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DB - European ETF Market: Implementation strategy : Extracting value from credit markets through CDS benchmarked ETFs
July 12, 2012--The period from 2007 through to 2009 saw many credit markets transform, with credit spreads moving from all time lows to all time highs. Prior to the credit crunch these lows contributed to classic credit investments often being subordinated to equity when making portfolio asset allocation decisions. Credit has sharply re-priced since 2008.
The re-pricing of credit is increasingly leading to reconsideration of its role in portfolio construction and asset allocation. Portfolio managers are more vigilant about the potential downside due to credit risk exposure. They also use credit value driven instruments, such as Credit Default Swap indexed products and corporate bond benchmarked products, to extract value from credit yield fluctuations and improve portfolio returns.
Historically, direct access to credit markets via a fund was only possible through cash bond benchmarked products. The European ETF market now houses products that can give access to credit yield related returns both through cash bond as well as CDS index benchmarked products. There are currently 34 ETFs benchmarked on corporate bond indices and 25 ETFs benchmarked on CDS indices in the European ETF market.
CDS indices have enjoyed stable and liquid market conditions, with open interest of $11.4 trillion as of 15/06/12, comprising 43% of the overall CDS market open interest. CDS benchmarked ETFs benefit from CDS market liquidity and thus often do away with pricing issues that are prevalent in the wider fixed income market, especially in less liquid segments such as high yield.
2012 ETF cash flows reflect the renewed role of credit in portfolios through the corporate bonds market. Corporate bond benchmarked ETF flows – a sub-category of fixed income – gathered an impressive €3.1 billion of inflows over the first half of 2012. This accounts for close to 60% of the entire 2012 European ETF industry overall cash flows (€5.2 billion). This trend also held true for the US ETF market, where corporate bond benchmarked ETFs gathered $20 billion of inflows over 2012, accounting for close to 30% of the US ETF market’s YTD inflows.
CDS indexed ETFs in the European market are a relatively new and less used product. They have gathered marginal flows of €50 million this year. However we believe that they represent an interesting addition to the ETF investor’s tool box given current credit market conditions. The elevated role of credit returns when making asset allocation decisions is relevant both when taking risk-on as well as risk-off views.
CDS benchmarked ETFs can be used as a hedge to protect against downside from credit risk. They can also be used to take directional views on credit spreads. There are certain factors that need to be looked at closely when considering making asset allocation decisions involving CDS benchmarked ETFs. In this report we explore both the characteristics of the CDS benchmarked ETF wrapper as well as those of their respective benchmarks. Such factors include basis risk between a cash bond portfolio and a CDS index, ETF liquidity evaluation, the impact of path dependence from using short and/or leveraged CDS benchmarked ETFs and index construction characteristics, just to name a few.
The following link will be available for 90 days. For more information, please click on the link for the full PDF. If you have any trouble viewing the link, copy and paste the link in a browser. http://pull.db-gmresearch.com/p/625-DCE4/79533802/European_ETFs_Implementation_Strategy.pdf
Source: Christos Costandinides, European Head of ETF Research & Strategy, Deutsche Bank
ETF Stat June 2012-Borsa Italiana
June 12, 2012--The ETF Statistics of the ETF Plus Market for the month of June 2012 are now available.
view report
Source: Borsa Italiana
ECB-Review of the international role of the euro
July 11, 2012--The European Central Bank (ECB) publishes today its report on "The international role of the euro", which examines developments in the use of the euro by non-euro area residents during the year 2011.
The report finds that the international role of the euro remained relatively resilient during 2011. When compared with other major international currencies, the share of euro-denominated instruments fluctuated only marginally between 2010 and 2011 in the market segments examined. The share of euro-denominated instruments decreased by 0.4 percentage points in global holdings of foreign exchange reserves when adjusted for valuation effects. With regard to the turnover in foreign exchange markets, the share of the euro increased by around one and a half percentage points , while it dropped by 1.3 percentage points in the stock of internationally issued debt securities (also after valuation adjustment).
The report this year contains four special feature articles. The first of these finds that the response of foreign investors in 2011 to the euro area sovereign debt crisis was different from the global shock in 2008, lessening their demand for euro area securities, in particular those of the high-yield sovereign issuers.
view the ECB report-The international role of the euro
Source: ECB
London Stock Exchange and Singapore exchange sign cross quotation agreement
FTSE 100 and top 36 SGX stocks to be traded on both markets
Agreement launches LSE's "International Board"
Expands international footprint of both exchange groups
Investors to benefit from greater trading opportunities
Companies to benefit from broader global investor base
July 11, 2012--London Stock Exchange (LSE) today announces that it has signed a Memorandum of Understanding (the "Agreement") with Singapore Exchange Limited (SGX) to allow the largest and most actively traded stocks on each exchange to be traded by their respective member firms.
Under the Agreement, LSE members will be able to trade the top 36 SGX-listed companies on LSE’s newly-created "International Board". These include securities of Singapore’s leading indices; the Straits Times Index and MSCI Singapore Index. Similarly, SGX members will be able to trade FTSE 100 securities on SGX’s GlobalQuote Board.
For investors, the collaboration will extend trading hours for the most actively traded securities in both markets to around 15 hours each day, providing more opportunities for investment, trading, and risk management for participants in London and Singapore.
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Source: London Stock Exchange Group
Swap-based corporate bond ETF from db X-trackers
July 11, 2012--Db x-trackers has launched a Ucits IV-compliant ETF that gives exposure to an index of liquid sterling-denominated corporate bonds.
The db x-trackers II iBoxx GBP Liquid Corporate 100 Index ETF provides exposure to up to 100 sterling-denominated corporate bonds that have been screened for liquidity.
An eligible bond will be one that has at least two years to run until maturity and a minimum outstanding of £400m.
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Source: International Adviser
FESE European Equity Market Report-updated with June figures
July 11, 2012--FESE has published the 'European Equity Market Report' which gathers data from all the market segments operated by FESE members (including Regulated Markets and Multilateral Trading Facilities) as well as from the major MTFs operated by investment firms in the European market. The FESE Statistics Methodology used in the Report has been agreed by all the trading venues involved, both RM and MTFs.
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Source: FESE
DB - Equity Research-Weekly European ETF Market Monitor : Euro Stoxx 50 inflows make a come-back this week
July 11, 2012--Equity ETFs: Euro Stoxx 50 inflows make a come-back
The first week of July delivered healthy inflows of €1.5 billion making it the 3rd best cash flow week for the European ETP industry this year. Flows were directional and diversified across equity, fixed income and commodities, thus reflecting improved market sentiment. ETFs were the largest beneficiary with €1.4 billion of inflows.
Equities received €787 million of inflows, primarily channeled towards developed market (DM) equity diversified indices (€700 million). Most of the inflows into equity diversified indices were received by Euro Stoxx 50 benchmarked ETFs (€410 million).
This week’s inflows into DM diversified equity indexed ETFs solidified their gains into positive territory for 2012. YTD diversified DM equity benchmarked ETFs received €864 million of inflows while the Euro Stoxx 50 YTD flows are still well in negative teritorry, totalling €1.2 billion of outflows. The US S&P 500 and MSCI Europe are the two largest YTD diversified DM equity benmarked ETF beneficiaries with inflows of €645 and €691 million respectively. Germany’s DAX benchmarked ETFs continued to experience outflows this week (-€122 million) bringing their YTD outflows to €375 million.
Fixed income ETFs: Positive week across the board
Fixed income ETFs saw another good flows week with inflows totalling €568 million, bringing their YTD inflows to €3.2 billion. YTD fixed income ETF inflows continue to come in at healthy levels and they now outweigh those of equity ETFs by 1.6x times, eventhough fixed income comprises 21% of the European ETF market, while the comparable number for equity benchmarked ETFs is at 67%.
The biggest fixed income beneficiary this week was again corporate bond benchmarked ETFs, receiving inflows of €248, bringing their YTD inflows up to €3.3 billion. Corporate benchmarked ETF inflows remain this year’s biggest trend across all asset classes in Europe.
Commodity ETPs: Marginal gold inflows
Commodity ETPs netted inflows of €106 million this week, primarily driven by inflows into gold benchmarked ETPs totalling €145 million. These gold flows are at comparable levels as those of the prior week (€157 million) and they have brought YTD gold ETP inflows up to €1.8 billion. Gold ETPs continue to dominate the commodity ETP space, where all other non precious metal commodity ETPs saw marginal outflows this week (€39 million). YTD non-gold benchmarked ETPs saw inflows totalling just under €200 million.
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Source: Christos Costandinides, European Head of ETF Research & Strategy, Deutsche Bank
Lords Committee publishes report on MiFID II
July 10, 2012--Rushed proposals from the European Commission to regulate financial markets risk damaging both the City of London and the entire EU financial sector.
Flawed transparency proposals and the risk of creating unnecessary red tape means the EU needs to stop and take the time to get the proposals right, according to a report published today by the House of Lords Economic and Financial Affairs EU Sub-Committee.
view the report-Getting it Right for the City and EU Financial Services Industry
Source: Parliament.uk
db Commodity Momentum Euro Hedged ETC launched on Xetra
A new exchange traded commodity issued by db ETC Index plc has been tradable on Xetra since Tuesday.
July 10, 2012--ETC name: db Commodity Momentum Euro Hedged ETC
Asset class: Commodities
ISIN: DE000A1N4341
Total expense ratio: 0.45 percent
Benchmark: db Commodity Momentum EUR Index
The new db ETC tracks the performance of the db Commodity Momentum EUR Index, which follows an investment strategy based on short-term momentum of individual commodities. The index represents a broadly diversified commodity basket, based on the 14 sub-indices of S&P GSCI. All db ETCs are backed by physically deposited gold bars.
Deutsche Boerse's ETC segment product range currently comprises 274 instruments. The monthly trading volume of ETCs on Xetra averages around €700 million.
Source: Xetra
IMF-Italy: Selected Issues
July 10, 2012--Chapter I. Structural Reforms in Italy: Overview and Macroeconomic Impact
Wide-ranging structural reforms are underway in Italy, aimed at addressing key bottlenecks in the product
and labor markets. This paper reviews and assesses the authorities' reform plans in each area.
Our model-based analysis suggests that the potential gains to the economy from deeper reforms are sizeable.
The priorities should be to strengthen competition in the non-tradable sector and increase flexibility and
participation in the labor market, supported by growth-friendly fiscal reforms.
Chapter II. Fiscal Devaluation In Italy: Towards A More Export, Employment, And Growth Friendly Tax System
A "fiscal devaluation" is a revenue-neutral shift from employer’s social contributions toward value-added tax, meant to promote net exports, employment, and growth. If sizeable, the shift could contribute to addressing Italy’s competitiveness gap. Fiscal devaluation, however, does present potential risks in terms of tax compliance and pension financing. To enhance its effectiveness, fiscal devaluation should aim to reduce VAT tax expenditures, while focusing social security contribution cuts on groups that are poorly integrated into the labor market.
view the IMF paper-Italy: Selected Issues
Source: IMF
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