Articles Tagged with EMNAX

shutterstock_186555158The Securities and Exchange Commission (SEC) fined firm F-Squared Investments $35 million while admitting wrongdoing to settle charges that it defrauded investors through false performance advertising about its flagship product. As we previously reported, shares of mutual fund provider Virtus Investment Partners Inc. (Virtus Investment) tanked on news that the SEC was close to recommending charges against F-Squared a sub-adviser on the Virtus funds. F-Squared –builds mutual fund portfolios consisting of exchange traded funds (ETFs) for the Virtus mutual funds.

According to the SEC’s order, F-Squared, the largest marketer of index products using ETFs, the firm began receiving signals from a third-party data provider in September 2008 indicating when to buy or sell an investment. The SEC alleged that the signals were based on an algorithm and F-Squared used the signals to create a model portfolio of sector ETFs that could be rebalanced periodically as the signals changed. The new product “AlphaSector” launched the first index shortly thereafter. AlphaSector’s indexes became the firm’s largest revenue source.

The SEC alleged that the marketing of AlphaSector into the largest active ETF strategy in the market was based upon false information concerning F-Squared’s successful seven-year track record. According to the information provided, the marketing materials were supposed to be based on the actual performance of real investments for real clients. But in reality, the SEC found that the algorithm was not in existence during the seven years of the advertised performance success. Instead, the SEC found that F-Squared’s advertising was actually derived through backtesting to historical market data generating a hypothetical performance during a prior period.

According to the Wall Street Journal that Shares of mutual fund provider Virtus Investment Partners Inc. (Virtus Investment) tanked on news that the Securities and Exchange Commission (SEC) is closer to recommending charges against F-Squared Investments Inc., (F-Squared) a sub-adviser on the Virtus funds. F-Squared –builds mutual fund portfolios consisting of exchange traded funds (ETFs) for the Virtus mutual funds.

F-Squared received a Wells notice from the SEC which indicates an investigation and possible action by the commission against the company. According to WSJ, the SEC’s investigation revolves around whether F-Squared advertising of their quantitative stock strategies was truthful and whether they were tied to real money. The timeframe looks at the returns from April 2001 through September 2008.

While VRTS and the five Virtus Funds Premium AlphaSector (VAPAX), Allocator Premium AlphaSector (VAAAX), AlphaSector Rotation (PWBAX), Global Premium AlphaSector (VGPAX), Dynamic AlphaSector (EMNAX) are not subject to the SEC’s investigation the potential negative outcome for F-Squared is already negatively impact the mutual funds and therefore VRTS as well as clients flee these products.

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