Tag Archives: investing

“Green” investment funds spring back

An array of solar panels are seen in Oakland, California, U.S. on December 4, 2016. REUTERS/Lucy Nicholson/File Photo

By Ross Kerber
May, 2017

BOSTON (Reuters) – After U.S. President Donald Trump’s election last November, investors pulled nearly $68 million (53 million pounds) from so-called “green” mutual funds, reflecting fear that his pro-coal agenda would hurt renewable energy firms.

But now investors are pouring money back in, boosting net deposits in 22 green funds to nearly $83 million in the first four months of 2017, according to data from Thomson Reuters’ Lipper unit.

Investors’ renewed faith in the funds reflects a growing belief the president will not succeed in reviving the coal industry and will not target the government subsidies that underpin renewable power, which have bipartisan support.

It also sends a positive sign for the wind, solar and energy efficiency firms and make up a large portion of the green-fund portfolios.

The coal industry faces problems in the marketplace that are too big for any government to solve, said Murray Rosenblith, a portfolio manager for the $209 million New Alternatives Fund, among the U.S. green funds seeing investor inflows.

“Trump can’t bring back coal,” he said. “There’s nothing that can bring it back.”

A Reuters survey of some 32 utilities in Republican states last month showed that none plan to increase coal use as a result of Trump’s policies. Many planned to continue a shift to cheaper and cleaner alternatives, including wind and solar.

A White House official did not respond to a request for comment about the administration’s efforts to boost coal or its position on wind and solar subsidies.

Lipper classifies “green” funds as those with screening or investment strategies that are based solely on environmental criteria. Many make it a point to avoid purchasing shares of traditional oil, gas or mining companies.

For a graphic showing the turnaround in green-fund investments, see: http://tmsnrt.rs/2qPISl4

The funds, while still an investment niche, have become increasingly popular over the past decade amid rising worries about climate change. They tend to draw younger and more environmentally minded investors who see profits in the burgeoning renewable power industry.

“Solar and wind power are creating a lot of jobs. There is a long-term secular trend taking place,” said Joe Keefe, Chief Executive of Pax World Management LLC, whose $418 million Pax Global Environmental Markets fund is one of the biggest in the green fund sector.

Solar firms employed about 374,000 workers in 2016, while the wind industry employed 101,738. Combined, they produced job growth of about 25 percent over 2015, according to the U.S. Department of Energy.

The average fund among the group of 22 green funds tracked by Lipper posted a six-month return of 9.37 percent. That lagged the S&P 500 index’s 12.14 percent, excluding dividends, over the same period through April 30, but beat the S&P’s oil and gas index, along with several major coal companies which have slumped since the election.

The growth helped boost the group’s combined assets under management to $2.4 billion by the end of April, up from $2.1 billion in November, according to the data.

Tom Roseen, Lipper’s head of research, said the inflows into green funds could reflect value-shopping after the election triggered an initial sell-off in the solar and wind energy sectors.

He cited solar module maker First Solar Inc, a popular stock among green funds, trading at about $39.50 a share, far off the highs above $70 it reached last year but up more than 35 percent from a drop it suffered after the election.

TRUMP SCEPTICS

A GE 1.6-100 wind turbine (front C) is pictured at a wind farm in Tehachapi, California, U.S. on June 19, 2013. REUTERS/Mario Anzuoni/File photo

Trump campaigned on a promise to revive the ailing oil and coal industries, in part by dismantling former President Barack Obama’s environmental regulations aimed at cutting carbon dioxide emissions.

He also vowed to pull the United States out of a global pact to fight climate change, a promise White House officials said Trump is now reconsidering, under pressure from lawmakers, global allies, and scores of major oil, coal and other companies.

Trump’s more conservative supporters – including the man who led his transition at the Environmental Protection Agency, Myron Ebell – have complained about the slow pace of progress in dismantling Obama-era climate initiatives.

While many drilling and mining companies have applauded Trump’s efforts, some investors are sceptical that repealing climate regulation will provide a big boost to fossil fuels.

The government subsidies that are crucial for growth of wind and solar power, meanwhile, seem to enjoy bipartisan support in Congress.

Existing tax credits for solar and wind projects were extended for five years at the end of 2015 by a Republican-controlled Congress. A number of Republican lawmakers represent states with burgeoning wind and solar industries, such as Texas and North Dakota.

Trump administration policy has yet to affect renewable energy firms – and may not affect them much going forward, said Mike Garland, Chief Executive of wind farm owner Pattern Energy Group Inc..

“Most investors are starting to realize that the federal government is limited in its impact and the risk to (green energy subsidies) is relatively low,” he said.

Pattern’s stock has gained 20 percent since the beginning of the year, after falling 10 percent between the November election and the end of 2016.

Many of the green funds tracked by Lipper are heavily invested in renewable energy companies with overseas operations that reduce their exposure to U.S. politics.

One of the top holdings of Rosenblith’s fund, for example, is Vestas Wind Systems, the Danish company that produces and services wind turbines. If U.S. policies turned against wind power, Vestas could still expect strong demand elsewhere, Rosenblith said.

A number of exchange-traded funds focused on renewable energy also attracted money this year, led by Guggenheim Investments’ Solar ETF, which took in $28.5 million.

Its top holdings include Arizona-based First Solar and China’s Xinyi Solar Holdings.

William Belden, Guggenheim’s head of ETF business development, said the inflows suggest that “some of the early responses to the Trump administration were overdone.”

Copyright Reuters 2017

(Additional reporting by Nichola Groom; Writing by Richard Valdmanis; Editing by Brian Thevenot)

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Playing the market: China’s small investors

By Aly Song, Reuters 
October, 2015

Lv Hai looks at a screen displaying a stock analysis software, fixed to the back of an electric bicycle, during a “street stock salon” in central Shanghai, China, September 5, 2015. For at least a decade, an area next to the People’s Square temporarily has transformed itself into a "street stock salon" during weekends, with investors from all over Shanghai coming to gather stock information and learn trading skills from others. A few businessmen also make use of the occasion to promote their stock analysis software. REUTERS/Aly Song

F&O is ad-free and spam-free, and relies entirely on you, our readers, to continue. Please visit our Subscribe page to chip in at least .27 for one story or $1 for a day site pass. Lv Hai looks at a screen displaying a stock analysis software, fixed to the back of an electric bicycle, during a “street stock salon” in central Shanghai, China, September 5, 2015. For at least a decade, an area next to the People’s Square temporarily has transformed itself into a “street stock salon” during weekends, with investors from all over Shanghai coming to gather stock information and learn trading skills from others. A few businessmen also make use of the occasion to promote their stock analysis software. REUTERS/Aly Song

Some are in it purely for the money. Others just want a few extra yuan to buy a meal. And then there are also those who trade for fun or to spend time among friends.

Millions of mom-and-pop investors – from pensioners, to security guards, to students – dominate China’s stock markets, conducting about 80 percent of all transactions. But this year they have experienced one of the most tumultuous periods in the country’s financial history.

China’s stock markets first soared – more than doubling in the six months to May – only to crash. Since June, prices have fallen about 40 percent on concerns that growth in the world’s second-biggest economy is slowing down faster than previously thought.

“Trading stocks is my biggest hobby,” says 90-year-old Wang Cunchun, who only started to invest in equities after he retired from a stationery store in Shanghai.

He joins other retirees in one of the many brokerage houses dotted around China where people gather not just to trade stocks but to enjoy the company of fellow investors and take advantage of the air conditioning on hot days.

“There are many old neighbours coming to the brokerage house,” he said. “I don’t know how to use computers so my neighbours actually help me sell and buy.”

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Trading stocks is also a hobby for 16-year-old high school student Qian Yujie. But in contrast to Wang, he places his orders from a desktop computer at his home in Shanghai.

He began trading at the age of 13, when his father gave him 2,000 yuan ($320) to learn about stock investing. He fits trading into his schedule when he has a day off school.

“I like maths and want to study finance in college and I think it’s very helpful for job hunting,” Qian said.

While some retail investors say they want to make their fortune on China’s stock markets, electrician Gao Haibao, 55, has a more modest approach by aiming to make about 10 yuan everyday, or $1.50.

“I make money to buy a meal everyday,” he says. “I’m happy with it. I’m making money.”

And Du Mingpeng, 50, a security guard at a jewellery store, hopes to profit from his investments to give money to his son who is getting married.

Many of the retail investors use an informal network to help decide which stocks they want to buy and sell. At the weekends in Shanghai, hundreds gather at what is locally known as the “street stock salon” near the city’s landmark People’s Square to exchange tips and information and listen to long-term investors talk about their experiences.

Wu Lin’an sells his analysis of the stock market at the “street stock salon” and believes the ruling Communist Party, headed by President Xi Jinping, will save the stock market and make people rich.

“Chairman Mao led us through liberation,” he said, referring to the founding of modern China. “Deng Xiaoping led us to the road of happiness, Xi Jinping led us to the road of enjoyment.”

Copyright Reuters 2015

REPORTING BY KAZUNORI TAKADA, IRIS ZHAO

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Flash Crash jitters: high-speed trading

By Andrei Kirilenko, MIT Sloan School of Management
February 26, 2015

Ask people on the street what mental image they associate with the words “stock exchange,” and you’ll likely hear about a large imposing building in the middle of New York or Chicago. Inside the building there is a huge space crowded with traders in multicolored jackets screaming and gesticulating to each other.

Until ten years ago, that would have been a pretty accurate description of a stock exchange. Today, however, almost all trading is done by algorithms firing digital commands traveling near the speed of light to rows upon rows of computer servers sitting in nondescript suburban warehouses.

The transition from human to electronic trading came with the promise of using faster and cheaper technology to drastically lower the costs of trading shares and to make it much easier to determine the most up-to-date prices for all market participants (commonly known as price discovery).

Certainly, for investors who want to buy or sell one hundred shares or a couple of futures contracts, the promise of automation seems to have been realized. They can now trade at lower transaction costs, connect to more buyers or sellers and take advantage of prices that can be discovered around the clock.

But with all that speed, automation and complexity comes the risk that a string of problematic ones and zeros could cause a market meltdown, even if only a temporary one. As both computing power and communication speed continue to grow, the intensity of these disruptive events will only increase as well, making it essential to diagnose the root causes and craft safeguards that prevent or mitigate them.

By far the biggest such incident occurred on May 6, 2010, when markets for stocks and derivatives collapsed and rebounded with extraordinary velocity. The Dow Jones Industrial Average declined about 1,000 points, losing 9% of its value in a matter of minutes, the biggest same-day drop in its history, then suddenly recovered its losses just as quickly.

Because these dramatic events unfolded so fast and with so much fury, what happened that day has become known as the “Flash Crash.” The crash was akin to an accident at a nuclear power plant: a massive release of energy over a short period of time, followed by blackouts across the whole power grid.

In the aftermath of the Flash Crash, the public became fascinated with the blend of high-powered technology and hyperactive market activity known as high frequency trading (HFT). To many investors and market commentators, high frequency trading has become the root cause of the unfairness and fragility of automated markets.

Within hours of the Flash Crash, my colleagues and I began conducting an empirical analysis of trading several days before May 6, 2010 and during the day itself.

We found that the Flash Crash was triggered by a massive automated sell program in the stock index futures market.

We also established that high frequency traders – algorithms that trade very quickly but do not accumulate large positions – did not cause the Flash Crash. They did, however, contribute to extraordinary market volatility experienced that day. We also showed how HFT can contribute to flash-crash-type events by exploiting short-lived imbalances in market conditions.

So, technology enables trading strategies that can lead to flash-crash type events. But perhaps with time, markets themselves will self-correct and become more resilient.


Today the hub of the trading floor, once a storied institution, looks like this. Shutterstock

One well established way to achieve market resiliency is through greater competition. If there are more and more participants using HFT, then soon enough they will start competing for providing services rather than looking for ways to take advantage of slower traders.

My colleagues and I wanted to find out if this is actually happening. We carefully looked into the inner workings of the HFT industry over two years. We found that it was dominated by an oligopoly of fast and aggressive traders who somehow persistently manage to earn high and persistent returns while taking little risk.

How did this environment persist? For some reason, competitive market forces were unable to break up the oligopoly, and the benefits of automated markets were not being fully realized by all market participants. Instead of competing to provide the best execution to customers, incumbent high frequency traders seemed to be engaged in a winner-takes-all arms race for small reductions in latency or the amount of time it takes for a trading platform to respond to a command.

We decided to study latency in much more detail. Latency or the gap between the issuance of a command and its execution is present in all sufficiently complex mechanical or automated systems. What we wanted to look at was automated trading platforms – where a one-millisecond delay can translate into millions of dollars.

In a recently completed study, we measured the latency of a sophisticated automated trading platform and found that the amount of time it takes for a given trade request to process can vary wildly from one command to the next.

Sometimes, an exchange takes a few milliseconds to respond to a command to post or cancel an order. At other times it may take several seconds. Perhaps that’s where the advantage of high frequency traders comes from. If they can predict latency, then they can effectively predict what other market participants will do.

To visualize this, imagine one of those slow motion action sequences in which an action figure quickly disables a large crowd of adversaries. By being able to move faster than the adversaries and anticipate their moves, the action figure wins every battle.

How can market participants react to the presence of such action figures?

Well, as in the movies, they all advance or retreat together as soon as they can move. This can mean that some trading algorithms overreact or underreact to changes in market conditions. Effects of this sort, if any, should show up in prices, especially in volatility, a measure of how jumpy prices are.

So, we examined the relationship between trading platform latency and the volatility of asset prices. We found that latency, and especially the uncertainty about latency called jitter, can predict the volatility of asset prices. That is, the greater and more uncertain the delay, the more volatile the asset, which, of course, is great for high frequency traders, who make more money when prices are moving about more.

Following the Flash Crash of 2010, government regulators around the world came up with a variety of measures to address the issues inherent in automated trading. Most of these measures in one way or another propose to adjust latency – to “slow things down” or to remove the “speed advantage” of HFT.

However, in dealing with automated markets, we must use science to craft responses that address the root causes of violent market incidents without eliminating longer term advantages of technological innovation. If applied without a solid understanding of the effects of latency on the price discovery process, these knee-jerk government proposals could possibly result in extra costs and risks to the very participants they are designed to protect.

Instead of hastily crafted regulations, we recommend three measures.

First, introduce latency transparency. Trading platforms should begin to report characteristics of the time gap between trades being requested and executed to market participants on an ongoing basis so that any valuable information contained in latency can be discovered directly along with asset prices. The markets will then do what they do best – quickly incorporate information about latency into their algorithmic trading decisions and, thus, market prices.

Second, introduce derivatives – which are contracts whose value derive from the prices of either a real asset such as a wheat harvest or a financial asset such as a government bond – to trade latency risk. If volatility can be traded, why not latency? That would help manage the risks associated with latency by allowing an investor to pay a price to shift them to a third party just like it is being done now with wheat futures or interest swaps.

Third, design more pre-trade safeguards that briefly pause trading for everyone if markets start moving too quickly. In fact, that’s exactly what happened on May 6, 2010, in the stock index futures market. A five-second trading pause built deep into the trading platform forced all algorithms to reset their clocks leading to the restoration of order in the market. But by the time this the trading pause kicked in, the chain reaction had already began. If we can design these pre-trade pauses to kick in well before prices move down 1,000 points, we will all be better off.

Overall, we as scientists need to measure, study and share with the public what’s really going on in fast automated markets. We need to set aside our old notions of how trading used to be done a mere decade ago and come up with a solid evidence-based understanding of how price discovery really works at extremely small scales.

This knowledge is critical for designing appropriate safeguards that would protect against the massive short-lived releases of energy such as the Flash Crash, while allowing all market participants to benefit from the positive aspects of automation over the long term. I believe that getting a handle on latency and its jitter is a way to get us there.

The ConversationCreative Commons

This article was originally published on The Conversation. Read the original article.

Andrei Kirilenko is Professor of the Practice of Finance at MIT Sloan School of Management

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Facts and Opinions is an online journal of select and first-rate reporting and analysis, in words and images: a boutique for select journalism, without borders. Independent, non-partisan and employee-owned, F&O performs journalism for citizens, funded entirely by readers. We do not carry advertising or solicit donations from foundations or causes. Help sustain us by telling others about us, and purchasing a $1 day pass or subscription, from $2.95/month to $19.95/year. To receive F&O’s free blog emails fill in the form on the FRONTLINES page.

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