Emotional Bias

Canada

Redwood lists a hedge fund style ETF

Toronto-based issuer Redwood is listing a new ETF on NEO Exchange, a Canadian stock exchange that blocks high-frequency trading. The Redwood Behavioural Opportunities Fund (BHAV) tries to make the most investor behavioural biases and market inefficiencies. To this end, it will target several biases, including: emotional cascade, earnings overreaction, indexing bias, unloved or less loved, neglect and crowded trades.

Emotional cascade – a new term for this writer – is a form of “availability bias” where investors are too heavily influenced by “recent or widely available information, thereby losing sight of a longer term, potentially more successful, investment outlook,” the prospectus says. Such a bias becomes especially acute when a major event occurs and investors overreact.

Earnings overreaction is something similar: where investors make too much of short-term earnings and either dump or buy too much of a company based on recent earnings reports.

Indexing bias, which should be familiar to ETF observers, is when companies become overpriced or underpriced due to their being included or excluded from indexes. (This one is a well-worn path and many institutions have algorithms in place to deal with the fallouts of index dumpings).

Unloved aims to pick up stocks that have low buy ratings from agencies or whoever else.

Neglect targets spinoffs from big companies. When companies spin off parts of their business the newly dumped part can be neglected – making it a great investment opportunity.

Crowded trades targets companies that have been too heavily traded and likewise are benefiting from confirmation bias.

China

China Universal lists two new ETFs            

Chinese asset manager and mutual fund specialist China Universal is listing two new listed funds on the Shanghai stock exchange. They are:

  • China Universal CSI Hong Kong Stocks Through High Dividend Launched Fund A (501306)                 
  • China Universal CSI All Share Investment Banking Brokerage Index Fund A (501048)

Germany

JPMorgan cross-lists two ETFs into Germany

JPMorgan is cross listing two of its new hedge fund style ETFs into Europe. They are:

  • JPM Equity Long-Short UCITS ETF (JPQE)
  • JPM Managed Futures UCITS ETF (JPGM).

Both are already listed in the US and London.

JPQE will invest both long and short in various companies headquartered in rich countries. In chosin which companies to buy, it will use the three big factors: value, quality, and momentum.

Whereas JPQE focusses on equity, JPGM will use a factor approach across a range of assets, including equities, bonds, currencies, and commodities.

London – lots of cross-listings

In what appears to be a result of Brexit, issuers around the world are quickly listing many ETFs on the London Stock Exchange. There isn’t room here to list them all, but there is a file if you are interested London Listing