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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.
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Source: DB Global Equity Index & ETF Research
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
Source: EDHEC
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.
Source: London South East
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?"
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Source: Reuters
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.
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Source: Deutsche Börse
CEBS has today published its Guidelines on Remuneration Policies and Practices (CP42)
December 10, 2010--The Committee of European Banking Supervisors (CEBS) has published today its final Guidelines on Remuneration Policies and Practices.
Under the revised CRD III, as agreed upon by the European institutions, CEBS is required to elaborate and issue guidelines on sound remuneration policies in the financial sector in order to facilitate the compliance of the remuneration principles included in the amended Annex V of the CRD.
Article 22 of the revised CRD lays down the fundamental principle whereby institutions are required to ensure that their remuneration policies and practices are consistent with their organisational structure and promote sound and effective risk management.
CEBS had already published a set of High-level Principles for Remuneration Policies (Rem. HLP) on 20 April 2009 aimed at assisting in remedying unsound remuneration policies. These principles also built on the remuneration work carried out by other bodies, namely the Financial Stability Board and the European Commission. An extensive implementation study regarding the national implementation of the High-level principles was carried out by CEBS in the first semester of 2010 and served as an input to the current guidelines.
In revising the Guidelines, CEBS benefited from the views gathered from a wide spectrum of market participants and from academia. Input was provided through 39 responses to a public consultation and through a public hearing held at CEBS premises. Furthermore, the Committee of European Securities Regulators (CESR) rendered an opinion which placed particular focus on the scope of the guidelines and on the proportionality principle vis-à-vis firms providing investment services.
view Guidelines on Remuneration Policies and Practices Asset owners reasons for ESG integration vary markedly across Europe: survey read more Government publishes draft legislation to implement tax changes Draft clauses for the 2011 Finance Bill
As part of improving the way in which tax policy is made, the Government has, for the first time, published the majority of measures for the Finance Bill in draft.
The Government’s intention is to keep the number of new additional measures that will subsequently need to be included in this Bill to a minimum. The draft clauses published today point to a significantly shorter Finance Bill than has been seen over the past decade. view Finance Bill 2011: a consultation on draft legislation
UK Government Publishes Final Legislation On The Bank Levy The levy is intended to encourage banks to move to less risky funding profiles, and the £2½ billion is a fair contribution in respect of the risks the banking system poses to the wider economy, while ensuring that the industry remains competitive. The levy will take effect from 1 January 2011 and will be permanent.
Mark Hoban said:
"We have consulted on the design of the scheme so that it achieves two objectives: first, ensuring that banks make a fair contribution in respect of the potential risks they pose to the UK financial system and wider economy. Second, the final scheme design will encourage the banks to make greater use of more stable sources of funding, such as long-term debt and equity, working with the grain of our wider reform programme." view Bank Levy EBRD and Deutsche Bank team up to issue green bonds
They would also help to improve energy efficiency, water and waste management, environmental services and public transport. read more
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Source: CEBS
November 10, 2010--European asset owners give marked differences behind their reasons for integrating environmental, social and governance issues into investment, according to a survey by Novethic, the French SRI research and media company.
The survey, which received responses from 251 asset owners, was carried out in partnership with the European Sustainable Investment Forum (Eurosif). It found that 59% of French asset owners and 68% of their German peers believe the main incentive for ESG integration is to contribute to a more sustainable development model for investment.
Source: Responsible Investor
December 9, 2010--The Government has today published draft clauses for Finance Bill 2011. This is the first time the Government has published the majority of draft clauses for consultation and marks the first step towards the Government’s commitment to improving tax policy making.
The Government is also publishing a response to the consultation Tax policy making: a new approach, setting out changes to the way in which tax policy will be developed and communicated. As part of this, the Government has announced that Finance Bill 2011 will be published on 31 March 2011.
Source: HM Treasury
December 9, 2010--Financial Secretary to the Treasury, Mark Hoban MP, announced today the publication of final legislation to implement the bank levy announced in the June Budget.
Following two periods of consultation since June, the final legislation contains changes to the rate of the levy. The rate for 2011 will be 0.05 per cent, rather than 0.04 percent, and it will rise to 0.075 per cent from 2012, instead of the 0.07 per cent announced in June.
These changes, along with the introduction of an allowance, rather than a threshold, for those liabilities to which the levy applies, will generate around £2½ billion of annual revenues. This is in line with the Budget estimates.
Source: HM Treasury
December 9, 2010--The European Bank for Reconstruction and Development and Deutsche Bank have launched green bonds to finance environmental projects.
The proceeds of the ‘Environmental Sustainability Bonds’ will support a projects aimed at promoting sustainable development and clean energy technologies in central and eastern Europe and central Asia, the duo said in a statement.
Source: Responsible Investor
