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Monday Morning Memo: Are active managers scared by the success of ETFs?
December 3, 2018--Sometimes it is quite fun to observe the European fund industry, especially pertaining to the active-versus-passive discussion. One of these fun topics is the fact that the more market share ETFs gain from net inflows, the more active managers start to talk about the risks of investing in ETFs.
They argue that these products are always fully invested in their respective indices and have no active component that will protect investors against losses under rough market conditions.
Why do I find this funny? Firstly, I would assume an investor who is buying an ETF knows there is no active component included in these products; i.e., the ETF replicates the return of its underlying market in all circumstances.
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Source: Detlef Glow, Head of EMEA Research, Lipper
Calastone switches mutual fund trades to blockchain
December 2, 2018--Move is one of industry's biggest in terms of using online ledger to settle orders.
Calastone is making a bold bet on the power of blockchain to transform fund management by moving more than 1,700 financial companies-for which it processes mutual fund trades-to the online ledger.
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Source: FT.com
ETFs set for sector inclusion by Investment Association
November 30, 2018--The Investment Association, the trade body representing the UK's asset management industry, has launched a consultation to determine whether exchange traded funds should be included in the IA's fund sector classification.
The IA's 37 fund sectors allow retail investors and financial advisers to compare the performance of funds sold in the UK by dividing them into groups such as asset class, investment strategy and geographical region.
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Source: FT.com
New Lyxor ETFs on Xetra: Inflation-linked government bonds
November 30, 2018--The Lyxor Inverse USD 10Y Inflation Expectations UCITS ETF gives investors access to the break-even inflation of ten-year US Treasuries by combining short positions in inflation-indexed US Treasuries and long positions in US Treasuries with adjacent durations.
The break-even inflation rate indicates how high the inflation rate must be in order for the purchase of an inflation-linked bond to yield at least the same real interest rate for the investor as the purchase of a conventional bond. The Lyxor Inverse EUR 2-10Y Inflation Expectations UCITS ETF provides access to the break-even inflation of France and Germany by combining short positions in French and German inflation-linked government bonds and long position government bonds of both countries with adjacent durations.
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Source: Deutsche Börse Group
ESMA sees rising market nervousness and sensitivity linked to Brexit risks
November 29, 2018--The European Securities and Markets Authority (ESMA) has issued today the latest iteration of its Risk Dashboard covering risks in the EU's securities markets for Q3 2018. ESMA's overall risk assessment remains unchanged from Q2 2018 at high levels.
Equity markets increased slightly over the course of the 3rd quarter 2018, however market nervousness and sensitivity are rising, as evidenced by the global equity market sell-off at the beginning of October. The budget plans of Italy have led to sovereign bond market volatility remaining at a high level, and generally high market valuations coupled with market uncertainty contribute to very high market risk.
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Source: ESMA
ESAs propose to amend bilateral margin requirements to assist Brexit preparations for OTC derivative contracts
November 29, 2018--The European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA), together the European Supervisory Authorities (ESA), have today published a final report with draft regulatory technical standards (RTS) proposing to amend the Commission Delegated Regulation on the risk mitigation techniques for OTC derivatives not cleared by a CCP (bilateral margin requirements) under the European Market Infrastructure Regulation (EMIR).
The draft RTS propose, in the context of the United Kingdom's (UK) withdrawal from the European Union (EU), to introduce a limited exemption in order to facilitate the novation of certain OTC derivative contracts to EU counterparties during a specific time-window.
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Source: ESMA
BOE-Financial Stability Report November 2018
November 28, 2018--The House of Commons Treasury Committee has requested that the Bank of England publish analysis of how leaving the European Union (EU) would affect its ability to deliver its objectives for monetary and financial stability.1
Brexit is unique. Large negative supply shocks are relatively rare, and there is no precedent of an advanced economy withdrawing from a trade agreement as deep and complex as the European Union.
As the United Kingdom's (UK) trading relationship with the EU changes, the reduction in openness will act to reduce the UK economy's productive capacity and in most scenarios its rate of growth in the short term. Leaving the EU abruptly, without a withdrawal agreement and implementation period, would amplify these effects.
view the Bank of England EU withdrawal scenarios and monetary and financial stability-A response to the House of Commons Treasury Committee November 2018
Source: Bank of England
BOE-Financial Stability Report and Stress Test results-November 2018
November 28, 2018--The 2018 stress test shows the UK banking system is resilient to deep simultaneous recessions in the UK and global economies that are more severe overall than the global financial crisis and that are combined with large falls in asset prices and a separate stress of misconduct costs.
In the 2018 stress-test scenario, UK GDP falls by 4.7%, the UK unemployment rate rises to 9.5%, UK residential property prices fall by 33% and UK commercial real estate prices fall by 40%. The scenario also includes a sudden loss of overseas investor appetite for UK assets, a 27% fall in the sterling exchange rate index and Bank Rate rising to 4%.
Major UK banks have continued to strengthen their capital positions. They started the 2018 stress test with an aggregate common equity Tier 1 (CET1) capital ratio nearly three and a half times higher than before the global financial crisis.
Despite facing loss rates consistent with the global financial crisis, the major UK banks' aggregate CET1 capital ratio after the stress would still be twice its level before the crisis.
view the Bank of England Financial Stability Report November 2018
Source: Bank of England
Bank of England says 'disorderly' Brexit worse for UK than global financial crisis
November 28, 2018--The Bank of England has published its 2018 U.K. bank stress tests and Brexit report.
Earlier, the U.K. government admitted that all Brexit scenarios would slow the economy.
The Bank of England has claimed that a "disorderly" exit from the European Union would plunge the U.K. economy into a worse economic contraction than that experienced after the global financial crisis of 2008.
The BOE made the claim in its assessment of different scenarios related to the U.K.'s withdrawal agreement from the EU, published Wednesday.
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Source: CNBC.com
Monday Morning Memo: European Investors sell-off Long-Term Mutual Funds in October
November 26, 2018--European investors pulled further away from long-term mutual funds as the market environment and general sentiment remained negative. As a consequence October was the sixth month in a row posting net outflows from long-term mutual funds after 16 consecutive months showing net inflows.
Real estate funds (+€0.3 bn) and commodity funds (+€0.2 bn) enjoyed net inflows, while all the other asset types in the segment of long-term mutual funds witnessed net outflows: bond funds (-€40.7 bn), equity funds (-€31.2 bn), alternative UCITS funds (-€11.4 bn), and mixed asset funds (-€9.1 bn), as well as ”other” funds (-€0.9 bn).
These fund flows added up to overall net outflows of €92.8 bn from long-term investment funds for October. ETFs contributed inflows of €0.7 bn to these flows.
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Source: Detlef Glow, Head of EMEA Research, Lipper
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