Asset and portfolio management

ETF Market Making

Global equity markets gained again in January, with the MSCI World hitting a fresh all-time high and the MSCI Emerging Markets reaching a new bull market high as the tailwind of prosperous global growth expectations supported buying. For US equities, there were other supportive factors, such as tax reform progress and the ongoing weakness of the dollar against major currencies such as the euro. Consequently, US stocks accelerated their uptrends: the Nasdaq Composite gained 7.4% and DJ Industrial 5.8%, resulting in a clearly overbought situation. Europe’s periphery countries were the key beneficiaries of improved growth prospects, despite the stronger euro. Emerging markets outperformed developed countries by around 3.1% in January. Brazil was again one of the best performers, buoyed by the news that former president Lula da Silva has most likely been banned from running in elections this year.

This positive momentum saw significant inflows into ETFs once again at the start of 2018. Europe was the most popular region, with the STOXX Europe 600 and the EURO STOXX 50 being the most active underlyings. Their outstanding performance put emerging markets in favour too, the same is true for the US. Still, there were also switches out of major indices such as the S&P 500 into currency-hedged products and more defensive items such as value-related equity products.

More than 186,739 ETF transactions were executed, with the flow weighted heavily in favour of equities at 90%, 8% going to fixed income and 2% to commodities. The most actively traded underlying index was the S&P 500, which netted an 11% share of all trades executed. It was followed by the EURO STOXX 50 (8%) and Germany’s DAX (5%). That said, the US and Europe together were the most active regions overall in January, taking 24% and 16% of all trades respectively. In addition the STOXX Europe 600 took a share of 4%, though on the buy side only. Emerging markets took a 3% share in January, and China an additional 2% on the back of their strong performance versus developed countries.

Aided by rising interest rates, financials took the lead with regards to sectors, taking 21% of all trades executed in equities. They were followed by energy (19%), technology (16%), defensives such as healthcare (7%) and, aided by the yield environment, real estate (6%). The STOXX Europe 600 was up 1.6% at the end of the month, testing its long-term resistance area starting at 400. The best performing sectors were automobiles (+8%), banks (+5%), financial services (+5.0%) and insurance (+3.6%) in contrast with food & beverage (–2.9%), utilities (–2.6%) and real estate (1.5%).

Turning to fixed income, there was a balanced breakdown on the buy and the sell sides with each executing 4% of all trades. Given higher interest rates in the US as well as in the euro area, it’s no wonder that the most traded product on both sides of the Atlantic was the CBK Bund-Future Short. As German five-year government bond yields reached positive territory for the first time since autumn 2015, there was also a lot of activity in ETFs related to corporate bonds such as the Markit iBoxx Liquid High Yield. Commodities also benefitted over the month, fuelled by the weaker dollar, with the Bloomberg Commodity Index testing its long-term resistance zone around 90. Besides Commodity ex-Agriculture there was also interests in products covering precious metals such as LBMA Platinum and LBMA Gold.

However, towards the end of the month, the pronounced increase of interest rates in the US and Europe clearly put stocks under pressure. Moreover, stronger-than-expected US economic data led to fears of faster-than-anticipated tapering by the US Federal Reserve. Finally, imminent discussions on the safety of cryptocurrencies triggered a price slump in bitcoins to below USD 6000. As a result, intraday volatility surged and international equity markets entered a medium-term correction.

Commerzbank ETF flow from 01/01/2018 to 31/01/2018

Asset class in % of total

Client sell

Asset class

Client buy

Asset class

Underlying

Underlying

47%

53%

90%

41%

Equity

49%

Equity

6%

S&P 500

5%

S&P 500

4%

EURO STOXX 50

4%

EURO STOXX 50

2%

DAX

4%

STOXX Europe 600

2%

MSCI World

3%

DAX

1%

MSCI Emerging Markets

2%

MSCI World

1%

MSCI Japan

1%

MSCI Japan

1%

MSCI Europe

1%

MSCI Europe

0.98%

MSCI USA

1%

MSCI Emerging Markets

0.57%

MSCI EMU

1%

MSCI USA

0.54%

UK 100

0.84%

MSCI World Energy UC

8%

4%

Fixed income

4%

Fixed income

0.80%

CBK Bund-Future Short

1%

CBK Bund-Future Short

0.27%

Deutsche Börse EUROGOV DEU 1-3

0.15%

Markit iBoxx Liquid High Yield

0.19%

Markit iBoxx Liquid High Yield

0.14%

Barclays Euro Govt Infl Lkd

0.16%

Barclays Euro Agg Corps

0.12%

Markit iBoxx USD Liquid IG

0.14%

Barclays US Govt Infl Lkd

0.12%

Barclays Euro Agg Corps

2%

0.91%

Commodity

0.67%

Commodity

0.33%

LBMA Platinum

0.20%

CBK Commodity ex-Agriculture EW

0.20%

CBK Commodity ex-Agriculture EW

0.15%

LBMA Gold Price

0.11%

LBMA Gold Price

0.06%

S&P GSCI Silver

0.07%

Bloomberg Sub WTI Crude Oil

0.05%

CBK Commodity ex-Agriculture TR H

0.05%

Brent Oil

0.04%

Bloomberg Sub WTI Crude Oil

Source: Commerzbank, ETF Market Making. Data as of January 2018

In % of total

Issuer

Underlying

Ratio

Client sell

Client sell

4%

ComStage ETF

EURO STOXX 50

49%

51%

4%

iShares ETF

S&P 500

69%

31%

3%

iShares ETF

STOXX Europe 600

4%

96%

2%

ComStage ETF

CBK Bund-Future Short

37%

63%

2%

Vanguard ETF

S&P 500

55%

45%

2%

db x-trackers ETF

S&P 500

49%

51%

2%

Lyxor ETF

S&P 500

0%

100%

1%

iShares ETF

MSCI World

47%

53%

1%

iShares ETF

DAX

41%

59%

1%

ComStage ETF

DAX

50%

50%

Most traded ETFs from 01/01/2018 to  31/01/2018
Most traded ETFs from 01/01/2018 to 31/01/2018
Source: Commerzbank Corporates & Markets /  ETF Market Making

In % of total

Region

Ratio

Client buy

Client buy

24%

USA

48%

52%

16%

Europe

39%

61%

14%

Global

45%

55%

14%

Eurozone

47%

53%

11%

Germany

46%

54%

5%

Japan

53%

47%

4%

Emerging markets

52%

48%

2%

China

61%

39%

1%

UK

65%

35%

1%

Asia-Pacific region ex. Japan

48%

52%

8%

Others

47%

53%

Most traded ETFs by region from 01/01/2018 to 31/01/2018 
Most traded ETFs by region from 01/01/2018 to 31/01/2018
Source: Commerzbank Corporates & Markets / ETF Market Making

In % of total

Sector

Ratio

Client sell

Client buy

21%

Financials

48%

52%

19%

Energy

35%

65%

16%

Technology

37%

63%

7%

Healthcare

50%

50%

6%

Real estate

42%

58%

4%

Industrials

36%

64%

3%

Utilities

49%

51%

3%

Basic resources

42%

58%

2%

Consumer staples

40%

60%

2%

Materials

47%

53%

2%

Consumer discretionary

45%

55%

2%

Insurance

52%

48%

1%

Industrial goods & services

57%

43%

1%

Telecommunications

22%

78%

1%

Automobiles & parts

35%

65%

1%

Food & beverage

53%

47%

Most traded ETFs by sector from 01/01/2018 to 31/01/2018  
Most traded ETFs by sector from 01/01/2018 to 31/01/2018	  
Source: ­Commerzbank Corporates & Marketsƒ / ETF Market Making