Clear Indexes Ideas

Clear Indexes LLC Announces Winners of Second ETF Student Contest

After much consideration and testing the investment concepts the judging committee placed on its short list, we are pleased to announce the winners!

Two York University students and sports enthusiasts turned their passion and knowledge into the winning entry in the “Next Generation ETF Contest” run on Facebook and the Internet by Clear Indexes, LLC.

Their winning idea, an International Sports investment concept, focuses on publicly-traded equities of holding companies that own professional sports teams and clubs; it relies on the large and loyal fan base of these teams, which typically grow even in economic downturns.

Selected from nearly 200 submissions, Sean Vrbica, and Vlad Berbece teamed up to win the grand prize of $5,000, a paid internship, and the chance to participate in an exchange bell ringing ceremony of the ETF based on their concept.  

Vrbica, an undergraduate finance major at York University’s Schulich School of Business, Toronto, Canada,  has been actively trading since 2006 and has his own blog, The Young Raging Bull, at youngragingbull.wordpress.com. Berbece, a rising junior and finance major at Schulich, is a capital markets enthusiast who has taken a leadership role in the York University Finance & Industry Club.

Three second prizes of $1,000 each were awarded to the following students:

• Mary Gondokusumo and Henry Young, Cornell University
• Alexander Lachman, Johns Hopkins University
• Daniel Abramov, Doug Guan and Vily Sarbinska, York University.

The judging criteria focused not only on the quality and distinctiveness of the investment thesis, but also on the marketability of the submissions.

Last year’s grand prize winner, James Baker, a New York University sophomore, works as an intern at Clear Asset Management Inc., the parent firm of Clear Indexes LLC. His winning U.S. Exporters Index, which has been constructed and backtested, is being presented to issuers of packaged and structured products.

The judges decided to name seven honorable mentions, out of a possible ten: 

• Derek Gabrish of Pennsylvania State University
• Boris Gotzev of Schulich School of Business, York University
• Franklin Keller of Pennsylvania State University
• Saed Shabbir and Mushrur Shareef of Schulich School of Business, York University.
• Andrew Vanloon of Pennsylvania State University
• Andrew Vanloon of Pennsylvania State University (second submission)
• James Williams of Harvard University

All the winners are acknowledged on Clear’s Facebook page at www.facebook.com/group.php?gid=5671398751.

We have begun the planning process for its fall contest. Schools seeking participation should contact Noel Sullivan at 212-675-1070 or nsullivan@clearam.com or the contest’s Facebook group page at www.facebook.com/group.php?gid=5671398751.

Issuers of packaged and structured products seeking licensing opportunities should contact me at 212-675-1070 or acorn@clearam.com.

When??!!!

As the Second Clear Next Generation ETF Contest approached its final hours, I eagerly and compulsively checked the site to see the new ETF idea submissions rolling in. My enthusiasm was undoubtedly warranted as we received a slew of ideas from students at all of the participating Universities (Penn State, Cornell University, University of Pennsylvania, Middlebury College, Harvard, Johns Hopkins University, and York University.) The ideas were delivered in various forms; we received both individual and group entries via the website, and many entrants provided supplemental information in word, excel, and even a 59 slide Power Point! Although we are anxious to read through all the material and deliver a winner as soon as possible, the quantity and depth of the submissions warrant thorough deliberation. We plan to announce the winner in about two weeks.

Stay with us and check the Facebook group or the Clear Indexes web site.

ETFs: History Repeats Itself - Again

I read with interest this weekend various takes on the reduction in overall assets of ETFs. Index Universe did a fine job of showing the net reduction in AUM by issuer. The breakdown of overall market loss, which investment thesis is working in this environment and which is not are all to be explored. I am confident that asset allocators and investment analysts are busy doing just that.

Out flows tend to occur as the market goes down. Investors love to chase the hot dot on the chart - - the fund or investment thesis in vogue. This has investors and undisciplined advisers miss most of the upside and lock in losses as they chase themes that are already working and redeem falling investments. I suspect that much of this pattern is being followed in the ETF world.

I view this as a normal psychological response versus a new scratch in the Teflon of the ETF world.

To gain some insight, we quickly looked at a predecessor industry; Mutual Funds. It appears to be Ground Hog Day AGAIN as Bill Murray would say in the movie. ETFs seem to be following the pattern of the retail investment industry. Does that translate into broad acceptance and is a positive?

The US, the largest mutual fund market, saw its investors responded to sharp market declines in the first weeks of the year by pulling $32.9 billion dollars from equity funds. This is the largest outflow since July 2002. The combined assets of the nation's mutual funds decreased by $302.99 billion, or 2.5% to $11.717 trillion in January, according to the Investment Company Institute's official survey of the mutual fund industry.

Outside the US,  Italy, France and Canada had significant declines in January too showing the herd is reallocating on a global basis.

According to AMG Data Services, a California provider of Mutual Fund Money Flow & Holdings data, the first two weeks of February brought positive inflows of $1.5 billion into equity funds in the U.S, which included sectors such as finance/banking, real estate and aggressive growth/value funds. This may signal a small but possible recovery. Or this could be IRA and 401k money going to work.

So as investors go, so do ETFs. The fact that ETFs are following long standing trends in mutual fund land and other investment vehicles should not be a surprise. One good/bad characteristic of ETFs is that it is easier for a retail investor to trade an ETF than a mutual fund which includes both buying and selling. Redemptions and money flows need to be tracked and trends acknowledged. But before there is panic or industry disparaging, looking to comparable situations is prudent even if not reassuring.

Disclosure: Mr. Corn is CEO of Clear indexes LLC which designs and publishes custom indexes that are tracked by packaged products such as ETFs. He is also CEO of Clear Asset Management Inc that uses ETFs in its investment process.

It May Be Oscar Night But for Many, It is on April 4

In the movie world, rarely does a sequel manage to transcend the excitement and essence of the original. If the inaugural "Clear Next Generation ETF Contest" was The Godfather, then "The Spring 2008 Clear Next Generation ETF Contest," beginning February 25th, is The Godfather II. It captures the ingenuity and innovation of student minds that made the first contest great, it is materially bigger and improves upon it. The spring edition of the Clear Next Generation ETF contest runs from February 25th to April 4th.

The stakes are higher. The winner receives $5,000 and a paid internship at Clear Asset Management. Three runners-up will each collect $1,000, and ten honorable mentions will also be named.

With the ante upped, the competition is fierce. Any full-time, part-time, undergraduate or graduate student with a valid email address at Middlebury College, York University, Penn State University, University of Pennsylvania, Harvard University, Cornell University or Johns Hopkins University is eligible to participate. We have been working with professors at each of these schools, and the response has been overwhelmingly positive.

Why team with Universities? All one has to do is look at Silicon Valley, the 495 Tech area around Boston or the biotech start ups in the Potomac area to understand that collaboration frequently yields great success.

We encourage students to dream, take chances without judgment understanding each student or group can submit up to five concepts. Some will be winners. Today we have two interns from our first contest. This summer we will have in more.

There were some fantastic ideas in the first round of the contest; elevating the competition by upping the number of participating schools from three to seven only stands to increase the scope for great ideas. Visit http://clearindexes.com/etfcontest.aspx for more information. Students and professors, be sure to join our Facebook group! We're eager to see the exceptional investment ideas that university students bring to fruition in this round.

Get that gray matter working and submit up to your five proudest concepts.

An early invitation: to have your school participate in our fall 2008 contest, contact Amber Sharif at asharif@clearam.com.

The “Next Generation” Blogger

Clear Asset Management and Clear Indexes have been running on all cylinders lately and I have had little time to post. With the start of our next Index Design contest coming next week, we thought it would be fun to have Jimmy Baker, our paid intern and winner of our first contest to do a post about his experiences.

It’s been a little over a month since I started working at Clear; a month of excitement, learning, work, and time management. I’m Jimmy Baker, the winner of the first Next Generation ETF contest and a freshman at New York University. I was ecstatic when I found out from Andy that my idea for an Export ETF, which consists of US companies that derive their revenue primarily from exports, had been selected as the winning entry. In addition to receiving a very generous cash prize, I also began working at Clear as a marketing intern. This past month has been a blur. I’ve spent time researching stocks that may be included in the Export index; it’s been amazing watching my idea transform into a professional and polished product thanks to the hard work of the Clear team. I’ve also found a niche drafting blog posts and writing official press releases. And of course, I’ve had the opportunity to do some media appearances and interviews to talk about my idea and the contest. Being interviewed by TheStreet.com in front of the New York Stock Exchange was an unforgettable experience. Fox News was another first: I had to put makeup on. I had never done any press interviews before the contest, but Andy was always along to guide me.

Speaking of the contest, I’m currently working on setting up the next round of it. My boss Amber (who’s great by the way) is running it; so far, I’ve helped organize it and brainstorm marketing ideas to ensure that word gets out about it. It’s been really interesting seeing how the contest works behind the scenes after being an entrant in the last round. The prize money has been upped and more schools are competing so it’ll be exciting to see how it turns out. Other duties include customer service and telling a joke of the day to (sorry my material has been lacking lately) the portfolio managers. I’ve enjoyed going out to lunch with all the other interns. Out of the places I’ve tried around Wall Street, Rosario’s is my favorite. I recommend anything on the menu there. In between working at Clear and taking classes at NYU, I have a full- but very manageable- schedule. Every day on the job, I learn something new; it’s been an amazing experience!

My advice to entrants in the Spring Next Generation ETF Contest: construct your entry with the future- both short term and long term- in mind. Marketability is key; it’s all about WHY your idea is attractive to investors.

Disclosure Guest blogger Jimmy Baker, 18, is the winner of the first Clear Next Generation ETF Contest and a marketing intern at Clear Asset Management.

Is it Time to Get Back in the Water (EXB)?

The dust that emerged amidst the chaos of the credit crunch has begun to settle and significant signs insinuate that it may be time to get back into financials. These indicators exist in the form of surprising earnings, Goldman Sachs's (GS) stance on distressed assets, Warren Buffet's long-term confidence in financial companies and opportunities from consolidation.

Deutsche Bank (DB) impressed analysts with its recent earnings announcement. The street expected poor numbers because of the bank's heavy dependence on debt-related products; however the bank managed to pull in 2007 earnings that exceeded 2006 earnings by 7%; including $1.4 billion profit in the fourth quarter. Like the majority of the investment banks, Deutsche Bank participated in write downs ($1.3 billion) in Q307, however there were no subprime related losses in Q407 indicating that most losses that needed to be accounted for have already been taken care of and priced into the stock.

Goldman Sachs, a company that is legendary for being in the right markets at the right time, has expressed interest in being an aggressive buyer of distressed mortgage and credit assets.

"Goldman is also going to continue its investment banking expansion in the middle market sector and sees a good opportunity to become a more aggressive buyer of distressed mortgage and credit assets. Viniar (Goldman CFO) said: "We will be a buyer of distressed assets at the right price."
-Financial News Online

Even if the credit crisis has not quite bottomed out yet, Goldman's current interest signifies that they at least believe the bottom is near.

Warren Buffet may be the only investor more coveted by Wall Street than Goldman Sachs. Buffet has made billions on his strategy to "get scared when the market gets greedy and opportunistic when the market gets scared." Buffet's actions in the past few months (spending $6 billion on deals) indicate that he agrees with Goldman Sachs that this is the time to get back into the market. It is widely believed that Buffet is looking to invest in the "oversold" financial or industrial industry. Buffet shared his confidence in the rehabilitation of the US economy on Wednesday Feb 6th when he told the Financial Times,

"I'm a bull on the United States. Just think about how silly it would have been to be anything other than a bull on the United States since 1790. It is not a smart thing to sell the United States short over the years - or Canada for that matter. The world does get better. People get more productive. More human capacity is unleashed over time."
-Financial Post

In addition to the possible rehabilitation of the investment banks, there are a number of other exciting investment opportunities in the financial sector. Exchanges have been profiting from the increased volume that has stemmed from the recent market volitility. Additionally, there has been significant consolidation in the exchange sector primarily as a means to combine technology, diversify products and expand globally.

In January 2008, the NYSE Euronext (NYX) agreed to acquire the AMEX in a $260 million all stock deal. This deal is anticipated to close in Q308 and to provide $100 million worth of synergies within 2 years. The Big Board is expecting earnings to begin increasing in 2009.

The CME Group Inc. (CME) which runs the Chicago Mercantile Exchange and Chicago Board of Trade is also looking to consolidate and has been involved in merger talks with the New York Mercantile Exchange (NMX). The proposed $11 billion deal would create an exchange of market value $45 billion.

The asset management community continues to take in new assets. The ICI continue to report inflows to mutual funds. This is IRA season and there are additional inflows to these firms seasonally both here and globally.

Wealth creation is a global phenomena and gaining momentum. The BRIC countries and other parts of the developing world are minting millionaires faster that the developed world.

The invest-ability of these trends is something that my firm tracks through the Clear Global Exchanges, Brokers and Asset Managers Index (CGE) which is licensed for the Exchange Traded Fund trading under the symbol (EXB). It may be time to go back into the water, or perhaps the firms that manage the portfolios, clear the transactions and facilitate the trades.

Disclosure: Mr. Corn is CEO of Clear Indexes LLC which publishes the Clear Global Exchanges, Brokers and Asset Managers Index. He owns shares of the ETF tracking the index (EXB).

The Very Rich: Profiting Is the Best Revenge

As I have previously posted highlighting various studies that show wealth accumulation for the top 1% of the world’s population is growing faster than any other group. This weekend the NY Times covered the story and the statistics in the US. It paints a picture that can be frustrating for hard working people at all levels of income and wealth who have not achieved this status.

The increase in incomes of the top 1 percent of Americans from 2003 to 2005 exceeded the total income of the poorest 20 percent of Americans, data in a new report by the Congressional Budget Office shows.

The poorest fifth of households had total income of $383.4 billion in 2005, while just the increase in income for the top 1 percent came to $524.8 billion, a figure 37 percent higher.

The total income of the top 1.1 million households was $1.8 trillion, or 18.1 percent of the total income of all Americans, up from 14.3 percent of all income in 2003. The total 2005 income of the three million individual Americans at the top was roughly equal to that of the bottom 166 million Americans, analysis of the report showed.

The report is the latest to document the growing concentration of income at the top, a trend that President Bush said last January had been under way for more than 25 years.

I am no politician and although I have strong opinions, I post this blog to share observations about markets, and focus on how to profit from them. Before sharing the investment thesis there is some significant data that I believe holds the clue to how best to profit from this trend.

Much of the increase at the top reflected the rebound of the stock market after its sharp drop in 2000, economists from across the political spectrum said. About half of the income going to the top 1 percent  comes from investments and business.

On average, incomes for the top 1 percent of households rose by $465,700 each, or 42.6 percent after adjusting for inflation.

So is it time to be mad or jealous? As a quant, I say no and coldly examine the situation. The rich are able to participate in the capital markets allowing them to accumulate wealth as incredible rates compared to people who only work and do not invest.

The investment chain is fairly simple. Money goes to asset management firms, either directly or through brokers. The asset managers trade through prime and other types of brokers. Most of their investment activity goes through exchanges. This holds true not just in the US,  it is pretty much the same flow chart globally. The investment thesis is to invest in these three narrowly focused subsectors simultaneously.

Clear Indexes LLC publishes the Clear Global Exchanges, Brokers and Asset Managers Index with is tracked by the exchange traded fund (ETF) issued by Claymore trading under the symbol (EXB).

The ETF launched in August, look at a chart sine then. You may not be captaining a fund, an internet mega millionaire or titan of Wall Street, but you can profit from their investments.

Disclosure: Mr. Corn is CEO of Clear Indexes LLC which publishes the Clear Global Exchanges, Brokers and Asset Managers Index which is tracked by the ETF (EXB). Mr. Corn owns shares of (EXB).

Government Mandates Can Make Great Investing

I remember (yes I am dating myself) when air bags went from fad to great idea to omnipresent to mandated safety issue. These types of progressions for products and services that inevitably become “mandated” have been tracked by progressive money managers and have benefited their investors for years.

Vaccines are mandated by various government agencies, school systems and business throughout the developed and much of the emerging world. These mandates along with many vaccines being “strongly recommended” are key components to the investment thesis for the Clear Global Vaccine Index.

The Annals of Internal Medicine reported this week that the Advisory Committee on Immunization Practices, a division of the Centers for Disease Control and Prevention (CDC), has released its 2007-2008 recommended immunization schedules for adults in the US.

The schedule, which is established each year by the CDC, has been endorsed by the American Academy of Family Physicians, American College of Obstetricians and Gynecologists, and the American College of Physicians.

The schedule can be found here:

Some of the Recommended Adult Immunization Schedule deals with vaccination for major diseases such as tetanus and diphtheria to childhood oriented diseases; measles, mumps, rubella (MMR) vaccination to the controversial vaccine shown to prevent cervical cancer.

The scheduling of recommendations can be found here:

This once sleepy corner of medicine is in a renaissance as Governments and prominent Non-Government Organizations (NGOs) are promoting disease prevention over treatment aimed at saving millions of lives, reducing suffering and saving billions preventing the need for treatment. There is a niche of the industry that is developing promising new vaccines, add the manufacturers, distributors, educators and delivery firms and the vaccine chain stands to profit while delivering positive change to the quality of life for generations to come.

Disclosure: Mr. Corn is CEO of Clear Indexes LLC which publishes the Clear Global Vaccine Chain Index. The index has been licensed to Claymore Securities, Inc who has issued the ETF:(JNR). Mr. Corn owns shares of (JNR).

When Almost Really Counts

Many health experts are concerned about the estimated shortage of flu vaccine in the US as the season approaches. Today’s post is concerning a disease that kills approximately 10,000 people in the US alone every year: pneumonia. Additionally, according to the World Health Organization (WHO), over one million children die of pneumococcal disease every year, most of these being young children in developing countries.

As the baby boomers (76 million in the US alone) begin to approach retirement, the world is achieving tremendous medical developments that will provide additional golden years of vigor, verve and vitality. One such example is the pneumococcal vaccine. Pneumonia is most detrimental to the elderly who may suffer from chronic health issues and/or reside in the close quarters of assisted living.

Fever, coughing, chills, nausea and chest pain are just a few of pneumonia’s unpleasant symptoms. Fortunately, research has proven that these symptoms can at best be avoided and at a minimum be subdued by the pneumococcal vaccine. The vaccine became available in 1977 and was materially improved in1983. A recent study found that the vaccine increases the body’s ability to ward off the illness even if the vaccine does not entirely prevent its onset.

Vaccine lessons severity of pneumonia, study finds
Source: reuters.com | Published: 08 October 2007 16:02

A study of more than 3,400 mostly elderly patients admitted to six Canadian hospitals with community-acquired pneumonia found those who had previously been vaccinated were 40 percent less likely to die or end up in the hospital's intensive care unit.

We speculate that even when the antibody response following vaccination is not sufficient to prevent pneumonia, the hosts' response may still be sufficient enough to moderate outcomes once pneumonia establishes itself," said the study published in the Archives of Internal Medicine.

Currently only 1 in 5 “high risk” individuals are receiving the vaccine. Due to a selection bias, vaccine success rates have not adequately demonstrated the vaccine’s potential. Only the frailest and sickliest patients have been receiving the vaccine.

From a business perspective, the cost of providing the pneumococcal vaccine will be saved exponentially through hospital bill savings.

There is some great research at the WHO on their web site:
http://www.who.int/vaccines/en/pneumococcus.shtml.

Commercial producers of pneumococcal vaccines are Prevnar and Pnu-Imune from Wyeth (WYE) and Pneumovax fro Merck & Co. (MRK) which are constituents in the Clear Global Vaccine Index.

As Prevnar and other vaccines become more widely accepted and utilized, children will be saved and millions saved in hospital care. Additionally, Baby Boomers will be able to sail into their golden years foregoing or reducing these and other health issues. This will leave more time for Boomers to discuss where they were when Kennedy was shot and tell their grandchildren stories of Woodstock, Studio 54 and what really happened in VW vans.

Disclosure: Mr. Corn is CEO of Clear Indexes LLC which publishes the Clear Global Vaccine Chain Index. The index has been licensed to Claymore Securities, Inc who has issued the ETF:(JNR). Mr. Corn owns shares of (JNR).

IRS says: The Rich are Getting Richer

The richest 1% of Americans earned a postwar record of 21.2% of all income in 2005, up from 19% a year earlier, reflecting a widening income disparity among different classes in the nation, the Wall Street Journal reported this morning, citing new Internal Revenue Service data.

Underneath the headlines and what I find interesting are the sources of income. The rich get richer and stay that way by participating in the capital markets. This group saves enough money to put it to work and benefits from the work their capital can perform, not just the sweat of their own brows.

For those already investing, the real question is how can I profit from this news and these data points?

My answer to the "rich getting" richer investment thesis is twofold:

1. How do they keep making more money?
2. How do they spend their excess cash?

The ETF world is already set with products addressing both investing themes.

The first product that directly benefits from investment is the Claymore/Clear Global Exchanges, Brokers and Asset Managers ETF (EXB). The constituents of the underlying index are the very institutions that invest capital and profit from the investments, trades or both. These firms make money when the markets go up or down, though many make more as markets rise. I have covered some of the specifics here.

The next product addresses the second way of benefiting from the rich, how they spend their money. The product is the Claymore/Robb Report Global Luxury ETF (ROB) which focuses on luxury companies. I provided a more complete view of this index earlier this week here.

What both products also address is that this is not a phenomenon limited to the US. In fact China already has the second highest concentration of billionaires and the globe is minting new millionaires daily.

As investors, we seek to leverage this data as published by the IRS, data many of us already instinctively knew and had read in similar reports from Merrill
Lynch/Capgemini and others. It is good to know there are products readily available to capitalize on the investment thesis.

Disclosure: Mr. Corn is CEO of Clear Indexes LLC which consults to Curtco media for the index tracked by the Claymore/Robb Report Global Luxury ETF (ROB). Clear Indexes also publishes the Clear Global Exchanges, Brokers and Asset Managers Index which is tracked by the ETF (EXB). Mr. Corn owns shares of (ROB) and (EXB).