Archive for April, 2012

Seed Money 3

The problem  of Issuers  ETFs  finding seed money from Market Makers seems to have faded. With most new issues being seeded at between $2.5  and $5.0 million the amounts have helped solve the situation with these numbers being down from the $15 to $35 million per issue of several years ago.

Equally important is the fairly recent entrance into the seeding space of third party seeders who put up the initial seed in return for various incentives given back by the Issuers. These incentives can be in various forms including reciprocal business, Basis Points in the funds or straight interest on the amount invested in the initial seed.  There generally seems to be an agreed upon tie up period on the seed shares to avoid the Lead Market Maker being in competition with the party holding the seed shares. Of particular benefit to the new arrangement is that the party holding the seed shares is often willing to lend out the shares to the LMM who historically attempt to short shares to the public at a premium to the NAV. Our experience has been that the ability to borrow shares at very decent rates enables the LMM to offer Shares of the ETF at tighter spreads to the NAV. This benefits the public, enables the Issuer to grow its assets more quickly than when shares are difficult or impossible to borrow and therefor expensive to the LMM. This also provides further income to the party doing the seeding. In all a great improvement over the early years of ETF issuance.

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Age Bias

My wife turned 65 in December of 2011 and I turned 66 in March of 2012. A number of events occurred which we had not expected.

My wife’s company dropped her from their Health Care coverage-evidently required as they have less than 15 employees. At the same time her life insurance policy though the company was reduced from $50,000 due on her death to $35,000, also due to age. She was encouraged to go on Medicare A and B as the alternative to the company health care policy. The cost naturally jumped essentially cutting her take home pay by roughly $7000 per year.

During the past four months, I was downsized and had to pick up both of our health insurance coverages through Cobra (United Health Care. For a variety of reasons we are currently paying roughly $15,000 per year for health care. After many years of neglect, I have been going through various tests to measure my health. Having had cancer twice and having worked in a high tension job, it was time. Much to my chagrin I found that several of my doctors would not accept United Health Care. In retrospect I shouldn’t have been surprised. A year ago I had a lipoma removed from my back. Had it pre-approved by UHC, only to have them reject the claim several times before eventually paying. Fortunately I had arranged a fixed price for the surgeon (who doesn’t accept UHC) and actually came out a winner when the surgery took almost three hours instead of the expected one hour.

What do I take away from these events? Our health care system is inadequate-punishes the generation that hits 65 and shows little sign of getting better. Maybe there is something to be said about a system similar to Canada or Great Britain.