Linda Zhang of Purview Investments has published a comprehensive empirical research paper on the Journal of Index Investing, summer, 2018. She studied the the risk behavior of leveraged ETFs listed in the U.S. and around the world. She found that during many short holding periods, a leveraged ETF can have much higher volatility than suggested by its leverage multiple. The surprise in volatility jumps tends to be bigger for higher leveraged products, and for ETFs tracking more volatile indices. The issue is more pronounced in some overseas markets. The author argues that it is critical to educate investors for proper usage of leveraged products, especially those who might have not anticipated the unpleasant surprises in volatility spikes from time to time. See the full presentation slides here.
Purview Investment’s Linda Zhang was featured on the Alpha Female series by Asset TV. In this video interview, she shared her views with host Laura Keller, on how to meaningfully change the severe women under representation at key functions from portfolio managers to CEOs. She also discussed how Women in ETFs has become a positive force for changes.
Women in ETFs put out a press release about the launch of WE Speaker's Bureau recently. Linda Zhang, Purview Investment's founder and CEO, co-founder of WE, gave an interview to Mutual Fund Fire about WE Speaker's Bureau. Linda co-heads this task force with Elisabeth Kashner of Factset. Linda spoke about how this important initiative could help bridge the gender gap on finance industry conference panels and in financial media. Please contact Linda and Elisabeth for more details of this well curated list of exceptional women speakers in all aspects of the ETF ecosystem.
"An ETF veteran explains how she is trying to close the gender gap in asset management", published on Business Insider by Kiki O'Keeffe, Makovsky & Company, August 2, 2018.
Click the title for the link to the full interview. Here are a few highlights.
On challenges facing women, especially young women:
The root gender issue our industry faces is that women are often not being heard by colleagues and leadership in the industry. It's even worse for young women. Women's interest, drive and talent are all there. Unfortunately, we're still facing a culture that neither pays nor promotes women at the rates on par with men.
On taking actions to address the gender gap:
We are currently launching the WE (Women in ETFs) Speaker's Bureau aimed at addressing the conference panel gender gap. Thus far, we've received strong support from Inside ETFs, Morningstar and IMN. Our goal is to raise the number of women panelists to 25 percent in the next 18 months from its current levels in the mid-teens.
On niche ETF products:
The success of any niche product will depend on its sound long-term investment thesis, not a fad. Investor education is the key: they need to know how to fit these products into an otherwise bland portfolio and how to avoid misusing them.
On ESG investing:
We think it's time to expand modern finance theory. For too long, investors have considered only two dimensions of investment, return and risk. It's time to add the positive ESG impact as the third pillar of modern finance - return, risk and impact.
On industry trend:
I think that mutual fund firms have a precious opportunity to become some of the best active ETF providers, because they already have some of the best investment talent. They just need to be comfortable with the fact that ETFs are the product structure of the future.
Currently, many investors have the thought that Environment Social and Governance (ESG) principles are just another type of potential alpha generation factors. Others think they can be used as company risk indicators. Purview's Dr. Zhang argues that ESG principles can and should serve more than that - they could transform modern finance theory and practice that haven't changed much since 1950s. Here is how...
The view, that ESG is just another alpha generation tool, is not complete. ESG investing brings multiple benefits, beyond financial returns. Purview sees positive impact from ESG investing as the third dimension of modern finance – Return, Risk and Impact. Together, they lift and expand the traditional 2D efficient frontier line (return/risk) to a new 3D efficient surface (return/risk/impact). Investors have choices to choose a portfolio on the efficient surface that best combines the dual investment objectives of return and impact, subject to the risk tolerance.
The recent announcement by Vanguard' entry into ESG ETFs launches might raise the competition in the small yet fast rising part of the ETF product category, ESG ETFs. It might also help accelerate the process where ESG becomes part of the mainstream investing.
Quotes from the article:
The ESG category within ETFs is ripe for competition, says Linda Zhang, CEO and founder of Purview Investments, a New York City-based independent asset manager and RIA that holds many ESG-principled ETFs in its investment portfolios. She notes that iShares has about 60 percent of the market share, with SPDRs and NuShares a distant second and third, respectively, while Goldman Sachs' entry last week into the ESG ETF derby with the JUST U.S. Large Cap Equity ETF (JUST)—which already has nearly $250 million in assets—puts them in fourth place.
"Vanguard’s entry with its signature low-cost products will probably challenge the dominance of iShares in the ESG space very soon," Zhang says.
Purview's Linda Zhang has conducted a comprehensive empirical study on the short-term risk behavior of leveraged ETF products. She extended her research beyond the U.S. markets to countries where leveraged ETFs are listed. She has found overwhelming global evidence suggesting that the near-term volatility of leverage ETFs can be much higher than those suggested by the leverage multiples. This original research piece contributes in both depth and scope to better understanding of a branch of ETFs that are often less understood and potentially mis-used by investors. The full article is available at the Journal of Index Investing website for subscriptions.
Leveraged and inverse ETFs represent one of fast growing areas in the ETF industry, with the global AUM breaking $60 billion. The regulatory bodies in many countries are approving the listing of these products. The recent financial market turmoil in February 2018 has exposed the risk behavior of these ETFs in the time of market stress, which are often misunderstood by investors and can catch them by surprise. In this study, we analyze leveraged ETFs risk profiles in both short-term and long-term periods. As leveraged ETFs and inverse ETFs are often used for short-term trading purposes, understanding the nature of short-term volatility is highly critical. We also survey the landscape of the major markets with listed leveraged ETFs outside the U.S., including Asia Pacific and Canada. We examined the volatility behavior of leveraged products in these markets and came to the same conclusion. The near-term volatility jumps more than what the leverage ratio suggested. We’ve also noticed the degree of jumps vary from market to market. Globally, leveraged and inverse ETFs are growing at a healthy pace, led by a faster growth in Asia in 2016. After Japan, South Korea, and Taiwan, Hong Kong became the latest market, allowing both inverse and leveraged products on Hong Kong and China stock indexes. It is in the great interest of global investors to fully understand the nature of these instruments to use them effectively in portfolio management.
In her article published on ETF Advisor, Dr. Zhang, CEO and the founder of Purview Investments laid out various reasons why ALL investors, ESG focused or not, should understand the implications of key ESG principles and their trends.
In particular, the global regulatory pushes to green transportation to reduce reliance on fossil fuels, and the technology breakthrough that enables such movements, have great implications on the auto industry and commodity industry. Such trends are affecting these firms business models and the way analysts research these companies. These trends also challenge the traditional roles commodity plays in an investor's portfolio, as managed by advisors and institutional asset managers.
Dr. Zhang also pointed out the trend of rising transparency of corporate gender gap in pay and managements, and why the gap measurements should be part of investment framework for company analysis.
"Many national and city governments have begun to propose timetables to ban the sales of fossil-fuel-burning cars in their territories (see the table). Norway and the Netherlands lead the pack, with plans to ban the sale of such cars starting in 2025."
"...the challenge to the auto industry is to manage a timely transition to electric vehicles or to face business survival risk."
"ESG reporting has encouraged companies to be more transparent about the gender gap in their workforces, pay scales and management structures. CEOs and their management teams at every level need to be held accountable for making conscious and measurable improvements in closing the gender gap in management and in pay, adjusted or unadjusted, so they can reap all the benefits of having a balanced workplace."
"Many leading asset managers are also leaders in the ESG ETF space, including BlackRock, State Street, Nuveen, Global X and Oppenheimer. These ETFs typically remove harmful investments and champion those making positive impact on the environment and society."
Lara Crigger at ETF.com has featured five investment advisors from various regions in the country, including Purview's Linda Zhang. They shared with Crigger the major concerns and the outlooks on the economy, policy and capital markets. Linda shared her concerns for a potential trade war turning into a capital market war. She also highlighted a possibly underestimated risk of poor policy coordination among major central banks, due to the fact that two of the top four central bank governors are new this year - the Fed and PBOC.
One of the tech giants, Facebook just lost over 20% of its market valuation since its recent peak on 2/1/2018. Please read this analysis by Linda Zhang, CEO of Purview Investments, addressing the role of corporate governance in investment process framework. Find out which ETFs, ESG inclined or not, have the most exposure to Facebook stock fluctuations.
Disclosure: This paper is a research piece. It does NOT represent the investment advice from the author about Facebook, nor the ETFs mentioned in the article.