Asset and Portfolio Management


ETF Market Making

It’s fair to say that 2018 was tough for equities, but it was far from a smooth ride downwards, with many highs as well as lows. By the close, though, major stock markets across the world had suffered their worst year since the financial crisis a decade ago. There were plenty of causes, not least trade tensions between the global powers China and the US, while growing concerns over rising interest rates and ongoing geopolitical issues such as Brexit also combined to batter equity markets. Stocks struggled through the month of December with wild rollercoaster rides. At its low price on Christmas Eve, the S&P 500 was down more than 20% from its record high on an intraday basis, entering a bear market. The next day, the Dow Jones jumped more than 1,000 points, its biggest ever point gain. Germany’s DAX hit a new two-year low, while Brazil’s IBOVESPA touched a new record high.

Commerzbank ETF Market Making saw a strong month once again, executing more than 176,000 transactions in December. The flow distribution was in favour of equities, which took an 81% share. Fixed income represented around 15% of all trades and commodities 4%. The overall volume showed a balanced distribution to the buy and sell sides. Transactions in equities were rather focused on the sell side, which should come as no surprise with many major indices trading at the year’s low. In comparison, trades in fixed income and commodities were focused on the buy side.

Within equities, the S&P 500 was again the most traded underlying, taking 9% of the trade volume, followed by the MSCI World (6%), the EURO STOXX 50 (4%) and Germany’s DAX (2%). In addition, some flow, especially on the buy side, was seen in ETFs referring to emerging markets where several economies are supported by stable growth predictions, such as the MSCI Emerging Markets and the MSCI Emerging Markets IMI. Last but not least, investors were also attracted by low- and minimum-volatility strategies, as well as ETFs capturing the performance of high dividend shares.

With regards to geography, the US was once again the most active region (26%), followed by global (16%), the eurozone (15%), Europe (11%) and Germany (8%). After the US and Germany, Japan and the UK were the most traded single countries. Buy-side transactions were dominated by emerging markets and Germany. Sell-side transactions were strong in ETFs referring to the UK and Japan.

Turning to the sectors, technology took the lead with 14%. Real estate (11%) and financials (11%) took the second and third spots. In addition, defensive sectors such as healthcare (10%) were actively traded. The buy side was dominated by basic resources and utilities, backed by a strong relative outperformance from their underlying stocks. These two were the market’s best performing sectors in December; the STOXX Europe 600 Utilities lost 0.14% and the STOXX Europe 600 Basic Resources 0.47% compared to the European retail sector that shed more than 9%. Sell-side activity dominated in industrials and financials – the two sectors that have been among the worst performers: the S&P 500 Industrials lost 10.8%, while the S&P 500 Financials even lost 11.45% in December.

Within fixed income, the most traded underlying was the Bund Future Short (1%) which dominated the buy side. Short-dated bonds were also in favour with investors. The iBoxx EUR Liquid IG Ultrashort was actively traded on both the buy and the sell side (0.84%) followed by EONIA (0.32%).

For the fourth time in 2018, the US Federal Reserve raised its funds rate, this time by a quarter percentage point to a range of 2.25 to 2.5%. Consequently, ETFs referring to US Treasuries were actively traded. Within that, long-dated Treasuries were bought while short-termed ones were sold.

Turning to commodities, the Bloomberg Commodity Index ended the December session in negative territory, hitting a new two-year low on the last trading day of the year. The most traded ETFs were those referring to gold and the CBK Commodity ex-Agri. Trading activity was also seen in WTI and Brent crude oil. Oil prices continued their decline and were down for the third month in a row. WTI and Brent futures both crashed and lost more than 30% compared to the year’s high struck in early October.

Commerzbank ETF flow from 01/12/2018 to 31/12/2018

Asset class 
in % of total

Client sell

Asset class

Client buy

Asset class

Underlying

Underlying

51%

49%

81%

42%

Equity

39%

Equity

4%

S&P 500

5%

S&P 500

3%

MSCI World

3%

MSCI World

2%

EURO STOXX 50

2%

EURO STOXX 50

1%

MSCI Japan

1%

DAX

1%

DAX

1%

MSCI Emerging Markets

1%

STOXX Europe 600

1%

STOXX Europe 600

1%

MSCI North America

0.75%

MSCI Europe

0.94%

MSCI USA

0.58%

MSCI USA

0.82%

MSCI Emerging Markets

0.56%

MSCI EM IMI

0.80%

MSCI Europe

0.49%

MSCI EMU

15%

7%

Fixed income

8%

Fixed income

0.42%

Markit iBoxx EUR Lqd IG Ultrshort

1%

CBK Bund-Future Short

0.41%

Barclays US Treasury 1-3Yr Term

0.42%

Markit iBoxx EUR Lqd IG Ultrshort

0.35%

JPM GBI UK 1-5 Yr

0.32%

DB EONIA

0.29%

Markit iBoxx Liquid High Yield

0.31%

Markit iBoxx Liquid High Yield

0.22%

iShares $ Floating Rate Bd ETF U

0.26%

Barclays US Trsy 10 Yr Term

4%

2%

Commodity

2%

Commodity

0.62%

LBMA Gold Price

0.73%

LBMA Gold Price

0.37%

CBK Commodity ex-Agri

0.46%

CBK Commodity ex-Agri

0.15%

Gold Spot

0.25%

Gold Spot

0.06%

S&P GSCI Silver

0.06%

S&P GSCI Silver

0.04%

WTI Crude Oil

0.06%

Brent Oil

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

In % of total

Issuer

Underlying

Ratio

Client sell

Client buy

2%

iShares ETF

S&P 500

37%

63%

2%

iShares ETF

MSCI World

37%

63%

2%

iShares ETF

STOXX Europe 600

47%

53%

2%

Vanguard ETF

S&P 500

60%

40%

1%

ComStage ETF

CBK Bund-Future Short

6%

94%

1%

iShares ETF

EURO STOXX 50

25%

75%

1%

iShares ETF

MSCI EM IMI

53%

47%

1%

iShares ETF

MSCI World

69%

31%

1%

iShares ETF

Markit iBoxx EUR Lqd IG Ultrashort

50%

50%

1%

ComStage ETF

CBK Commodity ex-Agri

44%

56%

Most traded ETFs from 01/12/2018 to 31/12/2018
Most traded ETFs from 01/12/2018 to 31/12/2018
Source: Commerzbank Corporates & Markets / ETF Market Making

In % of total

Region

Ratio

Client sell

Client buy

26%

USA

50%

50%

16%

Global

52%

48%

15%

Eurozone

50%

50%

11%

Europe

53%

47%

8%

Germany

46%

54%

5%

Japan

60%

40%

4%

Emerging markets

44%

56%

2%

UK

62%

38%

1%

North America

86%

14%

1%

China

50%

50%

11%

Others

48%

52%

Most traded ETFs by region from 01/12/2018 to 31/12/2018
Most traded ETFs by region from 01/12/2018 to 31/12/2018
Source: Commerzbank Corporates & Markets / ETF Market Making

In % of total

Sector

Ratio

Client sell

Client buy

14%

Technology

54%

46%

11%

Real estate

57%

43%

11%

Financials

62%

38%

10%

Healthcare

55%

45%

8%

Banks

55%

45%

8%

Energy

50%

50%

6%

Basic resources

46%

54%

5%

Utilities

47%

53%

3%

Industrials

67%

33%

3%

Consumer staples

52%

48%

3%

Communications

42%

58%

2%

Automobiles

46%

54%

2%

Consumer discretionary

75%

25%

2%

Food & beverages

40%

60%

Most traded ETFs by sector from 01/12/2018 to 31/12/2018
Most traded ETFs by sector from 01/12/2018 to 31/12/2018
Source: Commerzbank Corporates & Markets / ETF Market Making