Products June 12, 2014

SSgA Expands Beta ETF Offering

In order to meet demand for a multi-factor approach, State Street Global Advisors (SSgA) unveiled a suite of advanced beta SPDR exchange-traded funds (ETFs).
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The nine SPDR MSCI funds seek to combine the performance of quality, value and low volatility strategies to provide the potential diversification benefits of a multi-factor approach in an objective, transparent and consistent manner, the firm said in a statement.

Advanced beta, also known as alternative or smart beta, refers to a set of approaches that deviate from the traditional cap-weighted model and instead weight indices or securities based on alternative rules-based methodologies. According to a recent SSgA study titled, “Beyond Active and Passive, Advanced Beta Comes of Age,” 65% of institutional investors from North America and Europe are planning to adopt multi-factor advanced beta strategies, and nearly 70% agree that combining several targeted market exposures as part of an advanced beta offering makes for a more refined product (see “Institutions Like Smart Beta”). A survey from Cogent Research indicates more institutional investors are using smart beta exchange-traded funds (ETFs), many in an effort to reduce portfolio volatility (see “Smart Beta ETFs Can Be Used to Reduce Volatility”).

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The ETFs, trading on the New York Stock Exchange Arca as of June 12, are all SPDR MSCI: World Quality Mix ETF (QWLD); EAFE Quality Mix ETF (QEFA); Emerging Markets Quality Mix ETF (QEMM); Australia Quality Mix ETF (QAUS); Canada Quality Mix ETF (QCAN); Germany Quality Mix ETF (QDEU); Japan Quality Mix ETF (QJPN); Spain Quality Mix ETF (QESP); and United Kingdom Quality Mix ETF (QGBR). All feature an expense ratio of .30%.

Advanced beta strategies are a valuable tool in today’s market, as they blend both passive and active investment styles, according to James Ross, executive vice president and global head of SPDR Exchange Traded Funds at State Street Global Advisors. “Our new SPDR MSCI Quality Mix ETFs use multi-factor strategies constructed by combining three MSCI Factor Indices with different risk-return profiles and correlations,” Ross says.

Multi-factor is appealing to investors because of the opportunity to manage risk through combined factor tilts and potentially enhance the resilience of their portfolio through strategic exposure, Ross explains.

Designed to represent the performance of quality, value and low volatility factor strategies across global markets in a single composite index, the MSCI Quality Mix Indexes are an equal weighted combination of the MSCI Value Weighted, MSCI Minimum Volatility and MSCI Quality Indexes.

More information about the advanced beta SPDR ETFs and the MSCI Quality Mix Index methodology is at SSgA’s website.

Compliance June 12, 2014

Last Defendant Settles in N.Y. ‘Pay-to-Play’ Case

A final judgment was entered against Saul Meyer in the enforcement action that arose from New York’s retirement fund corruption scandal.
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Meyer, a founder of the now-defunct Aldus Equity, pled guilty to felony securities fraud charges for his involvement—his firm advised the pension fund—in the pay-to-play kickback schemes at the New York State Office of the Comptroller and the Common Retirement Fund, but was able to avoid prison time for cooperating with law enforcement authorities. (See “Cuomo Announces Guilty Pleas in Pay-to-Play Probe.”)

Starting in March 2009, the Securities and Exchange Commission (SEC) filed securities fraud and related charges against several participants in the scheme, including Henry Morris, the top political adviser to former New York State Comptroller Alan Hevesi, and David Loglisci, formerly the deputy comptroller and the chief investment officer of New York State’s Common Retirement Fund.

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Morris and Loglisci orchestrated a scheme to extract sham finder fees and other payments and benefits from investment management firms seeking to do business with the Common Fund. In all, the Commission charged 17 defendants, including various nominee entities through which payments were funneled and certain of the investment management firms and their principals.

As the principal of an investment management firm, Meyer was alleged to have made unlawful payments to Morris in connection with one of the transactions at issue. The civil action had been stayed until the outcome of the New York Attorney General’s Office’s parallel criminal action against some of the defendants charged by the SEC, including Meyer.

After his guilty plea, Meyer was sentenced to a term of conditional discharge due to his cooperation with law enforcement authorities and ordered to forfeit $1 million. In the SEC's federal court action, Meyers consented to entry of a judgment that permanently enjoins him from violating Section 17(a) of the Securities Act of 1933, Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940.

In addition to the judgment entered in the federal court action, the SEC issued an administrative order on June 10 imposing remedial sanctions against Meyer. The SEC’s administrative order bars him from associating with any broker, dealer, investment adviser, municipal securities dealer or transfer agent, subject to a right to reapply after seven years.

Judgment was entered by the Honorable Katherine Polk Failla, United States District Judge for the Southern District of New York on May 22. The SEC said in a statement that its claims are now fully resolved.

The end of the state fund's placement agent scandal comes following an announcement this week by New York City Comptroller Scott Stringer that the city's five pension funds would no longer use placement agents. “The passage of an ironclad ban on placement agents for all transactions involving the New York City Pension Funds was long overdue,” Stringer said.  “Ending the involvement of intermediaries in pension funds’ transactions will ensure that the integrity and independence of our investment decisions are beyond reproach and without conflict.

The SEC’s litigation release can be read here.

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