Wonder What Worst Performing ETFs for 2011 Were?

It has been a big week for revelations in the world of exchange traded funds (ETFs) . The SEC hit Citigroup, Morgan Stanley , UBS  and Wells Fargo with penalties over over $9 million and the State of Massachusetts slammed RBC Capital Markets with $3 million in fines and restitution. Regulators are concerned that ETFs are being sold by brokers who don’t understand what they are selling to retail investors who don’t understand what they are buying.

The ETF Database maintains a free internet database that provides a wealth of information of exchange traded funds.  At the end of 2011, they published an article profiling the ten worst performing ETFs of 2011.

They are:

  • SEA- Guggenheim Shipping ETF, down 46%
  • CVOL-C-Tracks ETN Citi Volatility Index Total Return, down 48%
  • EGPT-Market Vectors Egypt Index ETF, down 48%
  • GAZ-UBS Natural Gas Total Return ETN, down 49%
  • PLTM-ISE Global Platinum Index Fund, down 49%
  • PBW-WilderHill Clean Energy Portfolio, down 52%
  • SCIF-India Small Cap ETF, down 53%
  • GRN-iPath Global Carbon ETN, down 56%
  • URA-Global X Uranium ETF, down 60%
  • KWT-Market Vectors Solar Energy ETF, down 67%

If you have losses on any of these exchange traded funds or notes or any other  ETF or ETN, you may be able to recover your losses. We have been helping investors recover stock market losses due to negligence or fraud for more than 20 years.

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561 391 1900

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RBC Capital Markets Agrees to Pay $2.9 Million on ETF Losses

RBC Capital Markets, the brokerage unit of Royal Bank of Canada (RBC) agreed to pay investors $2.9 million to cover losses on leveraged and inverse leveraged exchange traded funds to settle an action brought by Massachusetts securities regulators who found that highly volatile, nontraditional funds did not fit with some clients’ investment objectives. In addition, the firm was fined $250,000.

“This settlement details an inexcusable set of facts where the company
was selling products it did not understand, and when it finally realized
the risk and pitfalls of these investments it did not immediately
restrict their marketing,”
Mr. Galvin, a Massachusetts regulator,   said.

A related action against agent Michael Zukowski, who left RBC in November 2010 has not been resolved.

Leveraged and inverse ETFs ampligy short-term market movements daily using sophisticated securities known as derivatives and are not generally suitable for anyone except professional traders with a high risk profile.

We have warned about these investments in the past, here and here, as has the SEC.

If you have suffered losses on exchange traded funds, ETFs, you may be able to recover those losses. We have been helping investors recover stock market losses for over twenty years.

Nationwide representation.
Free consultation.
561 391 1900

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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

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.

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.


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