Equity ETF Flows Finally Surpass Fixed Income
European markets were down for the week. The FTSE 100 decreased -1.32%, the FTSE 250 was down –0.81%, whilst the Stoxx Europe 600 saw a decrease of –0.77%. The DAX was also down for the week with a negative return of –1.06%.
U.S. equities were up +0.77% and the CSI 300 was up slightly +0.35% for the same period.
The CBOE Volatility Index increased +2.22% from the previous week closing at 22.54 points.
WTI Crude oil closed last week at $42.34 a barrel, with an increase of +0.78%.
ETF Launches and Updates
BlackRock has launched an equity ETF offering exposure to the US medical devices industry. The iShares US Medical Devices UCITS ETF (UMDV) is listed on Euronext Amsterdam with a total expense ratio of 0.25%.
Tracking the Dow Jones US Select Medical Equipment Capped 35/20 Index, UMDV is comprised of US companies involved in the manufacturing and distribution of medical devices. Source: ETF Stream
HSBC Global Asset Management has launched the HSBC Asia Pacific ex Japan Sustainable Equity UCITS ETF on the London Stock Exchange with further listings planned across key markets in Europe. It has a total expense ratio of 0.25%
Designed to offer a cost-efficient solution to invest in Asia Pacific equities, the new fund takes a step beyond traditional sustainable ETF products by tracking the customised FTSE Asia Pacific ex Japan ESG Low Carbon Emissions Select Index, which integrates ESG, carbon emissions and fossil fuel reserves considerations. Source: ETF Express
Flows and Performance
The European ETF industry enjoyed estimated net inflows for July of +€13.2 bn
According to Lipper data, assets under management increased from €830 bn at the end of June to €844 bn at the end of July.
Unlike in recent months inflows were driven by equity funds +€7.7 bn followed by +€5.3 bn into fixed income ETFs.
Favourite categories in July were Equity Eurozone (+€2.5 bn), Equity US (+€2 bn) and Bond EUR Corporates (+€1.3 bn).
In terms of promoters, iShares was the best selling firm in July (+€4.9 bn) followed by UBS (+€3.6 bn) and DWS (+€2.1 bn)
The best-selling ETF for July was the iShares Core € Corp Bond UCITS ETF EUR (Dist), accounted for net inflows of €0.7 bn
As of Friday, European ETF assets are back to over $1 trillion. Globally, assets invested in ETFs/ETPs reached a new record of $6.66 trillion at the end of July.
In the US
Saudi Arabia’s sovereign wealth fund, the Public Investment Fund, poured nearly $4.7bn into three State Street Global Advisors ETFs during second quarter — $1.6bn in the Real Estate Select Sector SPDR, $1.9bn in the Utilities Select Sector SPDR and $1.2bn in the Materials Select Sector SPDR. Source: Ignites
Record Inflows for Thematic ETF
The ARK Innovation ETF (ARKK) ,which is heavily weighted in Tesla Inc., saw record inflows of $124 million last Wednesday. So far this year, the “disruptive-innovation” fund has received almost $3.1 billion, boosting its total assets to $7.4 billion.
The actively-managed fund has a 77.4% return year-to-date, placing it in the top five best performing equity ETFs in the U.S. along with two of the firm’s other products that focus on genomics and internet technology. Source: Bloomberg
In Europe – LSE/Borsa Italiana Bid
The London Stock Exchange has set deadlines for this week and mid-September for indicative bids for all or parts of Borsa Italiana to help win European Union approval for its $27 billion takeover of data company Refinitiv. The EU’s competition regulator expressed concern in June that a combination of LSE’s MTS and Refinitiv, which owns bond platform Tradeweb, would have large market share in European government bond trading.
A bidding war for all of Borsa could be triggered, with Euronext CEO Stephane Boujnah having said he wants to add Borsa Italiana to the exchange group’s stable of European bourses. Source: Reuters
PwC Report Findings – What is Behind Hindering ETF Growth
Exchange traded fund distribution in Europe is being hindered because market data providers have shown little interest in creating a shared database of equity prices and trading volumes, market participants say. The comments come as a new report by PwC finds that the EU’s Mifid II regime introduced in 2018 has had only a limited effect on improving transparency in market data in the region. The authors conclude that flaws in the availability, quality and consistency of trading data are impeding the distribution of ETFs in Europe.
Marie Coady, partner at PwC, said the lack of trading data standardisation meant retail investors did not have detailed insight into the overall liquidity of ETFs, making the products a less attractive proposition. A 2018 industry initiative led by Bloomberg did introduce some aggregated trade reporting for ETFs, but the service is only available to institutional investors and still contains inconsistencies in data reporting. The data expert said a major challenge was the practicalities involved in aggregating data from more than 200 trading venues operating in Europe, which would create delays in the speed at which different clients were able to access the data. Source: FT
Institutional Investors to Increase ESG ETF Usage
More than half of Europe’s institutional investors expect to do the bulk of their ESG investing through ETFs and other passive products over the next five years, according to a survey by Invesco. In the report, which canvassed 101 European institutional investors, around half of those polled expect to increase their ESG exposure in ETFs over the next two years, while a much smaller number, around 5%, expect to decrease their passive investments in this area.
ESG ETFs and exchange traded products saw net inflows of $32bn globally in the first six months of 2020, according to data from ETFGI, more than triple the $10bn in inflows witnessed during the same period last year. This took overall assets to a record $88bn. Bloomberg data showing that in the first seven months of 2020 in the Emea region, equity ESG ETFs attracted net inflows of $13.9bn while traditional equity ETFs had seen net outflows of $7.7bn. Invesco modelling forecasts that the assets of ESG equity ETFs will surge from $50bn to $300bn in Europe by the end of 2024, with corporate bond ESG ETFs also seeing rapid growth from a lower base. Source: FT
In the US — $3 Trillion Whale in Model Portfolio Boom
In the US, model portfolio investing has become a multitrillion-dollar beast in which the likes of BlackRock, Vanguard and Charles Schwab Corp. bundle funds into ready-made strategies.
Broadridge Financial Solutions Inc. estimates model portfolio solutions have grown to $3 trillion by the end of the first quarter and a significant chunk is in ETFs.
More than 400 new portfolios have launched since 2018 and financial advisers are increasingly drawn to third-party models because they help offload risk, according to Jillian DelSignore, principal at Lakefront Advisory and former head of ETF distribution for JPMorgan Asset Management. “It allows them to spend more time managing client relationships, forging new client relationships,” she said. “And at the end of the day, it allows them to fire someone if something goes sideways in terms of performance.” Source: Bloomberg
In Asia – FTSE Russell/SGX Partnership
FTSE Russell has completed a long-term strategic partnership with Singapore Exchange (SGX) which will initially focus on developing a broad index derivatives offering on Asian and emerging markets single country and regional equity derivatives as well as ESG and listed real estate index derivatives.
Waqas Samad, CEO of FTSE Russell and group director of information services at the London Stock Exchange Group (LSEG), commented: “This new strategic partnership will help support growing client and investment demand across Asia for access to index-based listed futures and options markets as well as ETFs. Source: ETF Stream
Fund in Focus
Bloomberg recently published an article on the importance of catchy and memorable tickers in the U.S. – partly due to their appeal to the rise of active retail trading. For example. in April 2008, two funds launched within days of each other on the same exchange, charging roughly the same fees and both investing in the solar industry — flash forward to today, one is liquidated and the other has crossed $1 billion in assets. If you knew nothing further except their tickers, TAN and KWT, could you say which thrived and which died?
The Invesco Solar ETF, otherwise known as TAN, is the biggest exchange-traded fund focused on clean energy in the U.S. The VanEck Vectors Solar Energy ETF, or KWT, was killed off in 2017. To many industry observers, the tickers helped decide their fates. Of course, the name is just one factor in an ETF’s destiny. Cost, marketing, distribution and structure are all key to success.
This brings us to this week’s Fund in Focus with a similar thematic approach – the Lyxor New Energy UCITS ETF which tracks the World Alternative Energy Total Return Index.
The index tracks the world’s 40 largest companies operating in the renewable energy, distributed energy or energy efficiency sectors, who derive at least 40% of their revenue from alternative energy related activities. TER is 0.60%. Year-to-date, the fund is up +19.44% and since the March lows it has returned +54.21% as of Friday, the 21st of August.
Fund Performance and Flows (data sourced from ETFLogic)
Top 3 Best Weekly Performers in the UK
iShares Edge MSCI Europe Momentum Factor UCITS ETF USD (Dist) +3.19%
Lyxor MSCI World Information Technology TR UCITS ETF – Acc (USD) +2.90%
Lyxor MSCI World Consumer Discretionary TR UCITS ETF – Acc (USD) +2.35%
Top 3 Worst Weekly Performers in the UK
Lyxor S&P 500 Banks UCITS ETF – Acc -5.15%
Lyxor MSCI World Energy TR UCITS ETF – Acc (USD) -4.74%
Lyxor MSCI World Utilities TR UCITS ETF Acc (USD) -2.34%
Top 3 Weekly UK Inflows
Invesco Bloomberg Commodity UCITS ETF +$249.1m
iShares USD Treasury Bond 20+yr UCITS ETF USD (Acc) +$76.7m
Vanguard Global Aggreg Bond UCITS ETF USD H Acc +$52.8m
Top 3 Weekly UK Outflows
WisdomTree Brent Crude Oil -GBP Daily Hedged -$75.9m
iShares Global High Yield Corp Bond UCITS ETF GBP (Dist) Hdg -$56.7m
iShares Treasury Bond 0-1yr UCITS ETF USD (Acc) -$26.4m
*Fund in Focus or any portion of this newsletter are informational only and not intended to provide recommendations of any kind.