June Equity ETF Flows Back in Positive Territory
Stocks in Europe, the U.S. and China were mixed last week. The FTSE 100 jumped +3.20%, the FTSE 250 was up +0.99%, whilst the Stoxx Europe 600 saw an increase of +1.63%. The DAX was also up for the week with a positive return of +2.26%.
U.S. equities were up +1.27% and the CSI 300 decreased -4.05% for the same period.
The CBOE Volatility Index dropped -5.90% from the previous week closing at 25.68 points.
WTI Crude oil closed last week at $40.59 a barrel, with a small gain of +0.10% for the week.
ETF Launches and Updates:
Amundi has expanded its SRI ETF range with the launch of Amundi Index Euro AGG SUR UCITS ETF DR – EUR, which has listed on Euronext Paris. The fund provides investors with sustainable euro-denominated fixed income investment solution covering both government and corporate bond markets. As the first EUR Aggregate SRI ETF inthe market, this fund has a TER of 0.16%.
Deka has launched five ESG ETFs which will consider the effects of climate change and the necessary transition to a low-carbon economy. The range is listed on the Stuttgart Stock Exchange and Xetra with total expense ratios ranging between 0.20% and 0.25%. The suite includes:
· Deka MSCI Germany Climate Change ESG UCITS ETF (D6RT)
· Deka MSCI EMU Climate Change ESG UCITS ETF (D6RS)
· Deka MSCI Europe Climate Change ESG UCITS ETF (D6RR)
· Deka MSCI USA Climate Change ESG UCITS ETF (D6RQ)
· Deka MSCI World Climate Change ESG UCITS ETF (D6RP)
Invesco has unveiled a sterling-hedged version of its physical gold ETC following record demand for the precious metal. The Invesco Physical Gold GBP Hedged ETC (SGLS) is listed on the London Stock Exchange with a fixed fee of 0.19% and a hedging cost of 0.25%.
As mentioned in last week’s newsletter, investors have piled into gold ETCs this year. In April, the Invesco Physical Gold ETC (SGLD) broke through the $10bn barrier and currently sit at $11.8bn making it Invesco’s largest ETF in Europe.
UBS Asset Management has converted its Irish-domiciled ETF range to Clearstream’s ICSDplus model in preparation for the Brexit deadline. Clearstream’s ICSDplus issuance model follows on from the ICSD model which was introduced in 2013 to allow ETF issuers to offer ETFs across multiple exchanges but settle in one place. “Centralisation of securities within the ICSD market reduces costs and post-trade fragmentation,” the firm added. According to BNY Mellon, approximately €61bn of further Irish ETP migrations are anticipated by the end of 2020 when 96% of Irish ETPs will use some form of the ICSD model.
WisdomTree will close eight ETFs with a total of $54m AUM following a lack of demand from investors. These are not the first ETPs WisdomTree has shut this year. Two months ago, the firm was forced to close nine commodity ETPs after its swap counterparty, Shell Trading Switzerland, terminated their purchase agreement. The eight ETFs which will cease trading in September are:
· WisdomTree Emerging Asia Equity Income UCITS ETF (DEMA)
· WisdomTree Germany Equity UCITS ETF – EUR (DXGY)
· WisdomTree India Quality UCITS ETF (EPIQ)
· WisdomTree Japan SmallCap Dividend UCITS ETF (DFJ)
· WisdomTree ISEQ 20 UCITS ETF (Ireland) (ISEQ)
· WisdomTree US Multifactor UCITS ETF – USD (USMF)
· WisdomTree US SmallCap Dividend UCITS ETF (DESE)
· WisdomTree CBOE S&P 500 PutWrite UCITS ETF – USD (PUTW)
Additionally, WisdomTree has reopened creations on the WisdomTree WTI Crude Oil ETP (CRUD) in a sign of increasing stability within the oil market and finally allowing new inflows into the largest Europe listed oil ETP. Creations were initially suspended on the 30th of April to help weather the extreme volatility of crude oil futures markets. Source: ETF Stream
Flows and Performance:
The European ETF industry enjoyed estimated net inflows for June of +€13.7 bn. According to Lipper data, assets under management increased from €798.7 bn at the end of May to €830 bn at the end of June. Inflows were driven by bond funds +€8.5 bn and +€5 bn into equity ETFs. This represents a turnaround for equities which suffered outflows of €1.2 bn in the previous month. Favourite categories were Equity Global (+€2.3bn), Equity US (+€1.4 bn) and Bond Global Corporates USD (+€1.3 bn).
No awards for guessing who the top selling provider is but interesting to see Credit Suisse, JP Morgan, HSBC and PIMCO all occupy spots in the top10 providers for sales during the month, especially Credit Suisse who raised over €1.5 bn. The best-selling ETF for June was UBS ETFs plc-MSCI ACWI SF UCITS ETF (USD)A-a, bringing in €0.9 bn.
Worldwide ETF assets stood at $6.3tn at the end of June.
The UK’s exit from the European Union has had an unintended benefit for the European ETF industry — the mass migration to the ICSD model. Due to passporting issues, Brexit means the Euroclear UK & Ireland (EUI) will no longer be able to provide issuer CSD services for Irish-domiciled ETFs which account for 62% – or €430bn – of European-listed ETFs. This mass migration has been described by BNY Mellon as a “pivotal moment” for the ICSD model which came into effect in 2013 to allow cross-listed ETFs to be settled in one pan-European location.
With the introduction of the ICSD model, ETFs are able to be settled in a more timely manner and there is a reduction in settlement failures meaning improved liquidity, transparency and trading volumes. According to Stephanie Lermusiaux, head of FundsPlace at Euroclear, improved settlement efficiency has resulted in a 40% reduction in spreads “making ETFs a significantly more attractive proposition for end investors”. All of this being a good move forward for the ETF industry. Source: ETF Stream
Chinese asset managers that embarked on aggressive international expansion pushes are scaling back their ambitions. Several groups that established offices or fund ranges in Europe and the US in 2015 and 2016 are putting the breaks on their expansion or retrenching by closing funds, shrinking sales teams or dropping regulatory licences. GF Fund Management, which was one of the first Chinese fund groups to establish a presence in London, this month dropped its licence in the UK, according to the Financial Conduct Authority register. The $110bn manager earlier this year liquidated a China A-shares exchange traded fund that it launched to great fanfare in 2017 and closed its Luxembourg-based fund range.
The moves come at the same time that international asset managers are piling resources into establishing a foothold in the fast growing Chinese market. Some Chinese managers had underestimated the time and resources involved in achieving growth in Europe and chosen to pivot back to China. Source: FT
In the US
The Securities and Exchange Commission has called for asset managers to provide clearer explanations of how environmental, social and governance metrics could affect the performance of ESG-labelled funds. The US regulator is concerned that not enough information is being provided to retail investors to allow them to properlycompare available choices. Elad Roisman, one of the four most senior officials at the Securities and Exchange Commission, said asset managers that wanted to use the labels “ESG”, “green” and “sustainable” to name or advertise funds should be required to explain how these terms would influence the strategy and objectives of an investment product.
Additionally, asset managers are gearing up for a battle with the Department of Labor over a new proposal that threatens investors’ ability to incorporate environmental, social and governance principles into pension portfolios. The proposed new rule would require private pension administrators to prove that they are not sacrificing financial returns if they put money in ESG-oriented investments.
The full text of the proposal has set off alarm bells across the asset management industry, where ESG-themed funds have been a big success, attracting tens of billions of dollars of investment in recent years. The proposal, which is open for public comment until the end of the month, stands in stark contrast to the regulations coming out of Europe, where climate risk is taking centre stage. Source: FT
Fund in Focus:
The FT recently published an article reminding readers of Neil Woodford and Tony Dye’s “spectacular fall from grace”, both famed UK value investor who dominated headlines during their time. Value investing has historicallyflourished in the UK, in part owing to the heavy weighting of dividend-paying value stocks such as mining companies and financial groups in the FTSE 100 index. Although, according to Morningstar, value-focused funds account for just under a third of UK-domiciled fund assets, down from 44% in 2005. Meanwhile, growth funds have flourished.
However, with the gap in returns between value and growth standing at a 25-year high, value advocates argue that there are rich rewards for investors who can hold their nerve. This brings us to our fund in focus which has an element of value stock selection within its investment methodology – the Franklin LibertyQ European EquityUCITS ETF.
The Fund invests in large and mid-cap European stocks in developed countries and seeks to track the performance of the LibertyQ Europe Index. The holdings are selected from the MSCI Europe Index using a transparent multi-factor selection process that applies four investment style factors –quality, value, momentum and low volatility.
Launched in September 2018, the annual TER is 0.25%. Assets under management as of Friday, the 17th of July were $7.6m. Year-to-date the fund is down -10.60% but since the March overall market lows, the fund has increased +29.87%.
Fund Performance and Flows (data sourced from ETFLogic):
Top 3 Best Weekly Performers in the UK
Lyxor MSCI World Materials TR UCITS ETF – Acc (USD) +4.48%
Lyxor MSCI World Industrials TR UCITS ETF -Acc (USD) +4.39%
iShares Edge MSCI USA Value Factor UCITS ETF – Dist +4.38%
Top 3 Worst Weekly Performers in the UK
WisdomTree Lead -2.36%
Invesco MSCI Kuwait UCITS ETF -2.34%
WisdomTree Short EUR Long GBP -1.95%
Top 3 Weekly UK Inflows
iShares JPMorgan USD EM Bond UCITS ETF USD (Acc) +$142.1m
iShares US Aggregate Bond UCITS ETF USD (Acc) +$141.2m
iShares US Mortgage Backed Securities UCITS ETF USD (Acc) +65.2m
Top 3 Weekly UK Outflows
Lyxor S&P 500 UCITS ETF – Dist (USD) -$46.7m
WisdomTree Brent Crude Oil GBP Daily Hedged -$22.7m
Invesco Bloomberg Commodity UCITS ETF -$20.9m
*Fund in Focus or any portion of this newsletter are informational only and not intended to provide recommendations of any kind.