ETFs Names May Be Misleading-Don’t Judge Book by its Cover

According to a recent report issued by Carey Research, buyers need to be wary when buying some exchange traded funds (ETFs) since the name used for the fund can be misleading. According to its  author, senior analyst Vedran Vuk, the fine print may reveal that the fund is not what the name of the fund would suggest.

According to Vuk, a fund name may have absolutely nothing to do with its contents and his report identifies the top 10 most misleading ETFs names and his reasoning.

1-HDG- ProShares Hedge Replication: Doesn’t actually hold any hedge funds but attempts to replicate the Merrill Lynch Factor Model Exchange Series, which tries to correlate with the HFRI Fund Weighted Composite Index an index of 2,000 hedge funds. Currently HDG has 82% of its assets in three-month treasury bills.

2-GDXJ-Market Vectors Junior Gold Miners: Doesn’t hold any “junior” mining companies. The top ten holdings are companies with market caps in excess of a billion each. Vuk concludes that “GDXJ was a flawed idea from the very start”.

3-USO-United States Oil Fund: “Originally designed to follow WTI crude oil prices, USO is perhaps the king of misleading ETFs”. While designed to follow crude prices, it can actually go in the opposite direction which is what happened in 2009 when oil rose and USO remained flat. This is due to the fact that rather than a bet on the price of oil, it a bet on the “shape of the crude-oil forward curve”.

4-UNG-US Natural Gas Fund: UNG has problems similar to USO in that its value remained flat and actually declined from April 2009 onward while natural gas prices rose.

5-GLD-SPDR Gold Shares: Many investors believe GLD securely protects their gold and they can retrieve it upon request. Actually it can only be redeemed at a minimum of 10,000 ounces, which is about $16-$17 million depending on the then current price of gold. This feature is of little importance to the average investor. Furthermore the prospectus includes an option to redeem gold requests in cash rather than metal. Since GLD is structured as a grantor trust, investors pay taxes on the underlying asset, gold, which is taxed at 28% (since it is considered a collectible) instead of the usual 15% rate.

6-BABZ-PIMCO Build America Bond Strategy Fund: While the name suggests nationwide govenrment bond subsidies with a diversified portfolio of bonds based on infrastructure projects, Vuk points out that a better name for its strategy would be “long maturities and troubled states”. Average maturities are 27.6 years and allocations of nearly 70% of the underlying investment are in problem states of California, New York, Illinois and New Jersey.

7-ESR-iShares MSCI Emerging Markets Eastern Europe Index Fund: This should really be called a Russian ETF since 76% of the allocation goes there with the balance to Poland, Czech Republic and Hungary.

8-EPP, VPL & PAF- iShares MSCI Pacific ex-Japan, Vanguard MSCI Pacific ETF and PowerShares FTSE RAFI Asia Pacific ex-Japan: All three have the same problem: a better name would have been Asia-Pacific Fund Ex-Most Countries in Asia Pacific since they concentrate on Australia and don’t capture the geographic area in their descriptions.

9-FLTR-Market Vectors Investment Grade Floating Rate ETF: Vuk would rename this ” Investment Grade Floating Rate Financials Fund” since over 91% of the allocation is in financials. He points out: “FLTR owners are holding a big, steaming bag of bank bonds freshly scraped from the 2008 sidewalk. ….If the financial industry goes, then so does this fund.”

10-FDGFX-Fidelity Dividend Growth Fund: Technically not an ETF, Vuk included this on his list its name suggests it might be. It yields .47% dividend with an expense ratio of .93%. The low yield is no suprise since its top ten holdings included Apple, Citigroup, CVS Caremark, none of which pays any significant dividend.

If you have questions about your investment account or  if you have lost money on ETF or other investments, we may be able to help. We have been helping investors recover investment losses for over twenty years.

Nationwide representation.
Free consultation.
561 391 1900

Rex Securities Law

 

SEC Charges UBS Puerto Rico & Two Execs with Fraud

On May 1, 2012, the Securities & Exchange Commission (SEC) charged UBS Financial Services of Puerto Rico and two executives, Miguel A. Ferrer and Carlos J. Ortiz, with making misleading statements to investors, concealing a liquidity crisis, and masking its control of the secondary market for 23 proprietary closed-end mutual funds.

UBS has agreed to settle the SEC charges by paying $26.6 million that will be placed in a fund for investors.

In the spring of 2009, UBS realized their closed-end fund inventory represented a financial risk. To reduce its inventory, the sold about 75% of their holdings to investors while misrepresenting the manner in which secondary market prices were set as well as the liquidity of the market.

If you have questions about your brokerage account or if you have stock market losses you wish to discuss, please do no hesitate to contact us. We have been helping investors recover investment losses for over 20 years.

Rex Securities Law
561 391 1900

 

FINRA Hits Citigroup with $2 Million Fine for ETF Sales

On
May 1, 2012, FINRA fined Citigroup $2 million, censured the firm
and ordered restitution of $146,431 to customers for selling leveraged
and inverse exchange-traded funds (non-traditional ETFs) “without
reasonable supervision”.

The letter of acceptance waiver and consent between FINRA and Citigroup contains the following findings:

  • Citigroup consented to a fine of $500,000 in July 2011 for failure to detect or respond to a series of red flags that would have alerted them to a scheme of misappropriations by a sales representative
  • In February 2010 , they were fined $650,000 million relating to a failure to establish a system to supervise its Direct Borrowing Program
  • From January 2008
    to June 2009 the company failed to maintain a supervisory system in
    connection with the sale of non-traditional ETF’s such as leveraged, inverse and inverse-leveraged exchange traded notes
  • Certain Citigroup brokers did not have an adequate understanding of
    non-traditional ETFs before recommending these products to customers
  • Certain Citigroup brokers made unsuitable recommendations of
    non-traditional ETFs to investors with a conservative investment objective
  • During the time frame examined by FINRA Citigroup customers bought and sold over $7.9 billion of non-traditional ETFs
  • Certain
    customers with a primary objective of income held non-traditional ETFs
    for several months including a two 59
    year old  customers with conservative investment objectives who sustained losses.

If
you are a
conservative investor who has suffered losses on ETFs purchased from Citigroup
or any other brokerage firm, you may be able to recover those losses.
Please contact our
office to discuss your legal rights. Nationwide representation. Free
consultation. 561 391 1900.

www.RexSecuritiesLaw.com

ETF Sales by Morgan Stanley Lead to $1.75 Million FINRA Fine

On
May 1, 2012, FINRA fined Morgan Stanley $1.75 million, censured the firm
and ordered restitution of $604,584 to customers for selling leveraged
and inverse exchange-traded funds (non-traditional ETFs) “without
reasonable supervision”.

The letter of acceptance waiver and consent between FINRA and Morgan Stanley contains the following findings:

  • Morgan Stanley consented to a fine of $100,000 in April 2011 for supervisory issues related to the sale of unit investment trusts
  • In March 2009, they were fined $3 million and required to pay restitution of $2 million to retirees on findings relating to unsuitable investments in IRA and retirement accounts
  • In June 2007, they were fined $500,000 for inadequate supervision regarding the monitoring of guardian accounts established for minors in connection with medical malpractice settlements
  • From January 2008
    to June 2009 the company failed to maintain a supervisory system in
    connection with the sale of non-traditional ETF’s such as leveraged, inverse and inverse-leveraged exchange traded notes
  • Certain Morgan Stanley brokers did not have an adequate understanding of
    non-traditional ETFs before recommending these products to customers
  • Certain Morgan Stanley brokers made unsuitable recommendations of non-traditional ETFs to investors with a primary investment objective of income
  • During the time frame examined by FINRA Morgan Stanley customers bought and sold over $4.78 billion of non-traditional ETFs
  • Certain
    customers with a primary objective of income held non-traditional ETFs for several months including a 74
    year old  with a  net worth of less than $300,000 who was sold a single ETF representing 25% of his account value which lost $13,000 and an 89 year old customer with a primary objective of income and a net worth of under $200,000 who was allocated over 59% of the account to a single non-traditional ETF

If
you are a
conservative investor who has suffered losses on ETFs purchased from Morgan Stanley
or any other brokerage firm, you may be able to recover those losses.
Please contact our
office to discuss your legal rights. Nationwide representation. Free
consultation. 561 391 1900.

www.RexSecuritiesLaw.com

FINRA Fines UBS $1.5 Million for Sale of Exchange Traded Funds

On
May 1, 2012, FINRA fined UBS $1.5 million, censured the firm
and ordered restitution of $431,488 to customers for selling leveraged
and inverse exchange-traded funds (non-traditional ETFs) “without
reasonable supervision”.

The letter of acceptance waiver and consent between FINRA and UBS contains the following findings:

  • UBS consented to a fine of $2.5 million and restitution of $8.25 million in August 2011 for supervisory issues related to the sale of Lehman Brothers Principal Protected Notes
  • In June 2009, they were fined $100,000 relating to the sale of unsuitable short-term sales of closed end funds
  • From January 2008
    to June 2009 the company failed to maintain a supervisory system in
    connection with the sale of non-traditional ETF’s
  • Certain UBS brokers did not have an adequate understanding of
    non-traditional ETFs before recommending these products to customers
  • Certain UBS brokers made unsuitable recommendations of non-traditional ETFs to conservative investors
  • During the time frame examined by FINRA UBS customers bought and sold over $4.5 billion of non-traditional ETFs
  • Certain
    customers with conservative investment objectives and/or risk tolerance
    profiles held non-traditional ETFs for several months including a 64
    year old conservative customer with a $290,000 net worth who lost 43% of his investment in an ETF

If you are a
conservative investor who has suffered losses on ETFs purchased from UBS or any other brokerage firm, you may be able to recover those losses. Please contact our
office to discuss your legal rights. Nationwide representation. Free
consultation. 561 391 1900.

www.RexSecuritiesLaw.com

Wells Fargo Fined $2.1 Million for ETF Sales

On May 1, 2012, FINRA fined Wells Fargo $2.1 million, censured the firm and ordered restitution of $641,489 to customers for selling leveraged and inverse exchange-traded funds (non-traditional ETFs) “without reasonable supervision”.

The letter of acceptance waiver and consent between FINRA and Wells Fargo contains the following findings:

  • Wells Fargo consented to a fine of $350,000 in August 2009 for supervisory issues related to the sale of annuities
  • In May 2009, they were fined $1.4 million for supervisory issues related to delivery of offering documents
  • In February 2009, they were fined $4.41 million supervisory issues related to the abuse of breakpoints in connection with the sale of mutual funds.
  • From January 2008 to June 2009 the company failed to maintain a supervisory system in connection with the sale of non-traditional ETF’s
  • Certain Wells Fargo brokers did not have an adequate understanding of non-traditional ETFs before recommending these products to customers
  • During the time frame examined by FINRA Wells Fargo customers bought and sold over $9.9 billion of non-traditional ETFs
  • Certain customers with conservative investment objectives and/or risk tolerance profiles held non-traditional ETFs for several months including a 65 year old conservative customer with a $50,000 net worth who lost $25,000 on ETF

If you are a conservative investor who has suffered losses on ETFs purchased from Wells Fargo, you may be able to recover those losses. Please contact our office to discuss your legal rights. Nationwide representation. Free consultation. 561 391 1900.

www.RexSecuritiesLaw.com

FINRA Fines Citi, Wells Fargo, UBS & Morgan Stanley for ETF Sales

The Financial Industry Regulatory Authority (FINRA) fined Citigroup, Morgan Stanley, UBS AG and Wells Fargo $9.1 million and ordered restitution to clients of $1.8 million on May 1, 2012, for selling leveraged and inverse exchange-traded funds  (ETF’s) “without reasonable supervision” and for making sales which were unsuitable to the purchasing investor.

FINRA warned the industry in June 2009 that ETFs were difficult to understand  (Regulatory Notice 09-31) and not a good fit for long-term investors.

ETFs, which mimic indexes and are traded like stocks, use swaps or derivatives to amplify daily index returns. Inverse funds are designed to move in the opposite direction of their underlying benchmark. Since you may have had to read this paragraph twice to understand it, ETFs are not for everyone.

Here are details on the findings FINRA made on the Wells Fargo case. Click here for the details on the UBS case. Here for the details on the Morgan Stanley case.

Here for the details on the Citigroup case.

If you have suffered losses on ETFs, you may be able to recover damages through FINRA arbitration. We have been helping investors recover stock market losses for over twenty years. Nationwide representation. Free consultation. 561 391 1900

www.RexSecuritiesLaw.com

Nationwide representation of victims of stockbroker fraud and the malpractice of investment professionals.

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