Who Manages ETFs?
Several large and well-known investment banks and companies are major players in the ETF industry. There are several large investment houses which specialize in managing ETFs such as Barclays, ProShares, Vanguard, and Guggenheim Partners, LLC. ETFs are also managed by investment firms such as Schwab, Credit Suisse, and Eaton Vance. Even New York Life’s Mainstay Investments recently acquired Index IQ. The ETF industry has been growing rapidly in the last 10 years, with more investors choosing to use them, more ETFs on the market, and more investment companies choosing to offer them. Continue reading...
What are the Withdrawal Rules for My Money Purchase or Profit Sharing Plan?
The standard withdrawal rules for 401(k) accounts apply to these plans. Once you are age 59½, you may begin to make penalty-free withdrawals and only pay income taxes on the amount you withdraw. If you decide to take out money before age 59½, you will have to pay a 10% penalty fee in addition to income taxes on the amount of your withdrawal. Of course, there are exceptions that would allow you to avoid this early withdrawal fee. Continue reading...
What is the Hang Seng Index?
The Hang Seng Index (HSI) is comprised of the 50 biggest stocks traded on the Hong Kong Stock Exchange. The Hong Kong stock market is much different than that of China, in that foreign investors are allowed access and the index is calculated on a free floating cap-weighted basis. It tracks the 50 biggest companies on the Hong Kong Stock Exchange, and is a better barometer for measuring overall performance of companies from the region. Continue reading...
What is the security market line?
The Security Market Line (SML) is a visualization of the Capital Asset Pricing Model (CAPM) and shows the theoretical relationship between risk and return between securities and the entire market. The SML is plotted on a graph bound by an x-axis, which represents Beta (volatility above or below the market average), and a y-axis, which represents the rate of return. Beta is a volatility indicator that measures how many changes in price, and by how much, a security experiences over an amount of time. It describes whether the risk associated with a particular security is above or below the average of the market (or a more specific index), where 1 is a correlation with the market, and numbers above or below describe increased or decreased volatility, respectively. Continue reading...
What is Unlevered Beta?
Unlevered beta measures the Beta (a volatility indicator that denotes how closely an investment follows movements in the market as a whole) of a company when the effects of debt (leverage) are removed, allowing investors to gauge risk strictly as a function of company assets. The beta of a company’s equity stock is a measure of volatility relative to the rest of the market, impacting Price-to-Earnings (P/E) calculations and other valuations. When beta increases, the cost of equity increases, and results in a higher P/E. Unlevering the beta can give a clearer picture of the market risk of a company’s equity shares, as higher debt relative to equity usually constitutes more risk to investors. Continue reading...
What is the CME?
The Chicago Mercantile Exchange, now known as the CME group, is the largest derivatives exchange in the world, and one of the oldest. It has historically served as a major international exchange for commodities futures and options on those futures, along with the Chicago Board of Trade and the New York Mercantile Exchange, which are now part of the CME Group. The CME Group is now comprised of what used to be several futures exchanges: CME, the CBOT, and the NYMEX. Historically these markets traded in traditional commodities and their futures, and Chicago was the most likely location for such an exchange, being at the hub of the Midwest. Continue reading...
What is a foreign fund?
A foreign fund is a mutual fund that invests solely in companies abroad and does not invest in corporations owned in the US. Owning foreign companies can be a very good diversification strategy and is considered a core holding in the portfolio of most investors. Foreign exposure means that if the US economy hits a rough patch, you may have a hedge in the foreign fund if the companies or markets in other parts of the world are not entirely correlated. Continue reading...
What are forward contracts?
Forward contracts are agreements to exchange specific assets on a specific date, at a price determined at the outset. Forward contracts are similar to futures contracts, but they are over-the-counter private contracts drafted for specific purposes, quantities, and dates that satisfy the specific needs of the counter-parties. These contracts are mostly entered into by institutional investors seeking a hedge against risks such as interest rates and exchange rates. Continue reading...
What is a Stop Limit Order?
A Stop-Limit Order basically automates the preferences of an investor or trader, to reduce exposure to price uncertainty even after a trade ticket is entered, by stipulating a price at which the search for a bid/ask price is to begin, but limiting the range of prices at which an order can actually be entered or executed. A Stop-Limit Order has two parts: the Stop Price and the Limit Price. The stop price is like an amendment or contract rider on a security that is held which stipulates that if the price of the security crosses the Stop price, the search for an agreeable price begins. Continue reading...
What is short selling?
If you expect that a security will depreciate, you can sell it on the market without owning it, and, if your expectations prove to be right, you can buy it for less before “covering” your position – keeping the difference in profit. Short selling is done with the help of a brokerage/custodian, who will lend you the security so that you can sell it, and they will charge interest on the loaned amount until you actually purchase the security to “cover” your loan. Continue reading...