A Proposal that Should Be Popped

By Paul Schott Stevens

December 15, 2016

The following ICI Viewpoints is a letter to the editor by Paul Schott Stevens, president and CEO of the Investment Company Institute, in response to an op-ed published on December 7, 2016, in the New York Times, “A Monopoly Donald Trump Can Pop.”

Millions of Americans could lose the low costs and broad diversification of fund investing under the dangerous proposal outlined in the op-ed by Posner, Weyl, and Morton.

Their work rests on untested academic theories and flawed assumptions. Asset managers do not move in lockstep or pursue identical strategies. Within a fund complex, dozens or hundreds of funds pursue specific objectives for thousands of clients.

Funds invest in companies in many different markets. Gains in one industry would not help index funds if they come at the expense of other fund holdings. Consider the op-ed’s reference to airlines: the five airline companies in the S&P 500 are only 0.64 percent of the index’s market value. Why would an S&P 500 index fund manager want an airline company to engage in behavior that hurts the remaining 99.36 percent of its portfolio that pay for airline services?

Public policy cannot be driven by academic literature neither peer-reviewed, nor tested. Millions of middle-class Americans ultimately would pay the price.

Paul Schott Stevens
President and CEO
Investment Company Institute

TOPICS: Bond Fund Equity Investing Exchange-Traded Funds Financial Markets Fund Regulation Mutual Fund Trading

US T+2 Is Coming—and Bringing Many Benefits with It

By Ahmed Elghazaly

September 6, 2016

On September 5, 2017, equities, municipal and corporate bonds, and unit investment trusts will reduce the amount of time it takes to settle trades from trade date plus three days (T+3) to trade date plus two days (T+2).

Conducting Business in a Rapidly Changing World

By Jeanne Arnold

June 1, 2016

The global operating environment is evolving and it is critical for corporations to understand the changes afoot if they are to succeed in the 21st century, said Kevin Kajiwara, co-president of Teneo Intelligence, a division of global advisory firm Teneo. Speaking on the final day at ICI’s 58th General Membership Meeting (GMM), Kajiwara gave an overview of the economic and political shifts taking place around the world during his session, “Geopolitical Risks and the Global Economy.” After the overview, he engaged in an insightful question-and-answer session with Tom Faust, chairman and CEO of Eaton Vance Corp.

All Pain and No Gain for Fund Investors

By Paul Schott Stevens

February 5, 2016

The following is a letter submitted to the editor of the New York Times. A financial transaction tax (FTT) (editorial, The Need for a Tax on Financial Trading, Jan. 28) is a terrible idea that would harm all investors, especially American workers saving for retirement. We have yet to see an FTT proposal that would not hurt Main Street nor weaken our capital markets.

Liquidity Risk Management Must Be Done Right

By Paul Schott Stevens

January 15, 2016

The following ICI Viewpoints is a lightly edited version of a letter that ICI President and CEO Paul Schott Stevens sent to U.S. Securities and Exchange Commission (SEC) Chair Mary Jo White, as part of the Institute’s overall response to the SEC’s liquidity risk management proposal.

How the SEC’s Six-Bucket Approach Could Provide a False Picture of Liquidity

By Brian Reid

January 14, 2016

As I explained in a previous post, I filed a letter on January 13 with the U.S. Securities and Exchange Commission (SEC) in response to its liquidity risk management proposal and to Liquidity and Flows of U.S. Mutual Funds, a study by the Commission’s Division of Economic and Risk Analysis (DERA). My letter was one of four components of ICI’s multipart response to the SEC proposal.

The SEC’s Liquidity Proposal: Good Goals, Unintended Consequences

By Brian Reid

January 13, 2016

On January 13, I filed a letter with the U.S. Securities and Exchange Commission (SEC), in response to the SEC’s liquidity risk management proposal and to Liquidity and Flows of U.S. Mutual Funds, a study by the SEC’s Division of Economic and Risk Analysis (DERA). My letter was one of four components of ICI’s multipart response to the SEC proposal.

High-Yield Bond Mutual Fund Flows: An Update

By Sean Collins

December 23, 2015

In an ICI Viewpoints on December 16, we debuted new weekly data on flows to high-yield bond mutual funds, presenting data through December 9. In light of continuing developments in the high-yield market, we have had requests to provide an update this week, taking into account the flows through December 16. Here is our overview.

High-Yield Bond ETFs: A Source of Liquidity

By Shelly Antoniewicz

December 22, 2015

The high-yield bond market has been buffeted recently, as market participants reassessed the risks of this sector and sent prices for many such bonds tumbling.

High-Yield Bond Mutual Fund Flows: Some Perspective

By Sean Collins

December 16, 2015

Recent conditions in the high-yield credit markets have raised questions about the impact of market turmoil on mutual funds investing in that segment of the bond market.

Mutual Fund Investments in Private Placements: an Overview

By Gregory M. Smith

November 23, 2015

Given recent media interest in mutual fund investments in private placements, it might be helpful to review mutual fund disclosure and valuation obligations. How do funds handle securities that are not publicly traded?

Opinion: The Tax Threat to Your Mutual Fund

By Mike McNamee

May 7, 2015

Vanguard Chairman and CEO Bill McNabb sent “an open letter to all mutual fund investors” in the opinion pages of Thursday’s Wall Street Journal. His message: fund investors face a clear threat of higher costs, weaker returns, and a bailout tax to salvage other failing financial institutions—all if regulators get their way in imposing new rules on funds or their managers.

2015 Investment Company Fact Book: Letter from the Chief Economist

By Brian Reid

May 4, 2015

A version of this letter by ICI Chief Economist Brian Reid was released today in our 55th edition of the Investment Company Fact Book.

This year marks the 75th anniversary of the Investment Company Act and the Investment Advisers Act—the key statutes under which mutual funds, exchange-traded funds (ETFs), closed-end funds, and unit investment trusts are regulated and governed. In 1940—the same year that Congress enacted these laws—the fund industry formed the National Committee of Investment Companies, the trade group that became the Investment Company Institute (ICI).

ICI Global Welcomes the Announcement of More Stock Connects in Asia Pacific

By Qiumei Yang

April 22, 2015

In response to the announcement about a launch date for the Taiwan Stock Exchange and Singapore Exchange trading link, and recent reports of a possible Shenzhen–Hong Kong Stock Connect, ICI Global’s Qiumei Yang offers the following comment:

More Unfounded Speculation on Bond ETFs and Financial Stability

By Shelly Antoniewicz and Mike McNamee

April 13, 2015

A recent column in the Financial Times warns of “another accident in waiting” in the growth of fixed-income exchange-traded funds (ETFs)—described as “financial alchemy” that converts illiquid bonds into “baskets” that “trade moment to moment on the stock exchanges.” This “illusory” ETF liquidity will disappear, the author warns, when investors “want to move en masse, and quickly, when the going gets less good.”

Once Again, Information Moves Markets

By Sean Collins

March 18, 2015

Treasury yields fell sharply today and the stock market jumped. Wouldn’t it be nice if mutual funds could take credit? Unfortunately, they can’t. Any orders that mutual fund investors place to buy or sell shares anytime today before 4:00 p.m. won’t hit the market until 4:00 p.m., just like any other day. And, if you are reading this blog post at the time of its posting, 4:00 p.m. is still 10 minutes away.

Does Liquidity in ETFs Depend Solely on Authorized Participants?

By Shelly Antoniewicz and Jane Heinrichs

March 16, 2015

ICI recently conducted a survey of its members that sponsor exchange-traded funds (ETFs) to collect information on authorized participants (APs)—typically market makers or large institutional investors with an ETF trading desk that have entered into a legal contract with an ETF to create and redeem shares of the fund.

Plenty of Players Provide Liquidity for ETFs

By Shelly Antoniewicz

December 2, 2014

A recent article in the Financial Times’ FT Alphaville blog (“Lies, Damned Lies, and Liquidity Expectations”) focused on a paper published by the Committee on the Global Financial System, an organization that monitors developments in global financial markets for central bank governors.

Bloomberg Ignores the Evidence on Bond ETFs

By Mike McNamee

September 26, 2014

In response to “Pimco ETF Probe Spotlighting $270 Billion Market Vexing FSB,” we posted the following comment on Bloomberg News’ website:

A Look Inside ETFs and ETF Trading

By Rochelle Antoniewicz and Jane Heinrichs

September 23, 2014

Investors in exchange-traded funds (ETFs) are trading shares with each other far more than they are turning to authorized participants to create or redeem shares.

The Real Lessons to Be Learned from 1994’s Bond Market

By Brian Reid

July 29, 2014

A recent “Heard on the Street” column in the Wall Street Journal (“Heeding 1994's Bond-Market Lesson,” July 27, 2014) is correct in saying that there’s a lesson to be learned from the 1994 bond market—but it draws the wrong lesson.

SEC Chair White Stresses Need for FSOC to Consult Sources for Necessary Expertise

By Rachel McTague

May 22, 2014

Securities and Exchange Commission (SEC) Chair Mary Jo White today called for the U.S. Financial Stability Oversight Council (FSOC) to use outside expertise to the degree necessary in its process of designating systemically important financial institutions (SIFIs). She asserted that it is “enormously important for FSOC, before it makes any decision of any kind, to make sure it has the necessary expertise on any of those issues.”

“Market Tantrums” and Mutual Funds: A Second Look

By Sean Collins and Chris Plantier

May 19, 2014

Over the past year, policymakers who are focused on financial stability have pursued a theory that mutual fund investors can destabilize financial markets by redeeming from funds when markets decline. According to this theory, redemptions by fund investors lead fund managers to sell securities; those sales drive asset prices down further and, in turn, spur more investor flight, redemptions, and price declines.

ETFs Don’t Move the Market—Information Does

By Shelly Antoniewicz

March 11, 2014

There they go again.