encouraging progress on vaccination campaigns (at least in some countries) has raised hopes that a return to ‘normal’ life will be possible in a few months’ time. A cyclical recovery would follow for the rest of 2021. We share this view, but would caution that investors not get too far ahead of themselves. The strong 5.5% rebound in global growth expected by the IMF, after a 3.5% contraction in 2020, does not mean that the scars of the crisis will suddenly disappear.

Take the labour market. The US unemployment rate dropped to 6.3% in January and is now at less than half the 14.8% level from last April. Before the pandemic, however, the rate was only 3.5%. Adjusting the current figure for fluctuations related to temporary layoffs and discouraged workers and the unemployment rate is closer to 8%, little changed since last spring.

Conclusions

An old investment adage says, “Don’t fight the Fed.” Indeed, we expect central banks to continue with their massive asset purchases until there is clear progress on growth and inflation.

However premature expectations for much higher inflation and other growth-related concerns may now seem, we believe a short-duration position in eurozone and US benchmark bonds could be opportune at this point. The same goes for a long position on break-even inflation.

We also remain overweight the Italian BTP bond market as the chances of Mario Draghi leading the next government appear to have increased and the risk of early elections has fallen. Investors’ search for yield should provide further support.


Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice.

 The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.

Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).

Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

Writen by Nathalie Benatia. The post Weekly investment update – Should we listen to the bond market? appeared first on Investors' Corner - The official blog of BNP Paribas Asset Management.

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Spread & Containment

Goldman Admits Reddit Raiders Could Crash the Entire Market

Goldman Warns If The Short Squeeze Continues, The Entire Market Could Collapse

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This article was originally published by ZeroHedge.

Goldman Warns If The Short Squeeze Continues, The Entire Market Could Crash

Last Friday (Jan 22) we advised readers who thought they had missed the move in Gamestop (they hadn't), to position appropriately in the most shorted Russell 3000 names which included such tickers as FIZZ, DDS, BBBY, AMCX, GOGO and a handful of other names, as it was likely that the short-squeeze was only just starting.

We were right and all of the stocks listed above - and others - exploded higher the coming Monday, and all other days of the week, with results - encapsulated by the WallStreetTips vs Wall Street feud - that has become the top conversation piece across America, while on WSB the only topic is the phenomenal gains generated by going long said most shorted stocks. To wit, the basket of top shorts we compiled on Jan 22 has tripled in the past week.

And while some are quick to blame last week's fireworks on the "dopamine rush" of traders at r/wallstreetbets who seek an outlet to being "copped up with little else to do during the pandemic" (as Bloomberg has done, while also blaming widespread lockdowns and forgetting that it has been Bloomberg that was among the most vocal defenders of the very lockdowns that have given us the short squeeze of the century), the reality is that at the end of the day the strategy unleashed by the subreddit is merely an extension of the bubble dynamics that were made possible by the Federal Reserve (of which Bloomberg is also a very staunch fan) pumping trillions and trillions of shotgunned liquidity into a financial system where there are now bubble visible anywhere one looks. In short, main street finally learned that it too can profit from the lunacy of the money printers at the Marriner Eccles building, and some are very unhappy about that (yes, it will end in tears, but - newsflash - $300 trillion in debt and $120BN in liquidity injections monthly will also end in tears).

That aside, one week later, Goldman has finally caught up with what Zero Hedge readers knew one week ago, and all the way down to a chart showing a basket of the most-shorted Russell 3000 stocks...

... Goldman's David Kostin has published a post-mortem of what happened last week, writing that "the most heavily-shorted stocks have risen by 98% in the past three months, outstripping major short squeezes in 2000 and 2009."

He then points out something we discussed in "Hedge Funds Are Puking Longs To Cover Short-Squeeze Losses", noting that while aggregate short interest levels are remarkably low (imagine what would have happened has shorting been far more aggressive marketwide)...

... "the -4% weekly return of our Hedge Fund VIP list of the most popular hedge fund long positions (GSTHHVIP) showed how excess in one small part of the market can create contagion."

As an aside, and as we showed previously, as the most shorted stocks soared...

... hedge funds were forced to cover (as well as paying for margin calls), and as part of the broader degrossing they also had to sell some of the favorite hedge fund names across the industry, in this case represented by the Goldman Hedge Fund VIP basket.

Yet what may come as a surprise to some, even as hedge funds deleveraged aggressively and actively cut risk this week, gross and net exposures "remain close to the highest levels on record" (something which may come as a huge surprise to Marko Kolanovic who has been erroneously claiming the opposite), suggesting that if the squeeze continues, hedge funds are set for much more pain.

According to Goldman Sachs Prime Services, this week "represented the largest active hedge fund de-grossing since February 2009. Funds in their coverage sold long positions and covered shorts in every sector" and yet "despite this active deleveraging, hedge fund net and gross exposures on a mark-to-market basis both remain close to the highest levels on record, indicating ongoing risk of positioning-driven sell-offs."

With that in mind, here are Kostin's big picture thoughts:

It was a placid week in the US stock market – provided one was a long-only mutual fund manager. US equity mutual funds and ETFs had $2 billion of net inflows last week (+$10 billion YTD). Although the typical large-cap core mutual fund fell by 2% this week, it has generated a return of +1.3% YTD vs. S&P 500 down -1.1%. However, life was very different last week if one managed a hedge fund. The typical US equity long/short fund returned -7% this week and has returned -6% YTD.

With the average WSB portfolio up double digits this past week, one can see why hedge funds are upset. Anyway, moving on:

The past 25 years have witnessed a number of sharp short squeezes in the US equity market, but none as extreme as has occurred recently.In the last three months, a basket containing the 50 Russell 3000 stocks with market caps above $1 billion and the largest short interest as a share of float (GSCBMSAL) has rallied by 98%.  This exceeded the 77% return of highly-shorted stocks during 2Q 2020, a 56% rally in mid-2009, and two distinct 72% rallies during the Tech Bubble in 1999 and 2000. This week the basket’s trailing 5-, 10-, and 21-day returns registered as the largest on record.

Thanks Goldman, and yes, your "brisk assessment" would have been more useful to your clients if it had come before the event (like, for example, this) instead of after.

Kostin then goes on to point out that the "mooning" in the most shorted stocks took place even though aggregate short interest was near record low (imagine what would have happened had short interest been higher), which is odd because historically, "major short squeezes have typically taken place as aggregate short interest declined from elevated levels. In contrast, the recent short squeeze has been driven by concentrated short positions in smaller companies, many of which had lagged dramatically and were perceived by most investors to be in secular decline" to wit:

Unusually, the rally of the most heavily-shorted stocks has taken place against a backdrop of very low levels of aggregate short interest. At the start of this year, the median S&P 500 stock had short interest equating to just 1.5% of market cap, matching mid-2000 as the lowest share in at least the last 25 years. In the past, major short squeezes have typically taken place as aggregate short interest declined from elevated levels. In contrast, the recent short squeeze has been driven by concentrated short positions in smaller companies, many of which had lagged dramatically and were perceived by most investors to be in secular decline.

Of course, there is nothing "historical" about what happened last week, because - as we all know - the biggest difference between the typical short squeeze of the past and the recent rally in heavily-shorted stocks "was the degree of involvement of retail traders, who also appear to have catalyzed sharp moves in other parts of the market." Why thank you WSB, but that's ok - you will be handsomely rewarded.

Last week we discussed the surging trading activity and share prices of penny stocks, firms with negative earnings, and extremely high-growth, high-multiple stocks. These trends have all accompanied a large increase in online broker trading activity. A basket of retail favorites (ticker: GSXURFAV) has returned +17% YTD and +179% since the March 2020 low, outperforming both the S&P 500 (+72%) and our Hedge Fund VIP list of the most popular hedge fund long positions (GSTHHVIP, +106%).

So why does this matter? One simple reason: contrary to the bizarrely nonchalant optimism spouted earlier this week by JPMorgan's Marko Kolanovic who said "any market pullback, such as one driven by repositioning by a segment of the long-short community (and related to stocks of insignificant size), is a buying opportunity, in our view," Goldman has a far more dismal take on recent events, and writes that "this week demonstrated that unsustainable excess in one small part of the market has the potential to tip a row of dominoes and create broader turmoil."

He then picks up on what he said last weekend when responding to Goldman client concerns about a stock bubble, which we summarized in "Goldman's Clients Are Freaking Out About A Stock Bubble: Here Is The Bank's Response", and which turned out to be 100% warranted, and writes that "most of the bubble-like dynamics we highlighted last week have taken place in stocks constituting very small portions of total US equity market cap. Indeed, many of the shorts dominating headlines this week were (prior to this week) small-cap stocks. But large short squeezes led investors short these stocks to cover their positions and also reduce long positions, leading other holders of common positions to cut exposures in turn."

As a result, Goldman's Hedge Fund VIP list declined by 4%. Which is a problem because as Kostin concludes, "in recent years elevated crowding, low turnover, and high concentration have been consistent patterns, boosting the risk that one fund’s unwind could snowball through the market."

Translation: if WSB continues to push the most shorted stocks higher, the entire market could crash.

And since Kostin admits that "the retail trading boom can continue" as "an abundance of US household cash should continue to fuel the trading boom" with more than 50% of the $5 trillion in money market mutual funds owned by households and is $1 trillion greater than before the pandemic, what happens in the coming week - i.e., if the short squeeze persists - could have profound implications for the future of capital markets.

Tyler Durden Sat, 01/30/2021 - 18:30

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ETF's

ProShares unveils leveraged cybersecurity and cloud computing ETFs on Nasdaq

ProShares has rolled out a pair of leveraged thematic equity ETFs providing amplified exposure to two sought-after themes: cybersecurity and cloud computing. Listed on Nasdaq, the ProShares Ultra Nasdaq Cybersecurity ETF (UCYB US) and ProShares Ultra…

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ProShares has rolled out a pair of leveraged equity ETFs providing amplified exposure to two sought-after investment themes: cybersecurity and cloud computing.

ProShares unveil leveraged cybersecurity and cloud computing ETFs on Nasdaq

Michael L. Sapir, CEO of ProShares.

The ProShares Ultra Nasdaq Cybersecurity ETF (UCYB US) seeks investment results, before fees and expenses, that correspond to two times (2x) the daily performance of the Nasdaq CTA Cybersecurity Index.

The ProShares Ultra Nasdaq Cloud Computing ETF (SKYU US) seeks investment results, before fees and expenses, that correspond to two times (2x) the daily performance of the ISE CTA Cloud Computing Index.

The funds have listed on Nasdaq and come with net expense ratios of 0.95%.

“The growing need for remote computing, and our increased reliance on secure internet communications and connectivity—existing themes accelerated by the coronavirus pandemic—have expanded the already significant investment opportunities in the cybersecurity and cloud computing industries,” says ProShares CEO Michael L. Sapir. “Our new ETFs will offer investors a way to gain leveraged exposure to these rapidly changing industries in a transparent ETF format.”

Index methodologies

UCYB’s reference index provides access to companies listed globally classified as “cybersecurity” by the Consumer Technology Association (CTA)—companies focused primarily on the building, implementation and management of technologies to protect networks, computers and mobile devices from cyber threats.

To be eligible for inclusion in the index, a security must have a minimum market capitalization of $250 million and three-month average daily dollar trading (ADDTV) volume of at least $1m. Initial weights are determined by dividing each security’s three-month ADDTV by the aggregate ADDTV of all index securities. These weights are then adjusted such that no security exceeds 6% or 3% for securities whose three-month ADDTV is not ranked among the top five.

The index is reconstituted semi-annually and rebalanced quarterly. It currently has 40 constituents with an average market capitalization of $20.10 billion. Significant positions include Crowdstrike (7.30%), Zscaler (6.77%), Accenture (5.54%), Cisco (5.49%) and Splunk (4.39%).

SKYU’s index provides access to US-listed companies classified as “cloud computing” by the CTA—firms providing Infrastructure-as-a-Service (servers, storage, and networks), Platform-as-a-Service (systems for the creation of online software), and Software-as-a-Service (software applications delivered over the internet) to their customers and end-users.

To be eligible for inclusion in this index, a security must have a minimum market capitalization of $500m and three-month average daily dollar trading (ADDTV) volume of at least $5m. The index uses a modified equal-weighting methodology based on a “cloud score” assigned by CTA. A company’s cloud score is determined by which particular activities the company is engaged in. Companies that offer IaaS receive 3 points. Those that offer PaaS receive 2 points. Those that offer SaaS receive 1 point. A company can be awarded points for each type of service they offer. Each company’s cloud score is divided by the total sum of the scores awarded to determine the weight of each security, with a maximum weight of 4.5%.

The index is reconstituted and rebalanced quarterly. It currently has 64 constituents with an average market capitalization of $105.17bn. The index includes some highly familiar names, such as Adobe, Alphabet (Google parent), Alibaba, Amazon, Cisco, HP Enterprise IBM, Microsoft, Oracle, Salesforce, SAP, and Zoom.

The post ProShares unveils leveraged cybersecurity and cloud computing ETFs on Nasdaq first appeared on ETF Strategy.

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