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DB Equity Research Equity Research-US ETF Market Monthly Review : Risk-off trade? ETP flows say not there yet
May 4, 2012--US ETP assets recorded -0.4% MoM and 13.6% YTD growth in April
ETP assets in the US declined by $4.5bn to $1.19 trillion last month, accumulating an increase of 13.6% YTD after the first four months of the year.
Global ETP industry assets edged lower to $1.61 trillion, or 12.3% up YTD.
ETP Flows suggest beginning of shift from risk-on to risk-off trade
US ETP flows experienced inflows of $3.4bn during April totaling inflows of $55.1bn YTD (5.3% of last year’s AUM).
Within long-only ETPs, total flows were +$3.7bn in Apr. vs. +$11.3bn in Mar.
Equity, Fixed Income, and Commodity long-only ETPs experienced cash flows of -$0.7bn, +$5.2bn, and -$0.8bn, respectively.
Although we saw a flight to safety during April, we do not consider this to be a full-blown shift from risk-on to risk-off, but rather an intermediate step before the next major trend develops (either bullish or bearish).
According to long-only ETP flows, investors’ equity preferences in March were: (1) Region wise, bearish across the board, but more significant in the US (-$1.1bn). (2) Within the US, Small Caps (+$1.3bn) over Large Caps (-$4.1bn). (3) Among US Sectors, Cyclicals (Global +$0.9bn, Domestic +$0.6bn) over Defensives (-$0.0bn). Within global cyclicals, Materials (+$0.5bn) and Energy (+$0.4bn); and Industrials (+$0.6bn) among domestic cyclicals. (4) Dividend funds are still appealing as a less volatile and income generating investment (+$0.9bn), but not as much as before
While preferences in the fixed income space were: (1) Credit over rates, Corporates (+$2.8bn) and Sub-Sovereign (+$0.8bn) (e.g. EM Sov. Debt) over US Sovereign debt (+$0.3bn). (2) IG (+$3.2bn) over HY (+$0.8bn). (3) Short-Intermediate curve positioning, Short (+$1.0bn) and Medium (+$0.7bn).
ETFs continued to grow faster than Mutual Funds. At the end of March, ETF inflows ($49bn) contributed 5.2% to the YTD ETF AUM growth; while only 1.2% ($109bn) of the YTD Mutual Fund AUM growth was attributable to new cash.
New Launch Calendar: yield and asset allocation strategies set the tone
There were 18 new ETPs and 2 new ETNs listed during the previous month.
The new product offering was again dominated by Fixed Income ETFs. Most of them offering access to high yield segments. Another relevant trend was multi asset ETFs following asset allocation strategies. Finally, the new line-up was completed by some equity and commodity products.
Floor activity remains under pressure on higher, but still low volatility
Total monthly turnover decreased by 8.6% to $1.19 trillion vs. $1.31 trillion in the previous month.
US ETP trading made up 27.1% of all US cash equity trading in April, down from both its recent peak of 37.5% last August and its 3-year monthly moving average of 30.1%.
The largest decline was on Equity ETP turnover, which dropped by $67bn or 5.9% to $1.06 trillion, followed by Commodity ETP turnover which plunged by $30bn to $56bn, and Fixed Income product turnover which shrank by $13.6bn totaling $63bn at the end of April.
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Source: Deutsche Bank-Equity Research-North America
MSCI and Barclays Announce Partnership to Create Global ESG Fixed Income Indices
New Index Family Provides Environmental, Social & Governance Investment Strategies for Institutional Fixed Income Portfolios
May 4, 2012--MSCI Inc., a leading provider of investment decision support tools worldwide, and Barclays, publisher of leading broad market bond benchmarks, announced today an agreement to create a family of co-branded Environmental, Social & Governance (ESG) fixed income indices.
The combination of both organizations’ expertise will help institutional investors to apply ESG investment strategies to their bond portfolios.
The ESG fixed income indices will be co-branded and independently marketed by both firms. These indices will be aimed at asset owners and managers with ESG commitments, such as UN PRI (United Nations Principles for Responsible Investing) signatories, who have exposure to fixed income investments that require a benchmark which integrates ESG factors. Institutional clients will be able to use the ESG fixed income indices to create index-linked investment products, such as Exchange Traded Funds (ETFs), separately managed accounts, and structured products.
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Source: MSCI
CFTC to Hold Open Meeting to Consider a Final Rule on Core Principles and Other Requirements for Designated Contract Markets and a Proposed Order Amending the Effective Date for Swap Regulation
May 3, 2012--The Commodity Futures Trading Commission (CFTC) will hold a public meeting on Thursday, May 10, 2012, at 9:30 a.m.,
to consider a Final Rule on Core Principles and Other Requirements for Designated Contract Markets and a Proposed Order Amending the Effective Date for Swap Regulation.
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Source: CFTC.gov
Economic Commentary-Exchange-Traded Funds-O. Emre Ergungor
May 3, 2012--ETFs are one of the most successful financial innovations of the last few decades. As a new, rapidly growing, and increasingly complex financial instrument, ETFs might raise concerns about the risk they pose to financial stability. While they do not seem to pose a threat at this time, ETFs exposed a weakness in U.S. stock markets during the Flash Crash of 2010: the fragmented nature of trading, which can leave some markets very shallow.
With the spectacular boom and bust of mortgage-backed financial products still fresh in our collective memory, any rapidly growing asset class is bound to raise eyebrows in the marketplace. The exchange-traded fund (ETF) is one such product.
ETFs are stock-market-traded entities that invest mostly in corporate and sovereign financial liabilities, often with the intention of replicating the returns of a market index, like the S&P 500. That goal may not sound glamorous, but ETFs are one of the most successful financial innovations of the last few decades. Their growth has been phenomenal, especially since 2005 (figure 1). While small relative to their older cousin, mutual funds (which control about $7.5 trillion in assets), ETFs have gone from $0 to $1 trillion in just 20 years.
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Source: Federal Reserve Bank of Cleveland
Treasury Doesn't Sound a New Note
May 3, 2012--The Treasury Department surprised bond investors by delaying a decision on whether to introduce floating-rate notes to its mix of debt securities.
Treasury officials in statements released Wednesday cited "system limitations" that would prevent any possible issuance of floating-rate notes this year. The action also came amid lack of consensus on a suitable benchmark rate for the notes among members of the private-sector panel that advises the Treasury.
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Source: Wall Street Journal
SEC Reopens Comment Period for Proposed Amendments to Its Net Capital, Customer Protection, Books and Records, and Notification Rules for Broker-Dealers
May 3, 2012--The Securities and Exchange Commission today announced that it is re-opening the public comment period for proposed amendments to its net capital, customer protection, books and records, and notification rules for broker-dealers.
The proposed rule amendments are designed to update the financial responsibility rules for broker-dealers and make certain technical amendments. The Commission issued the proposed amendments on March 9, 2007, and the public comment period on the proposal closed on June 18, 2007.
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Source: SEC.gov
ALPS files with the SEC
May 3, 2012--ALPS has filed a post-effective amendment, registration statement with the SEC for the U.S. Equity High Volatility Put Write Index Fund-HVPW.
view filing
Source: SEC.gov
Van Eck files with the SEC
May 3, 2012--Van Eck has filed a post-effective amendment, registration statement with the SEC for the Saudi Arabia ETF.
view filing
Source: SEC.gov
ISE Introduces Implied Order Functionality
May 3, 2012--The International Securities Exchange (ISE) announced today that it has introduced Implied Order functionality*. With Implied Orders, ISE will significantly enhance the execution of multi-legged strategy orders by enabling greater interaction of the complex order book with the regular order book. The result will be an increased fill rate for multi-legged strategy orders as well as tighter spreads and increased liquidity on the regular order book.
Gary Katz, ISE’s President and CEO, said, “The launch of Implied Orders is a milestone accomplishment for ISE and will deliver measurable improvements in the execution quality of both our complex and regular order books. I am extremely proud of the technology team that designed and developed this very sophisticated functionality, which is a first in the U.S. options industry. Implied Order functionality truly provides our customers with a uniquely innovative, industry-leading platform for trading multi-legged strategy orders.”
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Source: International Securities Exchange (ISE)
"Space Between Walls" -Speech by Commissioner Bart Chilton
Finance, Credit and International Business Association International Credit Executives Conference, Chicago, IL
May 3, 2012--Introduction
Thanks to Rick Hayes for that great introduction. Aside from Russian roulette, having a fraternity brother introduce you must be one of the riskiest things that can be done. It really is wonderful to be with you this morning and be in my favorite city in the world: Chicago.
I grew up in a lakefront neighborhood. On clear nights, you could see the Chicago skyline. I did not know, nor would have cared at the time, about the tremendous revolution, innovation and economic transformation of financial markets that was taking place in Chicago back then.
There is a fascinating new book written by the "father of financial futures" Dr. Richard Sandor entitled, Good Derivatives. The book chronicles the multitude of market innovations taking place since the 1970's, and the environment in which those innovations thrived. One key point Dr. Sandor makes is that in order to flourish, market innovations need proper regulation. One might say: there needs to be suitable regulatory walls and space between those walls that balances the public interest with the ability for the private sector to successfully innovate.
Impacts on Businesses and Economies
So today, let's do some discourse on the future of these spectacular global financial markets. Just think about the complex financing and credit, the capital and other resources—both human and technological—that all work in concert to facilitate these incredibly elaborate, intricate and inter-related global markets of colossal size and scope—churning, all day.
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Source: CFTC.gov
