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Wall Street’s Newest Scam Revealed

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June 20, 2012
Wall Street’s Newest Scam Revealed
News That Can Directly Impact the Size of Your Wallet
Today’s Laugh Line
This Day in Wall Street History: 1931: Hoover vs. the Depression
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Wall Street’s Newest Scam Revealed

By Teeka Tiwari – Creator: ETF Master Trader

The sawed off shotguns are cocked, the ski masks are on, and the get-away car engines are running.  They can feel the adrenaline pumping through their veins, heightening their senses and sharpening their reflexes.

If this sounds like the opening of a Blockbuster Summer Movie, you’d be half right, because the white collar version of this robbery scene is playing out right now in the war rooms of America’s biggest Mutual Fund companies.

The Wall Street scam machine is moving into high gear, and it has its eyes set on your money.  Faced with the reality of declining fees — caused by departing customers who’ve smartened up and woken up to the fact that 75% of all fund managers cannot beat the S&P 500 — the Mutual Fund boys have applied their big brains and created a novel way of parting you from your cash.

Customers Got Smarter

This performance gap has caused disgruntled investors to shift their assets away from Mutual Funds and into passive funds called Exchange Traded Funds (ETFs).  They are called passive because they don’t need an investment management team calling the stock picks.  Instead, ETFs are set up to mimic the performance of an index like the Dow Jones Industrial Average or the S&P 500.

Since 75% of Mutual Funds cannot beat the S&P 500, many investors have started to sell their Mutual Funds and just buy Index ETFs.  The growth in ETFs has been phenomenal because, unlike a Mutual Fund, the fees are low, ETFs offer pinpoint exposure to a specific index, many trade options, and you can buy and sell (as well as sell short) an ETF just the same way you can trade a stock.

A Dying Business

For the last 30+ years, the biggest fee generating machine on Wall Street has been in setting up and managing Mutual Funds.  More individual investor money is committed to them than any other investment form.  At the last count, 23% of America’s investable wealth, $13 trillion, is in Mutual Funds.

Many of these funds charge fees that range from a half a percentage point to well over 1% per year.  That puts the fees generated from this industry into the hundreds of billions of dollars.  But the big Mutual Fund fee party is about to come to a crashing halt.

The Scam Takes Shape

They know that they cannot compete with the passively managed ETF model… they see the writing on the wall:  In 20 years’ time their industry will be a shell of its former self. 

Their solution is to take their Mutual Fund managers and put them into their own actively managed ETFs.

So instead of the ETF passively copying an index’s performance, the new mutant fund — oops, I mean Mutual Fund — ETFs will be actively managed.  You have to ask yourself, if they couldn’t beat the S&P 500 when they were Mutual Funds, how in the heck will they beat the S&P 500 as an ETF?

This is where their decades of marketing prowess will come to bear as they attempt to CON…..vince a new generation of investors that they should abandon passive ETFs and embrace "professionally managed" ETFs.

Here Come the Clowns… Sorry, I Meant to say Clones

Possibly the most egregious of these Mutual Fund mutants are the so-called Hedge-Fund Clone funds.  They are truly ridiculous, and I am shocked that two of these funds even made it to market.  Here’s how they work… these funds are designed to mimic the holdings of famous hedge fund managers.

Sounds like a great idea, right?

Remember, all the greatest scams come with a little pizzazz, and what could be sexier than coat-tailing America’s smartest money managers? 

But here is the problem:  The fund sponsors are attempting to replicate these holdings by following the 13F filings of the most successful funds.

What’s a 13F?

Once a fund gets to a certain size, it must reveal its holdings via a 13F filing.  However, the 13F filed with the SEC is always at least 45 days old!  In some cases a fund can get a special waiver, postponing a 13F filing far further than 45 days.

The other problem is that the hedge fund could be long gone out of that trade before they have to file another 13F letting the SEC know they sold the position!

Can you imagine a more terrible investment approach?

These two "mutant" ETFs are AlphaClone Alternative Alpha ETF (SYM: ALFA) and Global X Top Guru Holdings ETF (SYM: GURU). 

Not all mutant ETFs will be so easy to spot, and you can bet that hundreds more are on the way.  So a good rule of thumb is to avoid any ETF that refers to itself as a "managed" ETF.

Let Us Know What You Think About This Article

Teeka Tiwari
Editor, The Tycoon Report
Creator, ETF Master Trader System
Creator, Sector Hunter

Teeka Tiwari epitomizes the American Dream. He came to the United States from England at sixteen with just $150 in his pocket and the clothes on his back. By eighteen, Teeka had become the youngest employee at Lehman Brothers, and two years later he shattered convention by becoming the youngest Vice President in the history of Shearson Lehman.

By the time he was 23 Teeka had made and lost a million dollars. At 27, he was a millionaire several times over.

In June 2005, Teeka co-founded the Institute for Individual Investors and created Point & Profit, the trading service. Point and Profit made his wealth-building acumen available to the average individual investor for the first time.

Since then, Teeka has been developing and perfecting the ETF Master Trader System, an interactive education program that teaches a complete Sector Trading investment methodology, and gives ordinary investors the confidence they need to master the markets using Exchange Traded Funds.

In June 2008, Teeka launched Sector Hunter, the world’s first fully-automated ETF trading technology. Sector Hunter provides individual investors with an institutional quality tool for identifying big money moves in 46 narrow sector groups, and then selecting those ETFs and stocks best positioned to yield profits from the move.

Teeka is a regular contributor to FOX Business Network, and has appeared on FOX News Channel, The Daily Show with Jon Stewart, and international television networks. He manages a hedge-fund which is closed to new investors.

Teeka’s recent Tycoon Report articles can be found below.

News That Can
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US, China Find Something New to Have Showdown About

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Why India’s Banks Are Looking So Vulnerable

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Procter & Gamble Cuts 4Q Profit, Revenue Outlook

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Today’s Laugh Line

"Earlier this week, President Obama gave a major speech where he defended his handling of the economy. And there were tons of people in the audience, you know, since nobody had to be at work." — Jimmy Fallon

(Got Jokes? Send your best jokes or funny videos to … if it makes us laugh, you might just see it in The Tycoon Report some day!)

This Day in Wall Street History:
1931: Hoover vs. the Depression

1931: Hoover vs. the Depression

Unlike his successors Franklin Roosevelt and Harry Truman, Herbert Hoover is often remembered for what he didn’t do during his tenure in the White House. In particular, Hoover has taken his share of knocks for supposedly failing to marshal the nation’s legislative forces against the Great Depression. While it’s true that Hoover viewed the business community as the primary engine of America’s economic revival, he did help devise a number of initiatives that aimed to speed the end of the Depression. Case in point: on this day in 1931, Hoover urged leaders of various nations to suspend payment of international debts and reparations for the next year. The moratorium was intended as a precautionary measure: with the recent demise of a major Austrian bank, Hoover feared that the international economy was on the brink of a nasty slump that would only worsen the United State’s woes. The international community readily acceded to Hoover’s wishes and by July the freeze wa
s in effect. But, though Hoover’s moratorium initially helped restore confidence in the world’s various markets and economies, its healing powers were short-lived: that fall, Great Britain abandoned the global economy, shattering most nation’s fragile faith in the international economy.



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