August marked some of the most volatile markets we have seen since October 2014 (Ebola scare), Summer 2011 (Flash Crash) and 2008 market crash (Great Recession)
All major benchmarks sank into correction territory (drop of 10% or more from highs)
Outflows from equities totaled $25.9 billion, the largest record on date. (Merrill Lynch weekly Flow Show report)
GDP expanded at an annualized rate of 3.7% for Q2, a great number exceeding the initial estimate of 2.3%.
All of the major signs continue to be positive, with strong service sector confidence a particular bright spot and the recovery in consumer confidence a relief. Despite continued international and financial market turmoil, the fundamentals of the U.S. economy remain in good shape.
Monday, August 24, was the second most active trading day ever recorded in the U.S. Before the market opened, S&P 500 futures were pointing down almost 7 percent, as U.S. investors woke up to the news of China’s “Black Monday,” where the Shanghai Composite Index closed down 8.5 percent—its worst single-day fall in eight years.
The market open was extremely volatile, dropping over 1000 points. Major blue chip stocks like Home Depot (HD), United Health (UNH), Visa (V) and General Electric (GE) all fell over 15% and within the first hour of trading, trading halts were applied to 471 securities, including 303 ETFs. At the end of the day, investors had traded more than $270 billion through ETFs—almost three times more than the one-year average. The volatility, unfortunately, caused some ETFs to trade at extraordinarily wide bid/ask spreads within the first half hour of trading. The iShares Select Dividend (DVY) dropped 31 percent, while the SPDR S&P Dividend (SDY) plummeted 35 percent. The PowerShares QQQ (QQQ) dropped nearly 15 percent, and the price of the Vanguard Dividend Appreciation (VIG) plummeted more than 25 percent before eventually recovering close to its net asset value.
Many investors panicked and sold out of these funds at very low prices, which were nowhere near the true value of the underlying basket of stocks that these ETFs were invested in. Some advisors had stop-loss orders on the ETFs; when the opening bell rang and the ETFs opened well below the stop prices, those orders became market orders and some funds were sold at steep discounts.
Why did this happen?
A couple of things happened at the open that caused this situation. We have seen volatile days in the market before, and ETFs seemed to work just fine, but last Monday was different. Because of the extreme volatility in China and in S&P 500 futures before the open, the NYSE decided to invoke what is called “Rule 48.”
Rule 48 essentially lets designated market makers temporarily suspend the requirement to make preopening indications in a security at the opening of trading or the reopening of trading following a market-wide trading halt. This rule allows the market to open faster and allow for smoother trading, but it did cause some issues for ETFs.
The problem is that, with many stocks not trading, it became impossible for market makers to price the underlying baskets of securities in ETFs—even in extremely liquid products. Not only could they not price them, but they also had no way of hedging them, so market makers stepped away and let the spreads widen due to the amount of volatility in the market.
Another factor at play was the “Limit-Up/Limit-Down” rules implemented by the SEC after the flash crash of 2010. These rules were intended to halt trading of securities for five minutes when prices move beyond certain ranges (up or down). But there were several cases in which ETF share prices moved significantly down and were halted under the limit-down rule, and then they were prevented from moving back up to the fair value of the index being tracked by the limit-up rules.
Ultimately, the system worked, as Rule 48 allowed market makers to step out of the way, and circuit breakers prevented a full-on flash crash of the entire market. But the unfortunate side effect was the impact on some ETFs.
It is important that holders of ETFs consider the risks associated with using stop loss orders. By nature, a stop loss order sits in waiting until the security trades at a specified price, at which time it becomes a market order. In theory, this should limit the loss that an investor may take on a security. But the risk is that these orders may be triggered in a highly volatile market, such as the one we saw last week, where prices temporarily dislocate. If this occurs, the stop loss order may be executed at temporary, artificially low prices.
These so-called “flash crashes” can happen in extreme market conditions, but the ETFs have typically functioned as they should in these situations (accurate pricing relative to value of underlying holdings.) The market makers came back in when the dust settled and arbitraged away the discount; and most ETFs finished the day close to NAV. We all need to understand the risks associated with stop loss and market orders moving forward.
*Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict.
*All indices are unmanaged and investors cannot actually invest directly into an index. Unlike investments, indices do not incur management fees, charges, or expenses. Past performance does not guarantee future results.
*The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. The Dow Jones Industrial Average is a price-weighted average of 30 actively traded blue-chip stocks.
*An exchange-traded fund (ETF) is similar to a mutual fund that tracks a specific stock or bond index, such as the Barclays Capital 1–3 Year Treasury Index. ETFs trade on one of the major stock markets and can be bought and sold throughout the trading day, like a stock, at the current market price. And, like stock investing, ETF investing involves principal risk—the chance that you won’t get all the money back that you originally invested—market risk, underlying securities risk, and secondary market price.
Indianapolis, Indiana. August 15, 2015 – Midwest Wealth Management, Inc., a private investment group specializing in alternative investments, announced today that owner and President Greg Shields was awarded the distinction of being a 2015 Five Star Wealth Manager. This award is presented by Indianapolis Monthly and given to Indianapolis wealth managers who continually demonstrate the ability to offer high-quality services to their clients.
To be considered a Five Star Wealth Manager, candidates are first nominated from the firm itself, from financial peers or are pre-qualified based on industry standing. Potential candidates are then evaluated against 10 objective criteria such as client retention rates, client assets administered and a favorable regulatory and complaint history. From there, a highly selective list of awardees is chosen.
“I am honored to receive this award and appreciate what it represents to our clients,” explains Mr. Shields. “Our purpose for starting this firm was to have a place where we would want to go as clients, a place that is prudent yet progressive in their approach to wealth management, and who treats their valued clients with the utmost respect. We don’t expect our clients to demand any less.”
The awardees will be featured in a special advertising section of Indianapolis Monthly to recognize these professionals for their service to clients. For more information, or to contact Midwest Wealth Management directly, please call 877-243-4132.
About Midwest Wealth Management, Inc.
Midwest Wealth Management, Inc. was formed by Greg Shields, a 30-year financial services veteran committed to offering sophisticated investors an alternative when looking for a more strategic path for long-term investing. As a private investment group, Midwest Wealth Management, Inc. offers a proprietary trading platform, alternative investment offerings and dedicated advisory support for a select audience. For more information, please visit www.midwest-wealth.com.
Midwest Wealth Management, Inc. is located at 8888 Keystone Crossing, Suite 960, Indianapolis, IN 46240. Securities and advisory services offered through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser.
Nearly one in ten people are expected to develop a genetic disease as a consequence of carrying defective genes. More than 7,000 distinct rare diseases exist, and approximately 80 percent are caused by faulty genes. And, of the rare diseases, 50 percent of the people affected are children, making rare diseases one of the most debilitating for children worldwide.
This focus on curing diseases via the use of what is called “gene therapy” has evolved into of the most exciting developments in medical research. By correcting an underlying genetic defect, gene therapy can provide for transformative effects based on only a single treatment.
What is gene therapy? In the simplest terms, gene therapy involves the replacement of a gene that is defective. The process involves the packaging of a functioning copy of the defective gene into a viral vector. This vector is based on a naturally occurring virus (such as HIV), which has been modified so that the virus cannot spread within the person’s body. A virus has a natural ability to introduce genes into human cells, and thus, its role in the delivery of the gene is critical in the gene therapy process. This vector acts as the delivery mechanism for transporting the functioning gene into the blood stem cells taken from the patient. Rather than offering solutions that only address a patient’s symptoms, gene therapy corrects the underlying genetic defect that is the actual cause of the disease.
Development in recent years has been encouraging, including the first gene therapy product approval in 2012—uniQure (QURE) gained approval for Glybera, a gene therapy product for a rare, fat-processing disease called LPLD (lipoprotein lipase deficiency). In addition, Bluebird Bio (BLUE) has made tremendous progress in studies for the treatment of several inherited blood disorders.
CAR T-cell therapy in cancer. Another exciting development in gene therapy involves the use of the patient’s own immune system to fight off cancer. Known as CAR T-cell therapy, the process involves genetically engineering a patient’s T cells outside the body to produce special receptors called chimeric antigen receptors (CARs). Thus far, there has been tremendous progress made with CAR T-cell therapy as it relates to treating blood cancers. Because of this, many of the bigger biotech companies have been scrambling to partner with specialists in the space. This past June, Celgene (CELG) announced a $1 billion deal with Juno Therapeutics (JUNO) to collaborate on several CAR T-cell cancer therapies. The big question is whether or not the early indications for success in blood cancer can translate to successful treatment of solid tumors. Other big players in the CAR T-cell therapy space include Novartis (NVS) and Kite Pharma (KITE), which is also working in tandem with Bluebird on CAR T-cell therapies for HPV-associated cancers.
The optimism is based not only on the game-changing potential for the related therapies, but also for the need of big biotechnology companies to diversify their portfolios and how this could lead to more M&A activity in the space. Celgene’s (CELG) $1 billion deal with Juno and its recently announced acquisition of Receptos (RCPT) for $7 billion is only one recent example of a company trying to spend to boost its pipeline.
Although the gene therapy field has had its share of ups and downs, this once-questionable method of treating diseases now seemingly has the potential to become one of the most game-changing advancements in medical history.
Wealth management hinges on the collaborative relationship between an individual or family, and their Wealth Management Advisors. Naturally the best advisors share a similar set of core values. It’s valuable information you can use to identify and hire a firm to manage your portfolio.
Political, economic and social conditions are in a constant state of flux. This shifting landscape requires a great deal of flexibility from wealth management firms. Life circumstances, regulatory and tax environments change quickly. How quickly an investment advisor can respond to these trends is the key to realizing the best outcomes for you as a client.
A good client-advisor relationship is built on transparency. Accounting scandals and Ponzi schemes have left an undeniable blemish on the wealth management industry. With transparency comes credibility and security as you contemplate who will manage your next egg. Without appropriate due diligence, your financial security is in jeopardy. For high-net worth, and all individuals, for the matter, integrity and financial expertise are the cornerstones of wealth creation.
According to Forbes, optimal wealth management happens when products, services, investments and legal strategies all work together cohesively to the benefit of a client or clients. So, as the client, the best results are achieved when there’s an overarching understanding of what’s going on and integration between all the elements1 — That means your investment advisor is on the same page with you, understands your investment objectives, and can integrate them into a cohesive strategy. You can have the best investment team behind you, but if there is no consensus or coordination among everyone concerned, your wealth management strategy will miss the mark.
We’ve introduced a few characteristics of top-notch wealth management. If you are considering a wealth management firm, or have concerns about your current investment advisor, these touchstones will help you find, or maintain a bright relationship with your investment team. If you have any questions about wealth creation, we invite you to learn more at www.midwest-wealth.com.
1. Prince, Russ Allan. “Three Characteristics of Top-of-the-Line Wealth Management,” Forbes Insights Blog, January 6, 2015.