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OECD warns eurozone on debt
December 13, 2010--Eurozone nations are enjoying a sustained if muted recovery but need to adopt tough measures to correct economic imbalances and must soon begin to cut their massive debt loads, the OECD said Monday.
The eurozone should also put in place a permanent crisis resolution mechanism that would force nations to carry out reforms to get aid, the OECD said, an issue European leaders are expected to tackle at a summit later this week.
Eurozone bond would cost Germany EUR 17bn: report
December 13, 2010--- Issuing a common eurozone bond would cost Germany at least 17 billion euros (22 billion dollars) more per year, the daily Frankfurter Allgemeine Zeitung (FAZ) said on Monday.
The newspaper did not cite the source for its figure but said Chancellor Angela Merkel "could count on it" during a European Union summit meeting in Brussels later this week.
Merkel is staunchly opposed to a proposal by Eurogroup chairman Jean-Claude Juncker of Luxembourg to issue common eurozone bonds, an idea backed by several countries in southern Europe.
db x-trackers launches ETF to help finance the fight against Aids, tuberculosis and malaria.
December 13, 2010-- In a global first for the exchange-traded funds (ETFs) industry, Deutsche Bank’s ETF platform, db x-trackers, has launched a socially-conscious ETF to help finance the fight against Aids, tuberculosis and malaria.
The db x-trackers Global Fund Supporters ETF, which tracks the Dow Jones Global Fund 50 Index to Fight AIDS, Tuberculosis and Malaria(SM), launched today on the Frankfurt Stock Exchange.
The index tracks the performance of the largest public companies that support the mission of the Global Fund. db x-trackers’ management revenues in respect of the Global Fund Supporters ETF, after costs for running the fund, will go towards the Global Fund, a unique global public/private partnership dedicated to attracting and distributing resources to prevent and treat HIV/Aids, tuberculosis and malaria. To date, the Global Fund has committed US$19.8 billion in 149 countries to support large-scale prevention, treatment and care programs. “By making the Dow Jones Global Fund 50 Index available in ETF format we have made it truly investable. We fully support the Global Fund and its efforts to combat these terrible diseases, and are happy to direct profits from this new product to their cause,” said Thorsten Michalik, global head of db x-trackers. “We’ve seen a massive uptake in our ETFs since we launched in 2007. With ever increasing numbers of investors embracing the products, and with more of those investors wishing to invest along socially-conscious lines, we are confident that the db x-trackers Global Fund Supporters ETF will be a success.” The Dow Jones Global Fund 50 Index emerged from a collaboration between leading index provider Dow Jones Indexes and the Global Fund. “The collaboration with Deutsche Bank is an example of innovative financing that can benefit investors and serve humanitarian purposes,” said Prof. Michel Kazatchkine, Executive Director of the Global Fund. “With Deutsche Bank the Global Fund is showing that it is possible to do well and to do good at the same time.”
The Global Fund Supporters ETF uses physical replication to track its index. This is a first for db x-trackers (see additional press release), which traditionally replicates indices using a swap-based – also commonly referred to as synthetic – replication method. However, if clients, due to investment restrictions or tax treatments, request the physical replication method, then db x-trackers can replicate those ETFs physically. This is the case with the Global Fund Supporters ETF.
db x-trackers launches first Christian-oriented ETF.
December 13, 2010-- db x-trackers, Deutsche Bank’s exchange-traded funds (ETF) platform, has launched the world’s first ETF for Christians who wish to invest in line with their faith.
The db x-trackers STOXX ® Europe Christian Index ETF (DR) tracks the performance of a basket of stocks selected to comply with the values and principles of Christianity. Companies are chosen from the broader STOXX ® Europe 600 Index, with suitability for inclusion determined by an independent Christian faith commission. Companies active in certain areas, such as the arms trade or gambling for example, are excluded from the index. “The db x-trackers STOXX ® Europe Christian Index ETF (DR) is a meaningful addition to our product range, giving faith and ethics-driven investors the flexibility to invest in line with their beliefs,” said Thorsten Michalik, Global Head of db x-trackers. “The STOXX® Europe Christian Index offers a broad coverage of European companies that act in an ethically and environmentally conscious and socially responsible manner and thus are in line with Christian values,” said Hartmut Graf, Chief Executive Officer of STOXX ® Limited. “By licensing the STOXX® Europe Christian Index, Deutsche Bank offers the first ETF based on the index.”
Unlike previously launched db x-trackers ETFs, the db x-trackers STOXX ® Europe Christian Index ETF (DR) aims to replicate the performance of its underlying index by directly investing in a portfolio of liquid securities. db x-trackers ETFs utilising physical index replication bear the abbreviation "DR", for "Direct Replication", in their name. The vast majority of db x-trackers’ products use a swap-based – also known as synthetic – index replication method. However, in certain cases where, for tax purposes or for the purposes of meeting particular internal investment requirements, customers specifically ask for the direct physical replication method, then db x-trackers can accommodate those wishes. This is the case with the db x-trackers STOXX ® Europe Christian Index ETF (DR).
Pimco and Source to partner and create a range of Fixed Income ETFs.
December 13, 2010--PIMCO, a leading global investment management firm and Source, a specialist provider of exchange traded products, have entered into an agreement to introduce and distribute fixed income ETFs in the European market. Together, PIMCO and Source are creating a range of products designed to provide fixed income exposure to
European investors.
PIMCO Source Fixed Income ETFs (PIMCO Source) will combine the transparency and operational ease that investors expect from Source ETFs with PIMCO's four decades of investment management expertise and thought leadership. Investors can expect the first products to be launched early 2011.
PIMCO Source are designing ETFs to meet investor demand for more than the traditional benchmark exposure. Fixed income is a broad and complex asset class where passive, traditional indexation may not always be the best solution. PIMCO Source will develop and offer UCITS ETFs, ranging from short maturity strategies to those investing in longer term securities. All PIMCO Source ETFs will benefit directly from PIMCO?s fixed income expertise, and rigorous investment management process in conjunction with Source's proven distribution model and ability to enhance trading liquidity.
Commenting on the launch, Source CEO Ted Hood said: "Through our range of equity and commodity index products, Source is now one of the fastest growing ETP providers in Europe. Developing fixed income products is a natural next step. The credit crunch proved that every fixed income portfolio needs a mix of skilled product engineering and experienced active management. PIMCO, as one of the world?s leading fixed income managers, is well positioned to provide an enhanced approach to both active and passive exposure, and is the perfect partner for Source in this venture."
"Our approach is to create "well engineered solutions? that reflect PIMCO's thought leadership, risk management and product design expertise. We believe PIMCO Source Fixed Income ETFs fulfill a demand among European investors for smarter ETFs, with a range of active funds for benchmark outperformance and passive funds with forward-looking benchmarks offering more advantageous exposure. Collaborating with Source is the ideal way to deliver PIMCO's expertise in a liquid, transparent and robust investment vehicle," said Tammie Arnold, Managing Director at PIMCO.
DB Global Equity Index & ETF Research : European Weekly ETP Review: European ETF industry set to register the highest growth rates for 2010
December 10, 2010--Europe registers the highest market growth among the three major global regions
As the year draws to a close the global ETF industry is set to finish 2010 on a high note. In addition to product launches reaching a new record high (as we reported in our last weekly report) ETF asset growth rates are also showing continued strong investor confidence in the sector. This strong growth is further supported by Q4-10 asset allocation investment patterns that are favoring the sector’s largest asset class: equity.
The success story is more pronounced in Europe, where the ETF market is set to register the strongest growth rate among the three major global regions. The European market, 2010 YTD added €46.1 billion and registered asset growth of 29.2%, reaching €204.0 billion, up from €157.8 billion at the beginning of the year. Close to two thirds of new assets (€29.6 billion) came from new flows to the industry while the remainder is attributed to market appreciation.
The European ETF market growth rate compares very favorably to the global ETF industry growth rate of 22.6%. Asia and the US are registering asset growth rates of 24.1% and 23.0% for the year, respectively, as of December 3rd 2010.
Asset allocation: Closing the loop
As the year draws to a close, fourth quarter ETF asset allocation patterns signal market optimism. A review of 2010 quarterly cash flows indicates a return of equity investors to the market, at levels slightly above those of the first quarter of the year. It is important to note the trend at the beginning of December, as often year end inflow figures can include flows which are temporary in nature and migrate away at the beginning of the year. These are more often associated with year-end corporate balance sheet window dressing for accounting purposes.
Total European market ETP flows for the year totaled €32.8 billion for 2010 YTD, with commodities (largely gold - €4.8 billion - and other precious metals – €1.3 billion) contributing €6.8 billion.
Cash flow patterns for 2010, in addition to the return into equities, they indicate a retraction from sovereign benchmarked ETFs as well as a reduction in gold ETFs inflows, especially in the last two quarters of the year. Sovereign and gold benchmarked ETFs benefited significantly during 2010, with very pronounced cash flows in the second quarter of the year. Q4 numbers on the chart represent cash flows up to the week that finished on December 3, 2010.
Emerging markets and major European equity indices lead the way
Total equity ETF flows for the year totaled €20.0 billion for 2010, contributing 58% to the new flows into the European ETF market.
ETF emerging markets investing held very strong throughout the year, reaching a high in the fourth quarter. Emerging market ETFs amassed cash flows of €1.5 billion, €1.6 billion, €2.2 billion and €2.7 billion, for Q1-10, Q2-10, Q3-10 and Q4-10 (to Dec. 3rd) respectively. While emerging market flows have largely been driven by favorable fundamentals, they also reflect increased usage of ETFs as an emerging markets allocation tool. ETFs minimize tracking error often associated with unlisted mutual funds, in addition to carrying lower TERs and affording the ability to trade intra-day.
With the exception of several large tax optimization cash flows in the German market that occurred in the second quarter of the year, European major equity benchmarked ETF investors left the market at the end of the first quarter and did not return in significant numbers until the end of the third quarter of the year. European major equity benchmarked ETFs received flows of €491 million inflow, € 1.0 billion outflows, €1.5 billion inflows and €1.9 billion inflows for Q1-10, Q2-10, Q3-10 and Q4-10 (to Dec. 3rd) respectively.
Investors in non-European developed equity market benchmarked ETFs followed similar investment patterns to those in European benchmarked equity ETFs. Developed non-European benchmarked ETF cash flows netted €2.0 billion inflows, €942 million inflows, €3 million outflows and €1 billion of inflows for Q1-10, Q2-10, Q3-10 and Q4-10 (to Dec. 3rd) respectively.
Fixed Income: Sovereign inflows all but disappear
Total fixed income ETF flows for the year totaled €6.1 billion for 2010, contributing 18% to the new flows into the European ETF market. The second quarter of the year saw a very strong influx of investment in sovereign benchmarked ETFs (close to €3 billion), a move that was largely motivated by market volatility. Some of the Euro sovereign fears that generated concerns in May and June resurfaced in late November, however, that did not generate a proportional migration towards sovereign ETF investment.
While sovereign inflows continued in the third quarter, the increase in corporate bond investment is what left the strongest mark in third quarter of the year with over €1 billion of inflows.
Overall, the fourth quarter appears to be the weakest for the fixed income asset class as a whole. That is partly the case due to the change in investment appetite for sovereigns and the fact that the European ETF fixed income market is dominated by sovereign benchmarked ETFs.
There are some good news however, two corners of the European ETF fixed income market saw some renewed attention from investors: Credit and corporate benchmarked ETFs. While the overall investment in these two fixed income sub-sectors is by no means comparable to the migration into sovereign debt earlier in the year, it does indicate the possibility that the European fixed income ETF market is examining new products, such as the iTraxx benchmarked ETFs, under a new light.
Ultimately, the lackluster sovereign flows do not just paint a picture which reflects Euro sovereign solvency concerns. It is a reaction to improving conditions in the equity markets and how fixed income fares from an expected return standpoint. Stubbornly low Euro-zone interest rates together with rising inflation expectations are also proving to play a decisive role on keeping fixed income ETF flows subdued.
New EDHEC-Risk Institute Research Questions Current Corporate Pension Fund ALM Practices and Proposes a New Integrated Model for Analysing the Capital Structure of Corporate Sponsors and Pension Fund Allocation Decisions
December 10, 2010--No comprehensive model is currently available for the joint quantitative analysis of capital structure choices, pension fund allocation decisions and their impact on rational pricing of liability streams. This conceptual problem is reinforced by new accounting reforms, which make it a real challenge to correctly assess the value of a pension plan in deficit with a weak sponsor company.
EDHEC-Risk Institute has attempted to fill this gap by analysing the valuation of pension liabilities in the context of an integrated model of capital structure. The model is a stylised representation of the relationships between the stakeholders of a company with a pension plan, including shareholders of the sponsor company, bondholders, and beneficiaries of the pension fund (workers and pensioners).
The new publication, “An Integrated Approach to Asset-Liability Management: Capital Structure Choices, Pension Fund Allocation Decisions and the Rational Pricing of Liability Streams,” contains the results of the second-year research work conducted at EDHEC-Risk Institute within the BNP Paribas Investment Partners research chair on asset-liability management and institutional investment management.
view the EDHEC-Risk Publication Integrated Approach to Asset-Liability Management
Nickel ETP traded on LSE
December 10, 2010--A physically backed nickel exchange-traded product traded at $118.72 per share at 1106 GMT on the London Stock Exchange on Friday.
ETF Securities launched its physically backed copper , tin and nickel ETPs on the LSE on Friday. The copper ETP traded at $45.64 per share, while the tin ETP was so far untraded.
BarCap doubts hot market for base metal ETPs
December 10, 2010--Physically backed exchange-traded products for base metals are unlikely to draw the kind of investor money precious metal ETPs did as metals like copper are worth less to small investors than gold, a senior BarClays Capital researcher said on Thursday.
Some people seem excited about physically backed base metals but I have to ask why?" Kevin Norrish, BarCap's director of commodities research in London, told Reuters on the sidelines of a BarClays commodities conference in New York.
"With gold, obviously you're worried about financial collapse and you want the physical gold. What are you going to do with 25,000 tonnes of copper? What's the attraction to investors, when there are so many nonphysically backed base metals ETPs out there for them?"
Strong Cash Flow from Operating Activities in 2010 / Growth and Further Improvements in Efficiency in 2011 / ISE Impairment Will be Accounted for in Q4/2010
December 10, 2010--In the current financial year Deutsche Börse AG generated a strong cash flow from operating activities. The cash flow in the first nine months 2010 increased to €675.5 million and is proof of the strong earnings profile of the Group and underscores the ability to pay a stable dividend.
For 2011 Deutsche Börse again plans to increase the expenditures for growth initiatives paired with increased efficiency und continued high cost discipline. In Q4/2010 Deutsche Börse will realize an impairment of intangible assets of its subsidiary International Securities Exchange (ISE) and will transfer shares in Clearstream International S.A. to Clearstream Holding AG at the higher fiscal book value. Both measures have no impact on the cash flow.
The ISE related impairment charge on intangible assets will be in the range of €450 million. The impairment charge will be partially offset by a reduction in deferred tax liabilities relating to ISE. All in all, the Company anticipates that the impairment will lead to a reduction in IFRS consolidated net income for 2010 in the range of €220 million. The figures are subject to preparation and auditing of the annual financial statements 2010. The impairment does not affect key credit metrics, such as the interest coverage ratio or net tangible equity. ISE continues to operate profitably.
