Editorial

ETF Market Making

Equity markets worldwide had a very good start into the new year 2019 after suffering heavily in the fourth quarter of 2018 that began with Fed fears and ended with a sell-off on Christmas Eve. US equities continued their powerful rebound from their December lows through the end of February, with the Dow Jones Industrial Average and the Nasdaq 100 extending their streak of weekly gains to nine. This strong comeback was backed by hopes on positive U.S.-China trade talks as Trump agreed to postpone the increase in US tariffs, scheduled for 1 March, continued reluctance by the Fed to raise interest rates, as well as corporate profits being better than expected. In the wake of the recovery of US indices, major European indices climbed in January and February, e.g. Germany’s DAX rose by 3% in February.

Commerzbank, as a leading European ETF Market Maker, executed almost 152,000 transactions in February. The flow distribution was in favour of equities which took an 80% share. Fixed income represented around 16% of all trades and commodities 4%. The overall trade volume was in favour of the buy side. Transactions in equities and commodities were focused on the buy side whereas trades in fixed income showed a balanced distribution to the buy and sell sides.


Within equities, the S&P 500 was once again the most traded underlying, taking 8% of the trade volume, followed by the MSCI World (5%), the MSCI Emerging Markets (3%) and the MSCI Europe (2.85%). In addition, some flow was seen in the iSTOXX Automation and Robotics and in indices providing exposure to UK stocks. Last but not least, investors were also attracted by minimum volatility strategies (e.g. MSCI World Minimum Volatility) and by socially responsible ETFs (e.g. MSCI USA SRI).


With regards to geography, the US remains to be the most active region (22%), followed by global (20%), the eurozone (16%), Europe (9%) and emerging markets (8%). After the US, Germany and the UK were the most traded single countries. Buy-side transactions were dominated by Europe and the UK. Sell-side transactions were strong in ETFs referring to Germany and the eurozone.

Turning to the sectors, once again technology took the lead with 19%. Real estate (12%) and healthcare (11%) took the second and third spots. In addition, banks (11%) and basic resources (9%) were actively traded. The buy side was dominated by chemicals, automobiles and consumer staples. Sell-side activity dominated in banks, technology and energy. 


Within fixed income, the most traded underlying was EONIA (0.52%) followed by indices that provide exposure to floating rate notes – the Markit iBoxx USD Liquid FRN IG Corporates 100 (0.51%). Both dominated the sell side. ETFs that capture the performance of liquid high-yield bonds were traded both on the buy and the sell side (Markit iBoxx USD Liquid High Yield with a share of 0.48%). The U.S. ten-year Treasuries traded in a very narrow range between 2.63% and 2.70% during the whole month.


Turning to commodities, the Bloomberg Commodity Index ended the February session almost unchanged while trading in a quite narrow range during the whole month. After a very poor performance in 2018, the index was able to slightly recover in January and stabalise in February. The most traded ETFs were those referring to gold and the CBK Commodity ex-Agri (both on the buy and the sell side). Gold trades were supported by a very strong performance of gold prices with hitting almost new one-year highs before sharply decreasing towards the end of the month. Trading activity was also seen in WTI and Brent crude oil. Oil prices continued their recovery in February that started in early January.

Commerzbank ETF flow from 01/02/2019 to 28/02/2019

Asset class 
in % of total

Client sell

Asset class

Client buy

Asset class

Underlying

Underlying

48%

52%

80%

38%

Equity

42%

Equity

4%

S&P 500

4%

S&P 500

2%

MSCI World

3%

MSCI World

2%

EURO STOXX 50

2%

MSCI Emerging Markets

1%

DAX

2%

MSCI Europe

1%

MSCI Emerging Markets

0.91%

MSCI EM IMI

0.95%

MSCI EM IMI

0.78%

DAX

0.85%

MSCI Europe

0.76%

EURO STOXX 50

0.69%

Automation & Robotics

0.58%

MSCI World Minimum Vol

0.56%

UK 100

0.55%

MSCI USA SRI

0.54%

STOXX Europe 600

0.52%

MSCI UK

16%

8%

Fixed income

8%

Fixed income

0.52%

DB EONIA

0.34%

Markit iBoxx EUR Crp BBB-BB(5% Issr Cap)

0.51%

Markit iBoxx $ Lq FRN IG Corp 100 TR USD

0.32%

Barclays Euro Agg Corps

0.34%

Barclays Euro Agg Corps

0.29%

Markit iBoxx EUR Liquid Corp Large

0.27%

Markit iBoxx USD Liquid High Yield

0.24%

Barclays US Treasury 1-3Yr Term

0.24%

eb.rexx Fixed Income

0.21%

Markit iBoxx USD Liquid High Yield

4%

2%

Commodity

3%

Commodity

0.77%

Gold Spot

0.74%

CBK Commodity ex-Agri

0.22%

LBMA Gold Price

0.62%

Gold Spot

0.11%

CBK Commodity ex-Agri

0.51%

WTI Crd Oil Hgd Dly

0.08%

WTI Crude Oil

0.20%

LBMA Gold Price

0.05%

Brent Oil

0.08%

WTI Crude Oil

Source: Commerzbank, ETF Market Making. Data as of February 2019

In % of total

Issuer

Underlying

Ratio

Client sell

Client buy

4%

iShares ETF

MSCI World

48%

52%

3%

iShares ETF

S&P 500

53%

47%

2%

iShares ETF

MSCI EM IMI

51%

49%

1%

Deutsche Boerse Commodity

Gold Spot

55%

45%

1%

Vanguard ETF

S&P 500

56%

44%

1%

iShares ETF

MSCI Europe

6%

94%

1%

Xtrackers ETF

S&P 500

40%

60%

1%

iShares ETF

iSTOXX Automation & Robotics

78%

22%

1%

ComStage ETF

CBK Commodity ex-Agri

13%

87%

Most traded ETFs from 01/02/2019 to 28/02/2019
Most traded ETFs from 01/02/2019 to 28/02/2019
Source: Commerzbank Corporates & Markets / ETF Market Making

In % of total

Region

Ratio

Client sell

Client buy

22%

USA

46%

54%

20%

Global

44%

56%

16%

Eurozone

55%

45%

9%

Europe

43%

57%

8%

Emerging markets

45%

55%

6%

Germany

62%

38%

3%

UK

44%

56%

2%

Japan

48%

52%

2%

China

47%

53%

1%

Asia-Pacific ex. Japan

42%

58%

11%

Others

46%

54%

Most traded ETFs by region from 01/02/2019 to 28/02/2019
Most traded ETFs by region from 01/02/2019 to 28/02/2019
Source: Commerzbank Corporates & Markets / ETF Market Making

In % of total

Sector

Ratio

Client sell

Client buy

19%

Technology

60%

40%

12%

Real estate

51%

49%

11%

Healthcare

47%

53%

11%

Banks

63%

37%

9%

Basic resources

43%

57%

8%

Energy

56%

44%

7%

Utilities

45%

55%

5%

Financials

46%

54%

4%

Industrials

52%

48%

3%

Communications

43%

57%

3%

Consumer staples

41%

59%

3%

Consumer discretionary

46%

54%

2%

Food & beverages

46%

54%

1%

Construction

46%

54%

1%

Automobiles

41%

59%

1%

Chemicals

19%

81%

Most traded ETFs by sector from 01/02/2019 to 28/02/2019
Most traded ETFs by sector from 01/02/2019 to 28/02/2019
Source: Commerzbank Corporates & Markets / ETF Market Making