Asset And Portfolio Management

ETF Market Making

During the previous month European and Asian equity markets lost slightly, whilst markets in the US and Latin America improved. Macrodata from the US were generally positive last month: June’s ISM manufacturing Purchasing Managers Index (PMI) surprised significantly to the upside at 57.8 and non-farm payrolls increased by 222,000 more than expected in June. The International Monetary Fund (IMF) downgraded its US growth forecasts for both 2017 and 2018 to 2.1% citing uncertainty of the current administration’s ability to facilitate expansionary fiscal policy. US inflation data in July largely disappointed and minutes of the June Federal Open Market Committee (FOMC) meeting showed a divide regarding both the timing of further hikes.

Last month saw a strong economic data from the eurozone, particularly from Germany. Both the German and eurozone final manufacturing PMIs improved in June to 59.6 and 57.4 respectively. The IMF revised its 2017 GDP growth forecasts for both Germany and the eurozone upwards to 1.8% and 1.9%. European Central Bank president Draghi’s hawkish speech in which he surprisingly alluded to improved reflationary pressure in the eurozone, led to a widespread sovereign bond sell-off. However, the bank implied its willingness to expand and continue the asset purchase programme. Finally, Brexit negotiations ended the month without making much progress. Chinese macrodata releases were broadly supportive in July. The June Caixin manufacturing PMI exceeded expectations at 50.4.

From an ETF perspective more than 117,000 trades were executed, whilst overall cash inflows were seen. The flow is distributed as follows: 88% for equity, 9% for fixed income and 2% for commodities. From a regional perspective the USA and eurozone account for the greatest flow. From a sector perspective the top three are composed of: financials (24%), technology (13%) and real estate (9%).

Within equities the most active underlyings were the S&P 500, EURO STOXX 50, MSCI World and DAX. US stocks posted a 1.9% gain in July fuelled by strong earnings in the second quarter (Q2), the weaker dollar and a surge in the technology sector. European stocks ended the month 0.4% lower, hurt by a stronger euro, while German stocks slid significantly, due to a potential EU probe into a possible auto cartel as well as regulations on cars with manipulated emissions. Japanese stocks managed to offset losses from a stronger yen with tailwinds from strong earnings growth.

Fixed income underwent minor cash outflows, whilst both sides are led by the CBK Bund-Future Short. Short-term yields rose to multi-year highs in early July as investors dumped sovereign bonds following Mario Draghi’s speech. Ten-year German bund yield touched a 19-month high of 0.60% while the 2-year U.S. treasuries (UST) yields skyrocketed to 1.41%, an 8-year high. UST yields rose in the run up to the FOMC but fell until the end of the month following persistently weak inflation prints. The dollar weakened last month due to a dovish Fed as well as disappointing inflation and GDP data despite strong Q2 earnings. The yen reversed its losing trend thanks to this, and the Bank of Japan’s commitment to continue easing. Strong eurozone macrodata fuelled a 3.6% gain in the euro against the dollar.

Commodities saw minor cash outflows as well. The sell side is led by the CBK Commodity ex-Agriculture EW, the buy side by LBMA Platinum. Base metals rose on strong Chinese data and demand. However, Trump’s threats to impose tighter regulations on cheap steel imports to the US weighed on investor sentiment. Precious metals posted losses earlier in the month due to higher safe-haven yields but recovered on the back of a weak dollar and a less-hawkish-than-perceived Fed.

Commerzbank ETF flow from 01/07/2017 to 31/07/2017

Asset class in % of total

Client sell

Asset class

Client buy

Asset class

Underlying

Underlying

46%

54%

88%

40%

Equity

49%

Equity

8%

S&P 500

7%

EURO STOXX 50

6%

EURO STOXX 50

7%

S&P 500

2%

MSCI World

4%

DAX

2%

DAX

2%

MSCI World

1%

MSCI USA

1%

MSCI USA

1%

UK 100

1%

MSCI Emerging Markets

0.73%

MSCI Emerging Markets

1%

UK 100

0.60%

MSCI Europe

0.86%

MSCI Europe

0.45%

MSCI Japan

0.85%

MSCI Japan

0.43%

Hang Seng China Enterprises

0.65%

EURO STOXX Banks 30-15

9%

5%

Fixed income

4%

Fixed income

2%

CBK Bund-Future Short

0.97%

CBK Bund-Future Short

0.25%

Markit iBoxx EUR Lq Sov Divers 5-7

0.21%

Barclays Euro Agg Corps

0.20%

Barclays Euro Agg Corps

0.14%

Deutsche Börse EUROGOV DEU 5-10

0.15%

EONIA compounded rate

0.14%

Barclays Euro Agg Treasury 1-3 Yr

0.14%

Barclays EUR Corporate bonds 1-5Y

0.11%

JPM EMBI Global Core

2%

1%

Commodity

1%

Commodity

0.47%

CBK Commodity ex-Agriculture EW

0.43%

LBMA Platinum

0.44%

LBMA Platinum

0.12%

LBMA Gold Price

0.12%

MS Long Gold Euro Hdg

0.12%

MS Long Gold Euro Hdg

0.08%

LBMA Gold Price

0.11%

CBK Commodity ex-Agriculture EW

0.05%

Brent Oil

0.05%

DBIQ Optimum Yield Crude Oil

Source: Commerzbank, ETF Market Making. Data as of July 2017

In % of total

Issuer

Underlying

Ratio

Client sell

Client buy

7%

ComStage ETF

S&P 500

50%

50%

5%

iShares ETF

EURO STOXX 50

36%

64%

3%

ComStage ETF

EURO STOXX 50

58%

42%

3%

ComStage ETF

CBK Bund-Future Short

63%

37%

2%

iShares ETF

S&P 500

50%

50%

2%

iShares ETF

EURO STOXX 50

50%

50%

2%

iShares ETF

UK 100

49%

51%

1%

iShares ETF

S&P 500

81%

19%

1%

iShares ETF

DAX

27%

73%

1%

db x-trackers ETF

DAX

32%

68%

Most traded ETFs from 01/07/2017 to 31/07/2017
Most traded ETFs from 01/07/2017 to 31/07/2017
Source: Commerzbank ETF Market Making

In % of total

Region

Ratio

Client sell

Client buy

25%

USA

50%

50%

21%

Eurozone

46%

54%

13%

Global

48%

52%

11%

Europe

40%

60%

11%

Germany

42%

58%

3%

Emerging markets

44%

56%

3%

UK

47%

53%

2%

Japan

39%

61%

2%

China

49%

51%

1%

Asia-Pacific region ex. Japan

37%

63%

8%

Others

47%

53%

Most traded ETFs by region from 01/07/2017 to 31/07/2017
Most traded ETFs by region from 01/07/2017 to 31/07/2017
Source: Commerzbank ETF Market Making

In % of total

Sector

Ratio

Client sell

Client buy

24%

Financials

31%

69%

13%

Technology

55%

45%

9%

Real estate

45%

55%

8%

Energy

42%

58%

8%

Healthcare

50%

50%

5%

Basic resources

34%

66%

5%

Personal & household goods

46%

54%

4%

Utilities

61%

39%

4%

Industrials

30%

70%

3%

Consumer discretionary

61%

39%

3%

Materials

34%

66%

3%

Financial

39%

61%

3%

Insurance

19%

81%

3%

Consumer staples

49%

51%

7%

Others

52%

48%

Most traded ETFs by sector from 01/07/2017 to 31/07/2017
Most traded ETFs by sector from 01/07/2017 to 31/07/2017
Source: Commerzbank ETF Market Making