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Italy borrowing costs double as euro debt concerns resurface
April 11, 2012--Italy's borrowing costs doubled in a closely-watched bond auction on Wednesday that raised 11 billion euros ($14 billion) in short-term debt, as tensions returned to eurozone bond markets.
Eight billion euros in 12-month bonds were sold at a rate of 2.84 percent -- far higher than the 1.492 percent paid in March while three billion euros due July 2012 went at 1.249 percent compared to 0.492 percent last month.
Borrowing costs had been on the decline in recent months after Prime Minister Mario Monti came to power in November, replacing Silvio Berlusconi who was ousted by a parliamentary revolt and a wave of financial market panic.
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Source: CityWire
DB - Equity Research- Equity Research - Europe-Weekly European ETF Market Monitor
April 11, 2012--The Weekly European ETF Market Monitor includes key statistics on the European ETF market as well as global ETF market highlights..
For more detailed coverage please refer to the monthly report, issued in the first week following the end of each month
The following link will be available for 90 days. For more information, please click on the link for the full PDF. If you have any trouble viewing the link, copy and paste the link in a browser. http://pull.db-gmresearch.com/p/400-1330/96007814/ETF_Research.pdf
Source: Source: Christos Costandinides, European Head of ETF Research & Strategy, Deutsche Bank
Source and Nomura Expand Tactical Volatility Offering
April 10, 2012--April 2012--Source and Nomura have today announced the launch of the Nomura Voltage Short-Term Source ETF (the "ETF"). The ETF aims to provide responsive and tactical exposure
to volatility by tracking the Nomura Voltage Strategy Short‐Term 30-day USD TR Index, an index which seeks to capture spikes in volatility while reducing associated slide costs.
This is the second Source ETF in the Nomura Voltage series. The Nomura Voltage Mid‐Term Source ETF, which tracks the Nomura Voltage Strategy Mid‐Term 30‐day USD TR Index, was launched in April 2011 and now has assets of over US$ 542 million. Both ETFs are available to sophisticated investors, providing them with different volatility investment options to better manage their risk/return profile.
Futures on the CBOE Volatility Index (the “VIX”) are a convenient way to obtain exposure to volatility. However, because VIX futures often suffer from contango1, maintaining that exposure over the long term can be costly. The Nomura Voltage Strategy Short‐Term 30‐day USD TR Index offers an efficient alternative for investors seeking a long position in volatility. The index reflects exposure to volatility via the S&P 500 VIX Short‐Term Futures Index TR, but varies the level of exposure from 0% to 100% based on the Nomura Voltage allocation model. In this way, the index aims to capture spikes in volatility, whilst mitigating the cost of rolling VIX futures.
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Source: Nomura
In response to ESMA consultation paper on ETFs, EDHEC-Risk Institute calls for improved transparency, governance and auditability of indices
April 10, 2012--In commenting on the ESMA Consultation Paper entitled "ESMA’s guidelines on ETFs and other UCITS issues" (ESMA/2012/44, January 2012), EDHEC-Risk Institute has welcomed the broadened focus of this new consultation, which goes a long way towards approaching important issues in a horizontal way across all UCITS, rather than in a vertical way limited to UCITS ETFs,
but regrets that the consultation paper has not gone further in several key areas:
While underlining the differences between passively and actively managed funds and proposing more disclosures on tracking error, the consultation paper falls short of giving a definition of passive management that would be framed in terms of a limit on the maximum level of tracking error acceptable.
EDHEC-Risk strongly believes that for an index-tracking vehicle to be considered a passive investment vehicle, it is also necessary that the underlying index be a financial index whose composition is dictated by a set of pre-determined rules and objective criteria allowing for strict systematic implementation. For an index to be considered representative of passive management, its ground rules should leave no room for implicit, let alone explicit, discretionary choices.
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Source: EDHEC
French economy grinds to a halt
April 10, 2012--France's economy posted no growth in the first quarter and there are no signs of a strong recovery in activity in the coming months, according to a Bank of France survey on Tuesday.
In its monthly report, the Bank of France indicated that the eurozone’s second-largest economy avoided a recession, after it grew by 0.2% in the fourth quarter.
However, it said that activity was likely to remain stable in the coming months, a picture confirmed by soft manufacturing data on Tuesday from the INSEE national statistics office.
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Source: FIN24
Volatility-linked ETFs boost Source
April 8, 2012--Investors' desire to protect themselves against any equity market sell-off has helped transform Source into the second fastest-growing exchange-traded fund provider in Europe this year.
Source is the 10th-largest European ETF provider by assets, but it enjoyed the second-highest net inflows in the first quarter, gathering just under $1.2bn. More than half the inflows were generated by two volatility-linked products, which garnered a total of $660m.
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Source: FT.com
EU plays down financial impact of carbon tax on airlines
April 6, 2012--The EU's climate commissioner played down the impact of the controversial carbon tax being imposed by the bloc on airlines, saying Friday it would cost less than a cup of coffee per passenger.
With the tax, sharply criticised by China and the United States, "a flight from Beijing to Frankfurt for example will cost around an extra two euros per passenger," Climate Commissioner Connie Hedegaard told the French daily Les Echos.
"In other words, an amount less than that of a cup of coffee at the airport," she added.
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Source: EUbusiness
EC shocks hedge funds with decision to implement AIFM as regulation
April 5, 2012--The latest draft of the EU AIFM directive has been leaked, prompting an unofficial consultation over changes to several key points and accusations that the European Commission ignored Esma's advice.
The European Commission’s decision to implement its controversial hedge fund rules as a regulation rather than a directive has rankled the hedge fund industry and the wider European financial and political communities.
A draft version of the implementation rules for the alternative investment fund managers (AIFM) directive has been leaked, sparking debate across the industry about why the Commission is ignoring much of the Level 2 advice from the European Securities and Markets Authority (Esma) and reverts back to Level 1 detail in some areas.
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Source: Investment Europe
DB - Equity Research- ETF Market Monthly Monitor : A different type of ETF investor continues to emerge in March
April 5, 2012--The pattern: Buy and hold non sovereign fixed income
March brought €1.2 billon of new money into the ETF industry a level that is below the €1.5 billion observed in February 2012 and also below that of the equivalent month last year (March 2011: €2.8 billion). There are a couple of reasons for the solid but yet undeniably slower performance of this month's cash flows.
While market mood has improved in the past three months, cash flow levels are still below those that we observed in the first half of 2011. This is consistent with the more somber general market mood and trading activity levels - as compared to that of Q1-11 - across the market and it is not specific to ETFs.
Beginning in February 2012 and more specific to ETFs, we have also observed a clear trending into European fixed income corporate bond benchmarked ETFs. Fixed income is currently 19.5% of the ETF market, so when fixed income trends materialize they tend to have a lower impact on the overall cash flows.
Even further, the corporate bond benchmarked component is 5.4% of the European ETF market. Most of the fixed income ETF inflows we have experienced this year went into corporate bond benchmarked ETFs, while last year, sovereign bond benchmarked ETFs were the largest cash flow recipients. Sovereign benchmarked ETFs are a far larger component of the market currently at 10.4%.
The advance of the corporate bond fixed income investor is further supported by observing March on-exchange turnover volumes. Corporate bond benchmarked ETF turnover experienced an 11.7% increase in March, registering the strongest percentage as well as absolute (+€164 million) turnover performance to reach €1.6 billion. Conversely, sovereign benchmarked ETFs experienced the largest decline, both in percentage (-10.8%) as well as absolute terms (-€331 million) going down to €2.7 billion. Sovereign benchmarked ETFs experienced outflows of €120 million over the month of March 2012.
Its significance: More active role in asset allocation
With volatility and strong directionality absent in the equity market at the moment, the buy-and-hold investor gains new importance. This has significant implications towards not only trading patterns but it also signals that fixed income – a trade typically associated with a longer investment horizon - is taking a more active role in asset allocation.
With interest rates fairly stagnant across developed markets, the corporate bond trend also points to credit as an increasingly important source of alpha.
ETF month in perspective
This month’s defining trends: Corporate bonds and gold advance
March continued to see investors shifting emphasis on fixed income, with some more defensive allocations - in the form of long gold, materialized in March. Some equity – mainly global – segments saw inflows as well. European broad indices led the outflow activity with investors taking profits after the Euro Stoxx 50 rose by 4.6% in January and 4.0% in February. Euro Stoxx 50 lost 1.3% of its value over March 2012.
Corporate Bonds: Euro investment grade bonds take largest share
Corporate bond benchmarked ETFs gathered €2.3 billion of inflows YTD, €743 million of which came in over the month of March. Inflows into corporate bond benchmarked ETFs have consistently received inflows since the beginning of the year and March was the second highest flow month this year.
Both investment grade (82%)and high yield (18%) benchmarked ETFs attracted flows, with Euro investment grade bonds receiving the lion’s share with €523 million of inflows in March, elevating their YTD inflows to €1.9 billion.
Within high yield benchmarked ETFs, flows totaled €424 million YTD, with ETFs tracking the USD market attracting 57% (€242 million)of the flows, while ETFs tracking the Euro high yield market taking the remaining 43%(€183 million).
The top ten corporate bond benchmarked ETFs took in a total of €1.8 billion of inflows YTD, comprising 78% of the corporate bond inflows for the year so far.
Gold allocations: Driven by Swiss based investors
Gold ETPs gathered €761 million of inflows over 2012, €557 of which came in March 2012. Gold (US$/oz) price registered an increase of 7.4% YTD, while it fell by 1.3% to close at $1,668.35 in March.
Positive cash flow trends typically occur with a rising asset price in the background and that has not been the case for gold flows over March. Looking at the gold flows a bit closer we have observed that they have largely been received by ETFs which are domiciled in Switzerland.
Swiss domiciled ETFs took in €624 million of this year’s gold ETP flows, amounting to 82%of Europe’s 2012 YTD ETP flows. In sharp contrast, Euro area and UK domiciled gold ETPs experienced much lower flow activity. Euro area domiciled ETPs attracted €149 million of inflows, while UK domiciled ETPs experienced outflows of €5 million in the first quarter of 2012.
Given the geographical concentration as well as the fact that they occurred while gold price was falling it is likely that these gold ETP flows are attributable to instrument re-allocations.
Equity: Overall flat equity ETF flows with some positive pockets
March registered an overall negative pressure on equity, with equity ETF cash flows registering at -€26 million. This is well below the €977 million observed in the comparable month (March 2011) last year and also that of the prior month (February 2011: €1.3 billion).
Euro area broad indices (-€370 million), Switzerland (-€246 million), and developed Asia pacific broad indices (-€217 million) experienced the largest outflows. Furthermore, investment into broad emerging market indices, such as MSCI Emerging Markets, came to a halt by registering €146 million of outflows. This follows €1.1 billion of inflows in the first two months of 2012.
Broad developed market global equity indices (€317 million), Japan (€209 million), LATAM (€124 million) and Russia (€111 million) were net recipients of flows throughout March.
ETF comparatives: Mutual Funds, cash equity turnover
European ETF turnover as a percentage of the region’s cash equities turnover declined to 7.3% (from 7.6%) as of the end of March 2012. The equivalent number for the US market stands at 24.6% for the same period, up by 0.4% from the end of February 2012.
European ETFs comprised 2.9% of the continent’s mutual fund industry as of January 2012. European domiciled ETFs registered inflows of €2.4 billion over January 2012, while UCITS mutual funds registered inflows totaling €18.8 billion. Mutual fund industry data as per the European Fund Management Association (EFAMA).
US ETFs comprised 8.6% of the mutual fund industry as of the end of February 2012, up from 8.4% at the end of January 2012. US domiciled ETFs registered inflows of $9.5 billion in February 2012, while US mutual funds registered inflows of $40.4 billion over the same period. Mutual fund industry data as per the Investment Company Institute (ICI).
To request a copy of the report
Source: Source: Christos Costandinides, European Head of ETF Research & Strategy, Deutsche Bank
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