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Risk, not returns, drives German sustainable investments
May 21, 2010--The need to optimise risk management, rather than to boost investment returns, is the main reason German institutional investors consider sustainable investments, according to a study by Union Investments.
Almost three quarters (74%) of institutional investors surveyed cited this as the main driver, a year-on-year increase of 4 percentage points. It was particularly important for insurers, of whom 92% stated this as the main factor, compared to 87% of foundations, 84% of banks, 73% of pension funds and 30% of large companies.
“The recent turmoil in the capital markets has shown that risk assessments based entirely on short-term key performance indicators (KPIs) are not adequate,” said Alexander Schindler, member of the board of managing directors of Union Asset Management. “The concept of sustainability is a valuable addition because the assessments are expanded to include qualitative factors."
European ETP Market Weekly Review: The €9 billion DivTAX Nomads
May 20, 2010--Market Update
While volatility persisted across equity markets, major indices recovered roughly half the losses suffered in the prior week with Euro Stoxx 50, iBoxx Euro Sovereign 3-5 Year and Gold (USD) all rising by 5.4%, 2.8% and 2.1% respectively. Despite overall rising market performance, the European.ETP market finished the week flat, with AUM declining -0.1%. The lack of steam in asset growth is primarily attributable to equity ETF outflows. More specifically, it has largely been driven by three substantial outflows from ETFs that offer exposure to the German DAX index dividends. The iShares DAX (DE), the iShares DivDAX (DE) and the ETFlab DAX ETFs lost a collective of €8.7 billion or €5.4 billion, €2.6 billion and €742 million respectively.
These are the same three ETFs that experienced similarly large inflows last week (€6.0 billion, €2.5 billion, €1.3 billion), discussed in our last weekly ETP Market Review issue. While those inflows helped the European ETP market finish the week with positive AUM growth despite strong negative equity market performance last week, this week’s outflows have significantly contributed to overall negative ETP market flows of €6.6 billion. Adjusting for these three large outflows, the European ETP market saw overall inflows of €2.1 billion, primarily attributable to fixed income and commodities. It is interesting to observe that these Div DAX flows are likely directed by a few decision makers, a conclusion that can be drawn when looking at their size and the fact that they have occurred over a narrow time frame. These are unlikely to be individual investors, their size points to flows directed by financial institutions. The duration of their stay in the three ETFs that track exposure to DAX dvidends suggests two possible scenarios: (1) that the flows occurred in order to facilitate tax benefits from dividend collection or (2) that they represent ‘short parking’ stays on the back of other pending transactions. Given the narrow investment focus of the ETFs that received these flows we tend to think that these inflows have occurred in order to benefit from tax relief relating to dividend income that is specific to the German market. Additionally, we would expect these to recur in future dividend seasons, assuming earnings point to dividend payments.
New Listings and De-listings
New product launch activity picked up this week with seven new products launched-Deutsche Bank (4) and Lyxor (3). While the number of new launches was by no means extraordinary, it is worth noting that new launches include US and UK sovereign short (exposure, not duration) and Asian fixed income indices as well as real estate indices.
Cash Flows
Gold (€602.8 billion) and sovereign fixed income (€367.9 million) inflows account for the majority (71%) of inflows in fixed income and commodities, two asset classes that enjoyed the strongest interest during this week.
Equity ETP inflows over the week, outside the three DAX dividend funds, remained very subdued with the maximum single fund daily inflow of €281 million.
Turnover
Average daily (on-exchange) turnover increased among all major asset classes and reached nearly €3 billion average per day, a new high, up 13.3% from last week. This increase follows an all-time high of €2.5 billion last week.
Equity ETPs remain by far the most traded asset class, with a daily average (on-exchange) turnover of €2.3 billion representing a 13% increase from last week.
Fixed Income average daily (on-exchange) turnover was led by sovereigns (€169 million) and money market (€55 million), both of which experienced rises of 6% and 13% respectively from the prior week.
Commodities saw the largest average daily (on-exchange) turnover, reaching €321 million, up 19% from last week. Gold leads turnover activity, with average daily (on-exchange) turnover of €171 million, followed by Broad Commodity Indices, €27 million, and Crude Oil, €26 million.
Assets Under Management (AUM)
ETP AUM finished the week flat (-0.1%) totaling €192 billion, primarily due to three very big outflows, totaling €8.7 billion, from ETFs that track DAX dividend performance.
Equity ETPs declined by -2.5% and ended the week with €120 billion and 62.5% of market share, down from 64% last week.
They were followed by Fixed Income funds rose by 2.5% to finish the week with €40 billion and 21% of market share, unchanged from last week.
Commodities saw the biggest rise among major asset classes and rose by 6.3%, and finished the week with 30 billion. So far this year, commodities are up 33%, reflecting the continued popularity of this asset class with investors.
European ETP AUM are up 13.0% YTD.
New Lyxor Equity Index ETF Launched on Xetra
May 21, 2010--One more exchange-listed index fund from the ETF offering of Lyxor International Asset Management, a subsidiary of Société Générale, has been tradable in the XTF segment on Xetra since Friday.
ETF name: Lyxor ETF S&P ASX 200
Asset class: equity index ETF
ISIN: LU0496786905
Management fee: 0.40 percent
Distribution policy: distributing
Benchmark: S&P ASX 200 Index
With the Lyxor ETF S&P ASX 200, investors can participate in the performance of the 200 largest Australian companies by market capitalization.
Methodology Of STOXX Supersector Indices To Be Changed To Ensure Ucits Iii Compliance
May 20, 2010--STOXX Limited, a global index provider and creator of the leading European equity indices, today announced that starting with the September Benchmark Review, component weights in the STOXX Europe 600 Supersector Indices will be capped on a quarterly basis to ensure compliance with UCITS III standards for portfolio diversification. This change allows passive investment products following the performance of the STOXX Europe 600 Supersector Indices to better track their performance while complying with regulatory requirements.
Each existing STOXX Europe 600 Supersector Index’s first component’s weight will be capped at 30%, and all remaining component’s weights at 15%. This will ensure compliance with UCITS III standards which require the first component’s weight to be less than 35% and all remaining component’s weights to be below 20%. No further changes will be made to the indices.
Furthermore, STOXX will launch a set of un-capped supersector indices which will continue to follow the current methodology of the STOXX Europe 600 Supersector Indices without capping of component weights. These indices are intended to be used for benchmarking purposes and will therefore carry the addition “Benchmark” in their names.
All changes, as well as the introduction of the new un-capped STOXX Supersector Indices will become effective on September 17, 2010.
Two New Lyxor Equity Index ETFs Launched on Xetra
May 20, 2010--Two more exchange-listed index funds from the ETF offering of Lyxor International Asset Management, a subsidiary of Société Générale, have been tradable in the XTF segment on Xetra since Thursday.
ETF name: Lyxor ETF S&P 500
Asset class: equity index ETF
ISIN: LU0496786574
Management fee: 0.30 percent
Distribution policy: distributing
Benchmark: S&P 500 Index
ETF name: Lyxor ETF S&P TSX 60
Asset class: equity index ETF
ISIN: LU0496786731
Management fee: 0.40 percent
Distribution policy: distributing
Benchmark: S&P TSX 60 Index
The Lyxor ETF S&P 500 enables investors to track the performance of the S&P 500 Price Index, which is weighted according to free float market capitalization and in turn tracks the performance of the 500 largest US stock corporations.
The Lyxor ETF S&P TSX 60 allows investors to participate in the performance of the TSX 60 Index, which comprises the 60 leading Canadian companies, together representing 73 percent of Canada’s market capitalization.
The product offering in Deutsche Börse’s XTF segment currently contains a total of 668 exchange-listed ETFs, making it the largest offering of all European stock exchanges. This selection, together with an average monthly trading volume of around €13 billion, makes Xetra Europe’s leading trading venue for ETFs.
ETF Statistics of April 2010
May 20, 2010--The ETF Statistics-April 2010 of the Borsa Italiana are now available
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Sharp drop in European consumer confidence
May 20, 2010--Consumer confidence has dropped sharply in Europe in May, as the euro fell on currency markets and EU leaders struggled to dispel fears over rising debt levels, official figures showed Thursday.
The consumer confidence indicator for the 16 countries that share the euro dropped to minus 17.5 points in May from minus 15 the previous month, according to the European Commission.
For the 27-nation EU as a whole there was a similar fall to minus 14.7 from 12.3.
EDHEC-Risk Institute Considers that Germany’s Restrictive Measures on the Sovereign Debt Markets are Counterproductive, Inconsistent and Liable to Hinder European Growth
May 20, 2010--On the basis of numerous academic studies, along with its own research, including the position paper published in March 2010 by Professor Abraham Lioui entitled “Spillover Effects of Counter-cyclical Market Regulation: Evidence from the 2008 Ban on Short Sales,” EDHEC-Risk Institute considers that the unilateral measures taken by Chancellor Merkel on the sovereign debt markets, both on the short selling of sovereign bonds and credit default swaps (CDS), are counterproductive, inconsistent and liable to hinder European growth.
Counterproductive
Besides the fact that the lack of convergence on these issues with the US authorities leaves little hope of the measures being effective, EDHEC-Risk Institute thinks that this ban poses numerous problems and runs up against legal and practical obstacles that make it inapplicable or even counterproductive:
It will be impossible for intermediaries and ultimately for regulators to verify investors’ holdings of the securities representative of the risk the credit
A strict obligation to use credit default swaps to hedge the risk of sovereign debt would prevent sovereign nations from issuing long-term debt, as the CDS market for hedges of more than ten years is relatively illiquid.
This prohibition makes it harder for countries to manage the interest rate risk on their debt actively, as their counterparties are no longer able to hedge the country risk of the interest rate swaps they may have entered into. This active management of the yield curve is a major component in the optimisation of the cost of public debt.
By making the market for hedging default risk more complex, the markets may be deprived of the debt of countries with low ratings, of investors, and thus of liquidity, which will inevitably increase the cost of this debt.
MiFID Monthly Market Share Reports-March 2010
May 20, 2010--Thomson Reuters Monthly Share report is now available.
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European Commission to unveil governance Green Paper on June 2
May 20, 2010--The European Commission is planning to present its plan for improving corporate governance in the financial sector on June 2, with enhanced shareholder involvement at the heart of the proposals.
In a speech in Berlin today Internal Markets Commissioner Michel Barnier said: “The Green Paper will address a number of questions – How to manage risk effectively in financial institutions? How to empower shareholders? This is important – because true crisis prevention starts from within the companies.”
His spokesperson told Responsible Investor that the Commission will consider both legislative or non-legislative proposals. Barnier is known admire Sir David Walker’s Stewardship Code in the UK.
The spokesperson said the proposals will aim at “enhancing the involvement of shareholders, financial supervisors and external auditors in corporate governance matters”. They would also seek to change remuneration policies in companies in order to discourage excessive risk taking.
