Meyado's Christmas Event in Singapore

Thanks to attendees of the Meyado 2012 Christmas Ice Skating event at Kallang on Sunday.  This is the third time we've run this event and it was the best by far!

 

    The Meyado team in Singapore
Ice Skating in Singapore may not seem the obvious past time activity which is why we always like to host this event. 

Additional thanks to all those who contributed to the Childrens Society of Singapore raffle and congratulations to the winner who gets a lovely Marks and Spencer hamper for Christmas.


Mark Paine
Managing Director
Meyado Singapore
www.meyado.com.sg

Financial Adviser Jobs in Singapore

We currently have one remaining vaccancy for a financial adviser in Singapore.

Ideally candidates require a degree in order to secure an Employment Pass from the Singapore government, as well as three years regulated experience of providing financial advice.

Candidates will be required to have, or be exempt from passing the CMFAS exams M5, 8, 9, 8a and 9a.

Apply in writing via our website www.meyado.com.sg

Mark Paine
Meyado Singapore

Exchange Traded Notes

The exchange-traded notes (ETNs) market in the US and Europe is becoming more complementary and bespoke, while the enhanced exposure ETNs can provide is taking market access to the next stage. Sarah Nowakowska reports

They are known for their low cost, ease of access and portfolio diversification potential, and since their first inception in the US in 2006, exchange-traded notes (ETNs) have become an integral part of the exchange-traded products (ETP) platform both in Europe and the US. Exchange-traded products have seen strong developments and growth in the past two years, but the most popular and fast-expanding remain exchange-traded funds (ETFs), which dominate in terms of assets and number of products listed. According to the US National Stock Exchange, assets in US-listed ETFs and exchange-traded notes totalled approximately $1.064 trillion as of August, an increase of more than 31% compared with August 2010, when assets hovered around $815 billion - a number led by ETFs, with ETNs representing a small percentage of the total.

"Most exchange-traded products are physical or swap-based ETFs, which make up around 90% of the market," says Axel Lomholt, head of ETF products, iShares for Europe, the Middle East and Africa (EMEA). "The remainder of it is made up of ETNs and exchange-traded commodities. There is scope for growth in the ETN market, but the question is how much it is going to grow. This market will grow and get better, but not to a level some people believe."

While the fast growth initially predicted for ETNs failed to materialise - partly due to their status as unsecured debt securities putting the spotlight on the credit risk they involve - the opportunity they offer investors to gain exposure to otherwise hard-to-access asset classes is giving them a more strategic role in investment portfolios. They can also offer the same attributes - such as transparency of fees, liquidity and being listed - that characterise ETFs, but minus the tracking error that can be an issue with physically backed ETFs. Although ETNs are unlikely to be regarded as a contender to the remarkable growth of ETFs, they are finding a place as a flexible investment vehicle that can incorporate customised strategies to enhance the type of exposure sought, which could help build a global presence that includes Asia.

Taking the bespoke route

One of the more noticeable market access stories has been that of accessing volatility, which has become increasingly popular in recent weeks as equity markets took a tumble. Exchange-traded notes are one of few existing vehicles to enable exposure to volatility to either hedge positions or take advantage of strong market movements. "The concept of volatility in terms of controlling and managing it is a key theme this year. There is good demand for products that either give direct access to volatility or have volatility controls that give access to a market but maintain your volatility at a constant level," says Michael Clarke, managing director, structured products at Credit Suisse in New York.

Investing in volatility involves rolling futures in volatility, but one of the issues that arose was the cost of carry that makes volatility futures prone to the same negative roll cost commodities futures experience in a contango situation. While ETNs can represent an effective way of accessing volatility and enable a more broad-based set of investors to access it, the challenge has been to try and mitigate the cost of carry

that can result from holding a product for too long, particularly short-term volatility products designed to be more of a trading product than a long-only one.

"ETNs target a wide investor base that was not familiar with these types of products before, and give them some kind of market access to this type of asset class," says Arnaud Jobert, part of the equity derivatives structuring team for EMEA at JP Morgan in London. "However, it can be risky to hold a simple, outright long exposure through an ETN because your gains can be wiped out suddenly."

Although ETNs are a good market access story, says Jobert, ETNs alone are often meant to be more of a pure market access product that requires active trading. "Institutional investors tend to prefer a more bespoke approach through a broader set of strategies, where they can dynamically allocate their holdings to a wider range of exposures depending on whether the focus is on an outright long volatility profile, such as a tail hedge type of product, or a more cost-efficient carry trade," he says.

Addressing the issue of carry cost, Barclays Capital recently expanded its suite of volatility-linked exchanged-traded products with the listing of the iPath S&P 500 Dynamic Vix ETN on the New York Stock Exchange (NYSE). The aim was to offer a product investors could hold that would require less active management to access equity market volatility as a means to hedge their portfolio. The product incorporates a strategy that dynamically allocates between the S&P 500 Vix Short-Term Futures Index Excess Return and the S&P 500 Vix Mid-Term Futures Index, and is designed to be more efficient than the bank's iPath S&P 500 Vix Mid-Term Futures ETN (VXZ) by incorporating some allocation into the iPath S&P 500 Vix Short-Term Futures ETN (VXX).

"Our VXX short-term volatility product is more of a trading/institutional product and not a long-only investor product," says Ian Merrill, director for investor solutions at Barclays Capital in New York. "VXX has the most roll cost, so if you were to hold onto that for longer than a week or two you could see material deterioration. The dynamic volatility product minimises [the roll cost] even further because it allocates short- versus mid-term to mitigate it."

Other banks have also developed strategies that aim to capture volatility more efficiently through ETNs. Credit Suisse's strategy has been to look at hedge fund-linked strategies that replicate hedge fund returns and volatility strategies, for which an ETN wrapper lends itself well because there is no tracking error, and it makes it more tax-efficient than a fund for US individuals, says Clarke.

The bank has raised $500 million-$600 million in assets under management (AUM) since the launch of its six volatility ETNs in November last year. During the peak of the crisis that battered equity markets in August, its inverse Vix short-term ETN peaked at more than 31 million shares traded on August 9, with volumes regularly exceeding 10 million shares traded over August.

However, the credit risk component attached to ETNs as unsecured debt securities, which in effect makes them as secure as the institution that issues them, still affects the scope for development of the ETN market. This prompted UBS to focus on a more bespoke approach aimed at investors such as traders rather than longer-term buy-and-hold investors. "We focus on launching products that, for whatever reason, are less attractive as an ETF," says Christopher Yeagley, head of US structured equity products at UBS in New York. "The ETN market in the US has grown tremendously. In 2008, it was just under $4 billion in assets under management; today it's closer to $16 billion AUM."

Another focus for the bank has been to build a complementary business rather than a competitive one against ETFs. In September, UBS launched 12 new volatility ETNs consisting of six long and six short products for investors who want to be precise as to where they want to pick their volatility exposure, says Yeagley. "ETNs are usually the better mouse trap when it comes to getting managed limited partnership company exposure (MLP). One of the drivers for MLP ETNs' popularity is that they can have tremendous yield, but in a fund or ETF it's very negative from a tax perspective," he says.

Seeking to minimise the credit risk ETNs entail, BNP Paribas started to offer fully collateralised ETNs. The aim is to offer investors "the best of both worlds", says Bertrand Delarue, head of institutional product engineering at BNP Paribas in Paris, where the ETF can offer the liquidity and transparency and the ETN a greater product selection. "Collateral is key, but even more so for some ETNs such as volatility-indexed ETNs, which are supposed to provide some protection to investors in cases of market crashes, such as in situations when the issuer is under stress," he adds.

The first ETN launched by the bank is linked to the Eurostoxx 50 volatility controlled index and is collateralised using liquid assets as collateral such as G-7 bonds and eurobonds. The aim is to have the ability to offer exchange-traded, liquid and listed investment vehicles that can be launched quickly in a cost-efficient way and meet market expectations in terms of the volatility of exposures sought, says Jean-Eric Pacini, global head of structuring for equity derivatives at BNP Paribas in London.

Beyond volatility, ETNs can be used to access a particular underlying that could not be accessed easily by other products, while retaining the exchange-traded features attractive to investors. The flexibility an ETN provides means it can also allow banks to offer innovative investment strategies within the grasp of investors who have constraints, adds Delarue, such as only being able to trade listed products or products easy to account for, as well as value and sell. "The scope for the underlying product is much wider, and anything that is relatively liquid can be structured as an ETN," says Delarue. "It's a good way for banks to sell products in a convenient wrapper for clients. Just as ETFs were launched some time ago and found their place in investors' portfolios without displacing active managers, ETNs will probably do the same... The ETN market is likely to grow and be to the structured products market what the ETF market has been to the asset management industry."

Exchange-traded note wrappers are also popular to access those commodities that are less efficient or hard to access through an ETF, while leaving room for more bespoke strategies to be incorporated to enhance the type of exposure investors seek. Royal Bank of Scotland (RBS) recently added a fourth ETN to its suite of RBS Trendpilot ETNs. Linked to oil and listed on the NYSE Arca platform in the US, the ETN is designed for investors such as financial advisers who seek a trend-following strategy that can mitigate the volatility of investing in oil. As such, the tactical strategy on which the product is based aims to allow long-term exposure in bull markets and the ability to be pulled out in bear markets to mitigate risks.

In Europe, where a listed certificates market was already in existence before the first ETN was listed in 2009, ETNs have become a very scalable business, says Patrick Grob, head of structured derivatives sales, EMEA at UBS in London. The bank's turnover has also grown from 8% in August 2010 to 10% in August 2011. "Markets are now much more difficult to navigate and require flexibility, which is something ETNs can provide by bringing access to a variety of asset exposures that couldn't be accessed previously," says Grob. "In the case of emerging and frontier markets, for instance, not all countries are readily investable. ETNs can give access to such markets in one convenient transaction."

The Japan milestone

There has been little in terms of development in Asia so far beyond the first cross-listing of a commodity ETN in Singapore by Barclays Capital in 2009. This, however, may be set to change, as the bank recently listed a total of 10 ETNs on the Tokyo stock exchange in Japan through its iPath platform. The first nine ETNs, giving access to commodities and volatility, were listed in two phases in the form of Japan depositary receipts (JDRs), a structure needed for an ETN listing in Japan that works like beneficiary certificates issued by trust banks in exchange for foreign ETNs as trust assets, and which are treated as securities. "The launch of the first ETNs in Japan was a long process because there was a need to create the JDR/ETN platform," says Merrill. "What was interesting about it was that our European iPath ETNs were essentially wrapped in the Japanese JDR, which can improve the liquidity of the European products themselves while at the same time accessing the Japanese market, so this represented a great opportunity."

The S&P 500 Vix Short-Term Futures JDR was the tenth ETN the bank listed in September, giving exposure to volatility, and aimed at individual investors who actively trade as well as hedgers who tend to have long portfolios in equities and seek to hedge according to market circumstances. "This is a completely new product to Japanese investors, and judging from the current market circumstances, listing a volatility product is very timely," says Yasuhiro Ishibashi, head of the investor solutions sales division for Japan at Barclays Capital in Tokyo. "We're already seeing interest from non-Japan Asian clients, as there is no volatility iPath ETN outside Japan in Asia."

The bank is working towards issuing more ETNs in Japan, including the possibility of listing FX and interest rates-linked ETNs, while leveraged products could also be added if a deregulation takes place in the future, says Ishibashi, as regulations for now do not allow such products to be listed on the Japanese market.

The ETN's scope for growth in other regions of Asia is less clear, however, partly because it is a relative newcomer and the exchange-traded market itself is not yet as mature as in the US or Europe. "It's possible that as ETFs develop, ETNs could follow behind, making it easier for ETN providers to introduce the products," says Marco Montanari, director, head of db X-trackers ETFs and db-X funds at Deutsche Bank in Hong Kong. "As a first step, you need to have products, and right now there is only one ETN listed in Singapore."

Another issue affecting the market growth potential of ETNs has to do with counterparty risk, and the fact ETNs have a 100% counterparty risk is a concern for regulators, adds Montanari. Competition from existing alternative products that track an index, such as equity-linked products, could also dampen developments in Asia. "If they can provide a specific, niche access to a market, then [it would help]," says Singapore-based investment adviser Jean-Philippe Lionnet at Meyado Private Wealth Management. "The credit risk is an issue for investors. Right now, there aren't enough ETFs and the lack of creation of a liquid market makes it hard for ETNs."

Although ETNs could be collateralised as a way of reducing counterparty risk, the issue that would arise is that of losing the product's attractive low-cost feature. "If you collateralise an ETN, it could be that the price becomes similar to an ETF, and although it becomes a product with a reduced level of risk, there would be a collateral to pay, so you would get more protection but at a higher cost," says Montanari. "If the choice is between a collateralised ETN and a Ucits-compliant ETF, we choose the latter because it is more recognised in the region and it sells."

Barclays has been working towards raising product awareness in Asia as well as other parts of the globe, where ETNs are still mostly absent from markets, by cross-listing ETNs as a first step, although one of the main issues for the bank is to reassure regulators about unsecured debt. "Credit risk is something certain investors have an appetite for, and an uncollateralised product is not necessarily a bad thing if you're getting access without tracking error," says Merrill.

The bank is also looking at ways to access the Latin American market, where certain regulatory regimes needed for ETN listing have not yet been approved. The existence of an investor demand for such products is however in the product's favour, says Merrill. "With each successful launch in other countries, regulators will see the usefulness of these products for certain investors and they will take a closer look at the structures," he says. "What drives a lot of that is institutional investors around the world, who cite the tracking error that can occur with ETFs, so if the ETN gives you closer access to an index's return that's harder to reach, like volatility, they'd like to take a closer look. ETFs are a much bigger market and always will be, [but] there is room for all of them, and it depends on what asset class and the type of investor."

Meyado participate in the Run for Hope

On Sunday the Meyado Singapore team participated in the annual Run for Hope.

10,000 participated in the 20th annual run to raise funds and awareness for cancer research.

Meyado has a tradition of participating in such events locally.

Mark Paine
Meyado
Singapore

Meyado Run for Hope

On Sunday 18th November 2012, the Meyado Singapore team will participate in the Run for Hope 10k event.  Full details of the event are here.  Last year the team entered the Standard Chartered marathon in Singapore.  "It's a great opportunity to have some inter team competitiveness played out in a positive and healthy way", says Mark Paine, Managing Director. "I'm a big fan of any events like this which gets us office dwellers off our chairs and exercising", he went on to say.

"Cancer is very much on my mind these days", Paine explains, "I recently lost someone close to me with cancer, and another is battling with it".

Run for Hope raises funds and awareness for Cancer Research and is in its 20th year.

Mark Paine
Meyado
Singapore

International Adviser Article on Meyado

http://www.meyado.com.sg/images/pdf/international%20adviser%20article%20nov%202012.pdf

Get your swager on

No I haven't spelled swager incorrectly - well at least not as the new acronym that is doing the rounds of Wall Street of late.

Swager stands for Silver, Wine, Art, Gold, Energy and Real Estate - these being real assets widely touted as the undiscovered appreciating assets of the future in the US.

We have experienced growth in these physical products for years in Asia.  Just try and buy a bottle of Petrus in Singapore and you'll know what I mean.  The knock on effect of demand of this nature has propped up many a vinyard in France over the past half decade.

Domestic inflation in the US however would mean the increase in prices of precious metals, quality vintage wines, as well as high end spirits (think whiskey), energy prices, both fossil and renewable and that most influential of assets - property.

We are definitely at the early stage of this group of assets being an asstute investment as it could be argued there are deflationary rather than inflationary pressures in the US.  However, the early bird catches the worm and these could be assets your pension fund is crying out for.

Please consult your adviser before making any decisions.

Mark Paine
Singapore
Meyado