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Nordnet öppnar upp marknaden för ETFer igen

I slutet av december 2017 fick alla som köpt och sålt börshandlade fonder en kalldusch. De nya europeiska reglerna, MIFID II kom att förbjuda europeiska investerare att köpa nordamerikanska ETFer. Det var emellertid inte ett beslut som helt stängde marknaden för Nordamerikanska ETFer. De nordamerikanska ETF-emittenterna kunde fortfarande sälja och marknadsföra sina börshandlade fonder i Europa, givet att viss extra dokumentation kunde tillhandahållas. Den extra dokumentationen heter KID och PRIIP.

De nordamerikanska producenterna som de svenska bankerna var i kontakt vid detta tillfälle sade att inte hade möjlighet att delge europeiska banker den nödvändiga information som krävdes med det nya regelverket. De svenska och europeiska bankerna fick inte heller producera delar av den här informationen själva. Därför kunde de inte längre kunna erbjuda möjligheten att investera i värdepapper då inte kan uppfylla de nya direktiven.

Efter den 1 januari 2018 var det således inte längre möjligt att lägga några nya köpordrar på nordamerikanska ETFer.

Detta innebar att börshandlade fonder som SPDR S&P 500 ETF(NYSEArca: SPY), PowerShares QQQ Trust Series 1 ETF (NasdaqGM: QQQ) och iShares MSCI Emerging Markets ETF (NYSEArca: EEM) med flera ETFer inte gick att köpas i Europa. Detta eftersom emittenterna inte tillhandahöll någon KID.

Hargreaves Lansdown Plc, en av Europas största plattformar för handel med ETFer tvingades ta bort möjligheten att köpa mer än 1 200 börshandlade fonder.

Ändras i framtiden

Vi skrev vid detta tillfälle att vi trodde att detta skulle komma att ändras framgent. ETFer är en fråga om volymer i kombination med låga avgifter. Många tror därför att detta kommer att ändras i framtiden när de nordamerikanska utgivarna märker att de tappar volymer. Det är då sannolikt att de amerikanska emittenterna kommer att delge de europeiska distributörerna den information som de behöver för att de ska kunna distribuera produkterna. Nu ser vi att flera av dessa emittenter redan har börjat leverera in KID till bland annat Nordnet. Detta betyder att Nordnet öppnar upp marknaden för ETFer igen. Hur det är med övriga banker vet vi i dagsläget inte, men har de nordamerikanska utgivarna börjat att leverera KID till Nordnet skulle det förvåna oss om de inte gör det till i alla fall övriga storbanker i Europa.

Stor efterfrågan på guld

I de kontakter vi haft med Nordnet har det framkommit att detta företag arbetar aktivt med att hålla en dialog med produktbolagen. Nordnet försöker uppmuntra dessa företag att ta fram KID, framför allt för de produkter som är mest efterfrågade av spararna.

Under januari 2019 har intresset för guld hos spararna har ökat markant. Antalet affärer i guldcertifikat har ökat med över 50% på en månad och över 100% på ett år hos Nordnet. Det gör att det nu det går att handla ETFS Physical Gold (ISIN DE000A0N62G0) på Xetra genom Nordnet då denna emittent levererat in KID för denna ETF.

MiFID II och PRIIPs

MiFID II och MiFIR antogs i maj 2014 av Europaparlamentet och rådet. De är resultatet av en översyn av reglerna på värdepappersområdet. EU-direktiven MiFID II (Markets in Financial Instruments Directive) och PRIIPs (Packaged Retail Investment and Insurance Products) ställer bland annat krav på Nordnet, som distributör av finansiella instrument, att för sina kunder visa på alla kostnader och avgifter som är relaterade till en investering i ett särskilt instrument, kunna visa upp information om produktens risker och egenskaper samt tillhandahålla ett s.k. KID-dokument, även kallat faktablad.

Förordningen om faktablad för paketerade och försäkringsbaserade investeringsprodukter för icke-professionella investerare (PRIIPs) syftar till att införa en gemensam standard för produktinformation, faktablad, till icke-professionella kunder. Faktabladet (Key Information Document, KID), på max tre sidor, ska på ett lättförståeligt sätt lämna information till konsumenter om paketerade och försäkringsbaserade investeringsprodukter. Faktabladet ska kommunicera basfakta om produkten samt information om vilka risker och kostnader som är förenade med en investering i produkten.

Hur är det då med andra banker?

KID måste lösas av alla banker separat. Det betyder att även om Nordnet fått LGIM att leverera in KID dokument på en rad olika ETFer så är det inte helt löst. En enda emittent betyder inte att Nordnet öppnar upp marknaden för ETFer igen på allvar. Det betyder emellertid att det går att handla ETFS Physical Gold (ISIN DE000A0N62G0) på Xetra genom Nordnet. Det betyder kanske inte att det är möjligt hos Avanza, Handelsbanken eller Nordea i dagsläget. Vi lovar emellertid att publicera deras listor om och när detta sker (och om de skickar dem till oss så klart).

L&G ETF har publicerat sina KIID dokument på sin hemsida som Du hittar här.

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Ovanstående lista för ETFer som kan handlas hos Nordnet gäller från 15 februari 2019. Nya börshandlade fonder kan tillkomma, och sådana som redan finns på listan kan komma att tas bort.

ProShares ändrar benchmarkindex för guld och silverfonder

Såväl ProShares Ultra Silver och ProShares UltraShort Silver ETFs (silverfonderna) och ProShares Ultra Gold och the ProShares UltraShort Gold ETFs (guldfonderna) kommer att få nya benchmarkindex den 7 januarui 2019. ProShares ändrar benchmarkindex för guld och silverfonder detta datum.

Det nya benchmarkindexet för silverfonderna (tickers: AGQ och ZSL) kommer att vara Bloomberg Silver Subindex (ticker: BCOMSI). Det nya riktmärket för guldfonderna (tickers: UGL och GLL) blir Bloomberg Gold Subindex (ticker: BCOMGC ).

Bloombergs silver- och guldkomponentindex är enskilda råvaruindex som är utformade för att återspegla prestandan för silver och guld, mätt enligt priset på COMEX silver- och guldterminskontrakt.

För att underlätta genomförandet av referensförändringarna, som börjar den 4 januari 2019, kommer silver- och guldfonderna att stänga sina substansvärden (”NAV”) från och med 1:25 pm ET respektive 1.30 pm ET. Deras Skapnings- och inlösenordningens avbrottstider kommer att vara klockan 1:00 ET.

The Midterms Are Over … Time to Move On to the Second Semester

Relief Rally in Equities

In market commentary from Professor Jeremy Siegel ahead of the midterms, we suggested that if the widely expected outcome of Democrats taking the House and Republicans keeping control of the Senate were to actually occur—as it did on Tuesday in the midterm elections—we thought there would be a bounce higher in equity markets due to “nothing bad happening.” There were no major surprises in the election results, and we saw this rally in equities come through.

With the uncertainty over the election out of the way, a main issue confronting equities now will turn to how fast interest rates will increase from the Federal Reserve (Fed) tightening monetary conditions and the readjustments in portfolio allocations as the risk-free rate ticks higher. We had very strong growth in earnings in 2018 as a result of the tax cut, and that earnings growth rate was front-loaded—we will not see the same type of continued growth next year. Rather, one of the challenges for the market next year is that earnings estimates may still be too high and will have to be marked down.

This challenge from earnings markdowns for 2019 is one reason we prefer strategies that are priced at reasonable valuation multiples.

Across the U.S. markets, WisdomTree has been discussing three strategies as our best ideas for U.S. equity exposure: quality dividend growth and mid- and small-cap earnings. Each of the three Funds have lower than 16x estimated P/E ratios—while the mid- and small-cap Funds are both around 15x even on a trailing 12-month earnings figure.

In contrast to many who think small caps are expensive because of the large percentage of unprofitable companies in traditional market cap-weighted small-cap indexes like the Russell 2000, we see a 15.5x P/E ratio for our small-cap earnings Fund as being quite attractive.

Small caps and mid-caps are also more particularly sensitive to local conditions in the U.S. economy—with revenue from the U.S. just over 80% in the WisdomTree U.S. SmallCap Earnings Fund (EES), compared with the WisdomTree U.S. Quality Dividend Growth Fund (DGRW), which has revenue from the U.S. of about 62%.

For standardized performance of each Fund in the chart, please click their respective ticker: EZM, DGRW, EES.

We also have suggested expectations for large-cap U.S. equities were to see real returns being 5.5% with 2% inflation added, giving longer-term expectations of 7.5%. Our quality dividend growth Fund, DGRW, which has a 2.34% dividend yield and a net buyback yield of 2.61%, shows a current cash distribution yield of 4.96% (i.e., total shareholder yield). As we have written before, this current distribution requires no growth on top of current cash flows to return nearly 5% to investors. If any of the investments that firms are making translate to future cash flow growth, returns can move even higher than 5% real returns. We thus believe DGRW serves as a great anchor to core U.S. equity portfolios, both for the current environment of the late stage of an economic cycle and also current valuations being attractive on these stocks.

Further, given the rising interest rate pressures we continue to see from the U.S. economy outperforming some of the other global economies, we like the mid- and small-cap earnings strategies, like the WisdomTree U.S. MidCap Earnings Fund (EZM) and EES, as Funds with more exposure to the U.S. economy but priced at very reasonable multiples.

Bonds Move on Quickly

Unlike the 2016 U.S. election, the fixed income arena was not greeted with any surprises this time around, so based upon the initial reaction, it appears as if the bond market has moved on quickly. The focus shifts right back to the domestic fundamental setting—namely, growth prospects, inflation expectations and any attendant monetary policy decisions from the Fed.

Once again, the outlook for U.S rates needs to be broken down into two parts: short-term and intermediate to longer-dated yields. For the former, it appears as if the Fed will continue on its gradual rate hike path, with some balance sheet normalization thrown into the mix. With respect to its balance sheet, the Fed may actually need to make some tweaks to its current path because of operational issues in the funding markets, but that’s a topic for another blog post.

As far as future rate hikes go, an increase at the December FOMC meeting followed by at least two more in 2019 (March and June) seems to be the more probable outcome. So, if you do the math, by mid-2019, the top end of the Federal Funds Rate target could be 3%.

For the U.S. Treasury (UST) 10-Year yield, one could argue that a good portion of the backup in rates has already occurred because the market’s pricing mechanism has allowed for improved economic growth, a moderate increase in inflation and increased Treasury supply. Developments on the wage front will need to be monitored closely, with any upside surprises potentially putting upward pressure on yields. Taking the midterm election results into consideration, the only potential boost from fiscal policy seems to be in the area of infrastructure, but that would require both sides of the political spectrum working “across the aisle.”

And don’t forget those flight-to-quality issues that have a way of showing up when least expected. Keep your eye on any headlines stemming from the Italian budget saga on this front, to name one example.

So, what’s an investor to do? We continue to advocate an approach that concentrates on a Treasury floating rate strategy. The WisdomTree Floating Rate Treasury Fund (USFR) offers investors a solution that not only could provide a rate hedge but also offers protection for future Fed rate hikes. In the process, as the USFR yield “floats up with the Fed,” this strategy can also help solve income needs without the duration risk.

Important Risks Related to this Article

There are risks associated with investing, including possible loss of principal. Funds focusing their investments on certain sectors and/or smaller companies increase their vulnerability to any single economic or regulatory development. This may result in greater share price volatility. Securities with floating rates can be less sensitive to interest rate changes than securities with fixed interest rates, but may decline in value. The issuance of floating rate notes by the U.S. Treasury is new, and the amount of supply will be limited. Fixed income securities will normally decline in value as interest rates rise. The value of an investment in the Fund may change quickly and without warning in response to issuer or counterparty defaults and changes in the credit ratings of the Fund’s portfolio investments. Due to the investment strategy of this Fund, it may make higher capital gain distributions than other ETFs. Please read each Fund’s prospectus for specific details regarding the Fund’s risk profile.

ETFs: Benefits of Exchange Listing

I have been talking to exchange-traded fund (ETF) investors for more than a decade, and when I mention the numerous benefits of the structure, I often hear “I don’t need intraday liquidity, so that does not benefit me.” Well, I am here to tell you that whether or not you utilize the intraday liquidity, it benefits all ETF investors.

The exchange listing, or “ET” part of “ETF,” is what allows this product to have intraday liquidity. But the exchange listing also gives ETFs benefits over other product wrappers, such as mutual funds, that are not listed. The exchange listing gives ETF investors an extra avenue of liquidity, tax efficiency and the possibility to trade at less than cost.

Here’s a question we are frequently asked: “What happens to ETF liquidity in times of stress—in particular, fixed income ETFs?” My answer is that the ETF wrapper is not magical; it is transparent and will reflect the stress that is going on in the underlying asset class. However, because the ETF is exchange listed, it provides an extra avenue of liquidity in addition to the liquidity provided by the underlying securities in the ETF. This proves extremely useful during times of stress. For example, in the fall of 2015, Third Avenue’s now fully liquidated mutual fund, Third Avenue Focused Credit, was invested in extremely distressed debt.

The high-yield bond market seized, and the fund had to halt redemptions. While this occurred, many high-yield bond ETFs continued to trade without error. Although spreads may have widened to reflect the underlying stress, these ETFs went on to trade many multiples of their average daily volumes for many months. Investors who needed high-yield exposure flocked to a transparent meeting place that was functioning. The exchange gives the underlying asset class another venue to trade on without having to transact in the underlying securities. The exchange listing not only augments the liquidity profile of an ETF, but it also provides a liquidity buffer in times of crisis.

A second key benefit of being exchange listed is that ETFs generally are more tax efficient than their mutual fund counterparts. This is due to two factors: the ability to create and redeem (grow and shrink in size) through the in-kind mechanism, and the ability to trade on exchange. The in-kind mechanism gives portfolio managers more control over their tax lots. The ability to trade on exchange allows shares of the ETF to be passed back and forth without necessarily creating turnover in the underlying portfolio. In fact, an Investment Company Institute report notes that less than 10% of the ETF average daily volume (ADV) translates into creation/redemptions, or trading within the fund.1 Think about it; 90 % of the ADV of an ETF is changing hands without the underlying portfolio trading. So, relative to nonlisted wrappers, on average, the ETF fund trades 90% less, which reduces the opportunity to create capital gains. The extra avenue to trade on exchange provides another buffer from constant trading within the fund.

A third important benefit of being exchange listed is that an ETF has the potential to trade at less than cost. That means an investor may be able to buy or sell an ETF for less than if an investor were to buy or sell the underlying components on his or her own. Because of the fact that, on average, only 10% of the ETF ADV results in trading within the fund, the 90% that doesn’t require portfolio trading creates cost savings in execution to the market maker. These cost savings are then passed on to the end investor in the form of tighter spreads. In fact, Virtu (then called KCG) published a research report saying that 90% of U.S. equity ETFs with U.S. equity underlying securities trade tighter than the cost to buy or sell that collection of securities.2 A mutual fund investor typically will not have that opportunity. The ability to congregate on exchange provides the end investor with execution cost savings a majority of the time.

The exchange listing of an ETF provides a place away from the portfolio to trade exposure of that investment strategy. This extra place to trade adds another dimension to that investment strategy. Even if you’re a long-term holder of ETF and don’t need or want to trade intraday and think ETFs aren’t for you, think again. The fact that the intraday liquidity exists and these products are exchange traded provides the end investor with enhanced liquidity, tax efficiency and a high possibility to execute that strategy less than it would cost to buy the strategy yourself.

Anita Rausch, Head of Capital Markets

Important Risks Related to this Article

Neither WisdomTree Investments, Inc., nor its affiliates, nor Foreside Fund Services, LLC, or its affiliates provide tax advice. All references to tax matters or information provided in this material are for illustrative purposes only and should not be considered tax advice and cannot be used for the purpose of avoiding tax penalties. Investors seeking tax advice should consult an independent tax advisor.

Foreside Fund Services, LLC, is not affiliated with the entities mentioned.

Nickel and aluminium ETPs saw inflows as trade-war punishment on industrial metals reprieve

ETF Securities Weekly Flows Analysis – Nickel and aluminium ETPs saw inflows as trade-war punishment on industrial metals reprieve

Highlight

Long nickel and aluminium ETPs saw the highest inflows since February 2018 as prices begin to recover.
Gold ETPs receive first inflows in six weeks
Turkish woes pressure the Euro

Long nickel and aluminium ETPs saw the highest inflows since February 2018 as prices begin to recover. Nickel prices rallied 2.5% while aluminium rallied 4.2% last week as the market appears to be shifting focus to the supply disruptions that US protectionism is likely to cause. Long nickel ETPs received US$31.2mn while long aluminium ETPs received US$6.5mn. As we pointed out in Trade wars: price optimism ahead for metals?, the market appears to be wavering between protectionism being positive and protectionism being negative for prices. In the first bout of tariff announcements in February 2018, prices trended down. Then between April and June prices rallied as the supply disruptions came into focus. As the Trump administration rattled its protectionist sabres more intensely, the market had been concerned about the damage to global growth, with prices declining for most of June and July. The reopening of several mines in the Philippines in June (following their closure in February 2017 for environmental violations) added further headwinds to the metals’ performance. But as of last week the market shifted focus back to supply disruptions despite the intensity of Trump’s threats of trade wars revving up a gear. Copper only managed to gain 0.1% as the strike at Escondida (the world’s largest copper mine) was averted at the last minute as the Chilean government began to act as a mediator between the Union and BHP Billiton. However, if an agreement on the wage contract is not agreed by the 14th August 2018, a strike could be back on the cards.

Long gold ETPs received the first inflow in six weeks, amounting to US$26mn. Although gold prices remained lacklustre, some investors are now coming to believe that the price decline has been overdone. We certainly hold that view. Although the US Dollar is strengthening, US Treasury yields have not risen as much as we had expected back in June and US inflation is running at a 6-year high. Overly-subdued investor sentiment for the metal (both in futures and ETP markets) accounts for the poor price performance. If that is now turning a corner, we could see gold prices play catch-up. Our estimated base case is for gold to reach US$1307 by June 2019, up 8% from today’s levels (see Gold outlook). Economic disarray in Turkey, with a sharp Lira depreciation (which had knock-on contagion to the Euro last week), could send investors looking for haven assets. Gold has traditionally played the role of a safe haven asset in many investors portfolios.

Second week of short USD, long EUR ETP inflows likely to lead to disappointment. Last week there were US$5.9mn inflows into Short USD, long EUR ETPs. The prior week there were US$5.6mn of inflows. In the past week the Euro depreciated close to 2% against the US Dollar as investors feared contagion into the European banking system from exposure to Turkish loans.

For more information contact:

ETF Securities Research team
ETF Securities (UK) Limited
T +44 (0)207 448 4330
E research@etfsecurities.com

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