Daily ETF Watch: F-Squared Cuts Jobs

The post-scandal era at the biggest ETF strategist of them all begins to take shape.

Managing Editor
Reviewed by: Olly Ludwig
Edited by: Olly Ludwig

F-Squared, the Wellesley, Massachusetts-based ETF strategist that was fined by U.S. regulators for improper use of backtesting in its marketing, is cutting about 25 percent of its jobs in the first sign of substantive change for the biggest ETF strategist since replacing its top executive last year.

It’s not yet clear whether the reduction in head count is linked directly to a decline in its $24 billion in fee-generating assets, but the company said yesterday in a prepared statement that the layoffs reflect a new, leaner, way of operating.

“We have created a more agile operating structure that better aligns our extraordinary people with the needs of our clients, including the elimination of redundancies in our operations,” the company said in the statement. “In this process, we have realigned our talent into four high performance teams – Investments, Distribution, Operations and Legal/Compliance.”

F-Squared last officially reported to regulators that it had about $24 billion in fee-generating assets at the end of 2014, making it the single biggest ETF strategist firm in the world. The overarching question is how much lower that assets figure will be the next time it reports to the Securities and Exchange Commission.

ETF industry sources, by and large, say the scandal is likely to dent the firm’s allure and thus the assets it manages. But they also generally say that the wider ETF strategist pocket of the money management industry that runs about 5 percent of the more-than $2 trillion in total U.S.-listed ETF assets isn’t likely to feel the repercussions of the F-Squared scandal.

Shooting Star Falls To Earth

The company became famous through the use of tactical quantitative asset allocations that seemed to steer investors safely through the perilous market collapse almost seven years ago. Its sales efforts are the stuff of legend in the money management industry. The firm, at its height, had super-charged sales efforts that led to the rapid increase in its assetts, ETF industry sources told ETF.com.

But the high-flying firm began falling back to Earth in October 2013, when the SEC announced it might launch an investigation into whether F-Squared misrepresented backtesting of its returns data in marketing materials.

The SEC did begin investigating F-Squared and, late last year its former CEO Howard Present resigned and the firm agreed to pay $35 million in fines to settle the matter. Present himself still faces possible charges.

The firm is reportedly cutting about 40 jobs out of 161 positions. F-Squared is located about 15 miles west of Boston.

Commodities Fund Is Shuttering

United States Commodity Funds is closing down one of its futures-based commodity indexes as of today.

The Oakland, California-based firm said in regulatory paperwork that it planned on shuttering the United States Metals ETF (USMI | F-80). It has been suspended from trading on NYSE Arca, with full liquidation expected to occur on or around March 25.

The decision was originally announced on Jan. 30. The fund ended 2014 with about $2 million in assets under management, and yesterday that number was well below $1 million.

USMI was originally launched in June 2012, with a futures-based portfolio covering 10 precious and industrial metals. However, it failed to flourish.

The suspension of trading in USMI brings the total number of closures so far in 2015 to 10.

3 Other ETF Delistings

Also delisting today were three SPDR ETFs:

Olly Ludwig is the former managing editor of etf.com. Previously, he was a financial advisor at Morgan Stanley Smith Barney and an editor at Bloomberg News. Before that, Ludwig was a journalist at the Reuters News Agency in New York.