Multiple Equilibria (Jan 21-25, 2013)

All January 2013 Distributions have been announced, with iShares and RBC GAM ETFs already trading “ex”, while other providers “ex-dates “are coming up this week. (BMO ETFs; First Asset; and PowerShares ETFs: ex 28.1; Vanguard and Horizons ETFs: ex 29.1).

• Horizons ETFs – (HAA) the Horizons Active Balanced ETF will  be managed in-house going forward. This marks the end of the firm’s relationship with sub-advisor Hillsdale Investment Management - Click Here to read  HAA will become the Horizons Active Diversified Income ETF. We liked HAA as it was, however it failed  to gain traction (AUM). Will “diversification and income” be the key? Given flows  have been influenced by the income consideration, it is definitely not out of the question, something proper execution could seal + deliver!
• First Asset -  Perhaps recognizing it has a lot to do with yield, launched a Canadian Provincial Bonds - PXF ETF . There already is one, so what is PXF’s claim to relevance? the BMO Short Provincial Bond Index ETF  focuses on Short duration bonds (2.95 Years duration; weighted YTM: 1.57%). PXF, in contrast, has a weighted duration of 9.3 YRS, and a YTM of 2.8%. In other words – higher interest rates risk for yield pick-up. In a yield-challenged world, this should find a spot, and not necessarily just as a term extension trade.
• RAFI ETFs related -  Click Here to access Rob Arnott’s review of 2012 and 2013 Outlook!

Marketplace
S&P/TSX 60 (XIU) +1.14%, S&P/TSX Composite (XIC +0.70%/ZCN +0.64%); CAD-hedged S&P 500 (XSP +1.18%), R2K CAD-hedged (XSU) +1.36%, Nasdaq 100 CAD Hedged (ZQQ) -0.28%, MSCI EAFE CAD-hedged (XIN +1.51%) / (VEF+1.13%), MSCI Emerging Markets (XEM +0.16% / VEE +0.15% / XMM  +0.67%).

Quite the week: Obama’s 2nd term inauguration, World Economic Forum in Davos, heightened volatility in Japan’s stocks and currency, technology company results, most notably Apple’s, and markets at 5 years high. And, finally, European Banks repaying more than expected of the LTRO funds they obtained earlier from the ECB.  Bottom line here: the ECB’s Mario Draghi’s multiple equilibria works for now…

• Apple –  No company generated as much coverage as Apple in the aftermath of its Q1, 2013 results. $1000 target put forth by some analysts when AAPL reached its all-times high last September is now but a distant memory. Most valuable company status, gone, unfailing belief in company’s bright prospects, shaken, product dominance – seen as significantly challenged by Android-based competitors. Key challenge – the next “vow” product!
• Twitter – sold some stock to the world’s largest money manager – BlackRock, valuing itself at more than $9 Billion in the process. Click Here to Read . Who, initially, would have thought that a service capping people at 140 words would end up this successful, influential, and omnipresent?
• European Banks –  But not Banca Monte dei Paschi di Siena Click Here to Read how Derivatives look to have killed that one … -  are repaying more than expected of the LTRO money they got from the ECB when the latter was trying to (and did) prevent all of them getting sucked into a big black hole … Click Here to read!
• Japan was volatile – Click Here to Read with the Yen and Nikkei giving back some of strong gains made previously on anticipation that forceful action on the part of the Government and the BoJ ultimately would make a difference in lifting the world’s third largest economy out of a … 20+ years of deflation and uninspiring growth, which also has seen some of its iconic companies lose their mojo.
• And now for the big one as far as whether it will or won’t happen – Needless to say, IF it does, and there are points to be made in favour of the argument, no doubt – it will mean the return to equities of retail investors, and, with that, we will likely witness the last leg of the bull that kicked-in, very reluctantly, but with lots of Government intervention everywhere … – back in early  spring 2009. So here it is - Great Rotation from Bonds to Stocks? Naturally, how that plays out will relate directly with how this works out: WEF: Liquidity Bubble a risk as economy improves

The Canadian ETF Landscape: Weekly Performance Highlights

• ETF trading Volumes rose 30.9% w/o/w driven by a strong uptick in non-leveraged volumes (Leveraged ETF volumes declined 18.6% from last week’s levels). Total non-leveraged volumes: $1,305MM; leveraged: $313MM, for overall of $1,618MM. Top 10 volume traders (Non-leveraged): XIU;  XGD; XSP; HXT; XBB; XEG; ZPR; XLB; CBO; XSB (71.9% of all non-leveraged volumes). Top 5 traders (Leveraged): HNU; HND; HOD; HGU; HOU (67.7% of all leveraged volumes).
• Bull+/Bear+: Energy-related volumes declined to 56.6% of aggregate Leveraged ETF traded, led by the bull+ Nat Gas Nymex HNU, which retreated 6% on the week. Double Long (daily resets) exposure to Gold Stocks and Volatility fared poorly on the week, declining 10.3% and 8.5% respectively. The winning picks this past week would have been the Bear+ on Gold Stocks (up 11.2%); Nat Gas (+5.7%) and Bullion (+4%).
• Global Agriculture – COW: Good week in the AG stocks space, led by gains in Fertilizer stocks Agrium and Potash.
• Canadian Technology – XIT: Another good week for Research-in-Motion (up 12.1%) led to continued strength in XIT, with this concentrated (7 stocks) ETF providing 28.8% RIM “content” at week’s end. All eyes are on RIM’s Jan 30th BB10 introduction, with the fate of the Waterloo-based company on the line. South of the border meanwhile, Apple’s results failed to dazzle, and the stock dropped $60 bucks from the $500 mark it finished the prior week at. Oh, the difference 4 months make – 37.6% in AAPL’s case (from its all-times high last September). Other bellwether stocks such as Google and IBM, however, fared much better in terms of results and outlook, and saw their stocks rise post earnings reports.
• On the negative side of the ledger – Gold stocks, Silver, and Real Return Bonds.