Asset and Portfolio Managamenet

ETF Market Making

A plethora of issues has weighed heavily on global equity markets in recent weeks: the fear of rising interest rates globally, the latest US threat to impose new tariffs on China, tensions in the Middle East caused by the Khashoggi case and Iran sanctions, Italian budget negotiations with the European Commission, China’s economic slowdown, and worries about possibly overvalued US stocks to name but a few.


Hardly surprising, then, that October proved to be the worst month for the S&P 500 since September 2011. After reaching a new all-time high in September, the S&P lost almost 7% in October. The biggest tech stocks – known as FANG shares – were among the hardest hit, meaning that the Nasdaq 100 performed even worse, shedding 8.6%. 


This poor US performance took its toll in Europe, where equities touched new lows for the year to date. Germany’s DAX ended the October session 6.5% down, despite being able to bounce back in the last couple of days following Angela Merkel’s announcement that she plans to step down as the leader of her party and will not seek re-election as chancellor in 2021. Italy’s stock market came under pressure too, falling more than 7%. The driver was clear: the EU formally rejected Italy’s budget draft – the first time that the Commission has rejected a budget plan by a eurozone member since it attained power to do so – triggering a stand‑off between Brussels and Rome. 


Elsewhere, Chinese stock markets added to their weak performance year to date – the Hang Seng Index lost 10% in October as the country’s trade war with the US began to hit manufacturing and consumer sentiment. Fears of an economic slowdown also hit South Korea, one of the worst performers among major Asian equity indices, with the KOSPI losing around 13%.


Commerzbank ETF Market Making executed more than 267,000 transactions in October – the highest number ever recorded! The flow distribution was weighted in favour of equities, which took an 88% share. Fixed income represented around 9% of all trades and commodities 3%. The overall trade volume showed a balanced distribution to the buy and sell sides. Transactions both in fixed income and commodities were focused on the buy side. Trades in equity, however, were focused on the sell side which should come as no surprise when looking at the recent poor performance. 


Within equities, once again the S&P 500 was the most traded underlying, taking 9% of the trade volume, followed by EURO STOXX 50 at 8%, MSCI World at 6% and Germany’s DAX at 3%. Transactions in the S&P 500 and the DAX were focused on the buy side. All other underlyings mentioned above were rather focused on the sell side. 


In terms of geography, the US remained the most active region in October (26%), followed by the eurozone (17%), Global (16%), Europe (12%), and Germany (7%). Buy-side transactions were dominated by the US, Japan as well as the Asia-Pacific region and the emerging markets. Sell-side transactions were strong in ETFs referring to the eurozone and European indices.


With regards to sectors, technology took the lead with almost 18%, backed by high volatility in tech shares. Banks (12%) and energy (11%) took the second and third spots. The buy side was dominated by consumer staples – one of the sectors that performed well last month – as well as by basic resources and defensive sectors such as healthcare. Sell-side activity dominated in industrials, consumer discretionary and real estate.


Within fixed income, once again, the most traded underlying was the CBK Bund Future Short (0.47%) which dominated the sell side. In addition, the Barclays US Treasury 10 Years and the Barclays US Treasury 1-3 Years were actively traded on the buy side. On a month-to-month basis, the ten-year US Treasury yield rose by 10 basis points to 3.16% on strong jobs data – even touching a high of 3.23% at the beginning of the month. The Italian budget dispute led to a sell-off in Italian bonds, with the ten-year yield climbing to 3.68% in mid-October. 


Turning to commodities, the Bloomberg Commodity Index was down more than 2% at the end of October, shedding early gains of 3% after the first three trading days. Oil prices posted their biggest monthly drop since July 2016. WTI crude oil also tumbled after putting in a strong performance at the start of the month. Having climbed to almost USD 77 in early October – its highest price since November 2014 – it ended the month with a loss of close to 11%. Better trading activity was seen in gold, which was able to recover a little bit from heavy losses in summer.


Commerzbank ETF flow from 01/10/2018 to 31/10/2018

Asset class 
in % of total

Client sell

Asset class

Client buy

Asset class

Underlying

Underlying

50%

50%

88%

45%

Equity

43%

Equity

4%

EURO STOXX 50

5%

S&P 500

4%

S&P 500

4%

EURO STOXX 50

3%

MSCI World

3%

MSCI World

1%

DAX

2%

DAX

1%

Nasdaq 100

1%

MSCI Europe

1%

MSCI ACWI

0.95%

MSCI Japan

1%

STOXX Europe 600

0.78%

S&P 500 Euro Hdg

0.94%

MSCI Europe

0.76%

MSCI Emerging Markets

0.84%

MSCI Japan

0.57%

MSCI EMU

0.77%

MSCI Canada

0.56%

S&P 500 NR USD

9%

4%

Fixed income

5%

Fixed income

0.47%

CBK Bund-Future Short

0.25%

Barclays US Trsy 10 Yr Term

0.20%

Markit iBoxx EUR Liquid Non-Fin

0.20%

Barclays US Treasury 1–3Yr Term

0.17%

Markit iBoxx EUR Lqd IG Ultrshort

0.17%

EuroMTS EONIA Investable

0.16%

Gilts All Stocks

0.17%

Markit iBoxx EUR Sovereigns

0.12%

Barclays US Treasury 1–3Yr Term

0.17%

Markit iBoxx EUR Lqd IG Ultrshort

3%

1%

Commodity

2%

Commodity

0.53%

LBMA Gold Price

0.44%

LBMA Gold Price

0.18%

CBK Commodity ex-Agri

0.40%

CBK Commodity ex-Agri Hdg EUR

0.14%

Gold Spot

0.31%

MS Long Gold Euro Hdg

0.05%

S&P GSCI Silver

0.24%

CBK Commodity ex-Agri

0.04%

Thomson Reuters/CoreCommodity CRB

0.16%

Gold Spot

0.09%

0.04%

Multi-asset

0.04%

Multi-asset

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

In % of total

Issuer

Underlying

Ratio

Client sell

Client buy

6%

iShares ETF

EURO STOXX 50

60%

40%

4%

iShares ETF

S&P 500

42%

58%

2%

iShares ETF

MSCI World

43%

57%

2%

iShares ETF

MSCI World

62%

38%

1%

iShares ETF

S&P 500 Euro Hdg

40%

60%

1%

Vanguard ETF

S&P 500

40%

60%

1%

iShares ETF

STOXX Europe 600

77%

23%

1%

iShares ETF

S&P 500

50%

50%

1%

iShares ETF

DAX

49%

51%

1%

iShares ETF

NASDAQ 100

93%

7%

Most traded ETFs from 01/10/1018 to 31/10/2018
Most traded ETFs from 01/10/1018 to 31/10/2018
Source: Commerzbank Corporates & Markets / ETF Market Making

In % of total

Region

Ratio

Client sell

Client buy

26%

USA

47%

53%

17%

Eurozone

53%

47%

16%

Global

52%

48%

12%

Europe

53%

47%

7%

Germany

54%

46%

4%

Japan

44%

56%

3%

Emerging markets

46%

54%

2%

UK

52%

48%

1%

Canada

75%

25%

1%

Asia-Pacific region ex. Japan

46%

54%

11%

Others

44%

56%

Most traded ETFs by region from 01/10/2018 to 31/10/2018
Most traded ETFs by region from 01/10/2018 to 31/10/2018
Source: Commerzbank Corporates & Markets ­ ETF Market Making

In % of total

Region

Ratio

Client sell

Client buy

18%

Technology

50%

50%

12%

Banks

51%

49%

11%

Energy

48%

52%

10%

Healthcare

46%

54%

8%

Real estate

59%

41%

7%

Basic resources

45%

55%

6%

Financials

58%

42%

6%

Utilities

56%

44%

4%

Industrials

69%

31%

4%

Consumer discretionary

63%

37%

3%

Consumer staples

44%

56%

3%

Insurance

50%

50%

3%

Construction

51%

49%

3%

Communications

50%

50%

2%

Autos

47%

53%

1%

Food & beverages

57%

43%

Most traded ETFs by sector from 01/10/2018 to 31/10/2018
Most traded ETFs by sector from 01/10/2018 to 31/10/2018
Source: Commerzbank Corporates & Markets ­ ETF Market Making