För att öka omfattningen av kapitalmarknadsprodukter som finns i Kenya, har kapitalmarknadsmyndigheten inrättad för att underlätta upprättandet av en börshandlade fond (ETF) för att förbättra likviditeten och i slutändan fördjupa kapitalmarknaderna. Kenya listade sin första ETF redan 2013.
En ETF är en investeringsfond som säljs som andra värdepapper vid värdepappersbörser, precis som aktier. En ETF har tillgångar som aktier, råvaror eller obligationer och vanligtvis närmar sig dess substansvärde (NAV) under handelsdagen. De flesta ETF spårar ett index eller ett terminskontrakt.
En ETF är en del av en större grupp finansiella instrument som kallas Exchange Traded Products (ETP) som växer i popularitet som en investeringsmetod, vilket ger möjlighet för investerare att diversifiera sina portföljer samtidigt som flexibilitet i handeln som liknar aktierna bibehålls. ETF gör det möjligt för investerare att få bred exponering mot börser i olika länder och specifika sektorer relativt enkelt, i realtid och till lägre kostnad än många andra investeringsformer.
Införandet av ETF kommer att hjälpa till att ta itu med frågan om relativt låg marknadslikviditet
CMAs verkställande direktör, Paul Muthaura, förklarade att införandet av ETF kommer att hjälpa till att ta itu med frågan om relativt låg marknadslikviditet, vilket har varit en av de viktigaste utmaningarna som kapitalmarknaderna har mött under åren.
Enligt mr Muthaura kommer den nya produkten främst att rikta sig till enskilda investerare som på ett rimligt sätt skulle investera i ett stort antal kapitalmarknads- och råvaruposter från hårda råvaror som råvara ETF till internationella aktier i form av internationella equity-ETF. I slutändan skulle enskilda investerare få tillgång till segment på marknaden som tidigare varit otillgängliga. ETF: er kommer också att göra det enkelt att investera i en riktade portfölj av vanliga aktier och obligationer av investerare som köper en enda säkerhet.
Som en uppföljning av detta mål söker CMA en konsult för att ge tekniskt bistånd vid utvecklingen av politik och regelverk samt rekommendationer om marknadsinfrastrukturbehov för ETF.
Constructing a portfolio with a mix of domestic and international assets has never been easier due to the wide range of Exchange-Traded Products (ETPs) that are now available to investors on exchange. However, when investing in ETPs, it’s important to realise that you could be exposed to currency risk, as currency movements can have a significant impact on ETP returns.
In this article, we’ll explain how currencies in ETPs work and look at how currency movements can affect ETP returns.
Multiple currencies
If you’re interested in investing in ETPs, you may have noticed that there are often different currencies associated with the same ETP.
For example, an ETP tracking the S&P 500 – an index that is quoted in US Dollars – could be traded on the London Stock Exchange in Pound Sterling. The reason that ETPs are often traded in multiple currencies and on different exchanges across the world is that it provides investors with the opportunity to buy ETPs efficiently through their own local exchanges. While this is an advantage for investors, multiple currencies also introduce currency risk.
Understanding the risk
When it comes to understanding ETP currency risk, the first step is to determine where currency exchange rates can have an impact on the product valuation, and thus on performance calculation.
Investor’s currency: in what currency do you calculate your overall performance?
Trading currency: what currency does the ETP trades in?
NAV currency: what currency is the ETP’s NAV (Net Asset Value) calculated in?
Underlying components trading currencies: what is the trading currency of the portfolio constituents?
Assuming an exact same composition between the underlying index and the ETP, when comparing the underlying index performance with the performance experienced by investing in the ETP, you must realise that:
The constituents trading currencies is the same in both the index and the ETP
No currency impact here at this level
The ETP’s NAV and trading currency, as well as the investor’s currency can be different from the index calculation currency
Can have currency impact on performance calculation
As an example, a EUR investor wants to buy a 3x short 10-year US Treasuries ETP on Borsa Italiana. She buys an ETP trading in EUR, while its NAV would be computed in USD, and the underlying instrument (10-year US Treasuries) trading currency would also be in USD.
Once you know the currencies that you are dealing with, you can analyse how currency movements may affect performance. This investor would then be penalised by USD depreciation as it would erode the EUR value of the ETP. On the other hand, she would benefit from USD appreciation.
Here’s an example of how currency movements could impact the returns from a 3x short 10-year US Treasuries ETP traded on the Borsa Italiana.
Currency impact on performance: An example
In Figure 1 below, we present a hypothetical example that shows the daily movement of the ETP’s NAV in US Dollars, as well as the daily change in the EURUSD exchange rate. The NAV currency of the ETP is the US Dollar, but as it’s listed on Borsa Italiana, it’s traded in Euros.
Figure 1. ETP NAV movements and EURUSD fluctuations
Source: WisdomTree, illustrative example. You cannot invest in an index. Historical performance is not an indication of future results and any investments may go down in value.
The table shows that the Euro NAV price of the ETP is affected by both the change in the ETP’s NAV price in US Dollars and the EURUSD exchange rate.
Over the four-day period, the NAV in US Dollars was unchanged overall, i.e. 0.0% performance in USD. However, over the period the USD appreciated from 1.15 to 1.10 USD per Euro, so an investor who purchased the ETP in Euros would have seen an overall return of 4.5% (€90.9 end value vs. €87.0 start value), as a result of the change in the exchange rate.
Impact of currency movements over time
Figure 2 below shows how currency movements can have a significant cumulative effect over time, looking at the performance of that same 3x short 10-year US Treasuries ETP.
Figure 2. Currency moves can have a significant impact on returns: 2017 example
Source: WisdomTree, Bloomberg. You cannot invest in an index. Historical performance is not an indication of future results and any investments may go down in value.
As you can see, the cumulative NAV return in US Dollars was -5.5% over the period. But a significant depreciation of the USD vs. the Euro resulted in a NAV return in Euros of -15.0%, a considerable 9.5% return difference.
Summary
Whenever investing, currency is likely going to have an impact on your portfolio’s performance, unless underlying, NAV, trading and reporting currencies are all the same. Understanding where this impact lies is important, as it allows you to better understand the potential risks arising from currency exchange movements, which can significantly support or dampen returns.
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The content on this document is issued by WisdomTree UK Ltd (“WTUK”), which is authorised and regulated by the Financial Conduct Authority (“FCA”). Our Conflicts of Interest Policy and Inventory are available on request.
For professional clients only. Past performance is not a reliable indicator of future performance. Any historical performance included on this document may be based on back testing. Back testing is the process of evaluating an investment strategy by applying it to historical data to simulate what the performance of such strategy would have been. Back tested performance is purely hypothetical and is provided on this document solely for informational purposes. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance. The value of any investment may be affected by exchange rate movements. Any decision to invest should be based on the information contained in the appropriate prospectus and after seeking independent investment, tax and legal advice. These products may not be available in your market or suitable for you. The content of this document does not constitute investment advice nor an offer for sale nor a solicitation of an offer to buy any product or make any investment.
London Stock Exchange welcomes Franklin Templeton’s first ETFs in Europe
Franklin Templeton launches first range of smart beta ETFs in Europe
27 dedicated ETP issuers now active on London Stock Exchange
More than £163 billion of on-exchange trading in ETPs on London Stock Exchange in first half of 2017
London Stock Exchange today welcomes Franklin Templeton Investments as the latest ETF issuer on its market. The four smart beta ETFs, listed in London earlier this month, are the first Franklin Templeton has issued in Europe. To celebrate the launch Greg Johnson, CEO of Franklin Templeton Investments opened trading in London this morning alongside Xavier Rolet, CEO of London Stock Exchange Group.
London Stock Exchange now has 27 dedicated Exchange Traded Product (ETP) issuers with over 1350 ETPs listed on its market in total. In the first half of the year, there was more than £163 billion of ETP trading on London Stock Exchange, through more than 1.9 million trades.
Greg Johnson, CEO of Franklin Templeton Investments said:
“We are very excited to bring our Franklin LibertyShares global ETF platform to Europe, following our successful launches in the US and Canada, and to partner with London Stock Exchange to make our products available to its broad and global investor base.”
Nikhil Rathi, CEO of London Stock Exchange plc said:
“I’m delighted to extend our relationship with Franklin Templeton as they add to their existing London-listed funds by launching four ETFs, again choosing to access London Stock Exchange’s diverse investor base and deep pools of liquidity. We continue to see a very positive pipeline of issuers and products, cementing our position as a leading trading and listing venue for ETFs and other exchange traded products.”
Trade Idea – Foreign Exchange – Loonie set for near term tumble
Highlights
The tentative agreement reached by OPEC last Wednesday has sent oil prices to the top of their recent range and lent support to oil linked currencies.
In practice the production limit will be hard to implement and oil prices will likely retrace gains in coming months.
The CAD looks to continue its downtrend as extended positioning corrects lower and monetary conditions are eased.
OPEC surprises markets
Global crude benchmarks and oil linked currencies jumped last Wednesday on news that members of OPEC had tentatively agreed to implement a production target for the first time in seven years. Both commodity and currency markets responded positively to the surprise deal that was viewed broadly as an unlikely prospect due to long standing differences between key group members, Saudi Arabia and Iran. While the deal certainly marks a shift in stance of the oil exporting group, we do not believe it is enough to sustain support for the CAD which is at risk from a confluence of bearish factors, specifically underwhelming economic performance, stretched speculative positioning and technical resistance. We therefore see current levels as an attractive point to gain long exposure to the USD/CAD and EUR/CAD currency pairs which are set to benefit from near term oil weakness.
Symbolic but not practical
We believe the uplift in the oil market provided by the latest OPEC agreement will not last for long as the practicalities of the arrangement and wider concerns over slowing global oil demand growth keep oil prices contained. The deal itself, while an important move symbolically, did not provide a definite promise to remove a significant amount of output from the global oil market (removing anywhere from 200-700k barrels per day (bpd)) and requires the implementation of country level quotas. This is a large and politically sensitive task and is unlikely to be completed before the next OPEC meeting in November. In addition, the deal failed to provide clarity over conditions for countries under duress such as Venezuela, Nigeria and Libya where production is currently far below capacity, but has the potential to increase in the interim. Thus, support from oil prices is therefore likely to be absent for the CAD in the coming months.
(Click to enlarge)
CAD underperforms NOK
While both the NOK and CAD are heavily linked to the oil price, prospects for the two currencies have recently diverged. Latest growth and inflation data from Norway has surpassed the expectations of its central bank, causing the Norges bank’s
Executive Board to deliver a more hawkish policy message and raise its projected rate path. In contrast, lacklustre inflation, retail sales and manufacturing data has prompted a more dovish tone from the Bank of Canada (BoC), which makes it increasingly likely to ease monetary policy at its upcoming meetings. This has been reflected in the relative outperformance of the NOK in the past month, which has rallied by 2.8% relative to CAD on a trade weighted basis (see Figure 1).
Positioning stretched
The USD/CAD and EUR/CAD are on strong longer term upward trends (CAD weakening) which look well placed to continue. Net speculative positioning underpinning the CAD is hovering at record highs and looks increasingly subject to a correction. A fall in oil prices or further easing by the BoC could see CAD longs (which are at the strongest level in two years) fall sharply and shorts gather momentum, exacerbating any rise in USD/CAD and EUR/CAD.
Investors wishing to express the investment views outlined above may consider using the following ETF
Securities ETPs:
Currency ETPsEUR Base
ETFS Long CAD Short EUR (ECAD)
ETFS Short CAD Long EUR (CADE)
GBP Base
ETFS Long CAD Short GBP (GBCA)
ETFS Short CAD Long GBP (CAGB)
USD Base
ETFS Long CAD Short USD (LCAD)
ETFS Short CAD Long USD (SCAD)
3x
ETFS 3x Long CAD Short EUR (ECA3)
ETFS 3x Short CAD Long EUR (CAE3)
5x
ETFS 5x Long CAD Short EUR (ECA5)
ETFS 5x Short CAD Long EUR (CAE5)
Currency BasketsETFS Bullish USD vs Commodity Currency Basket Securities (SCOM)
ETFS Bearish USD vs Commodity Currency Basket Securities (LCOM)
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This communication has been provided by ETF Securities (UK) Limited (“ETFS UK”) which is authorised and regulated by the United Kingdom Financial Conduct Authority (the “FCA”). The products discussed in this document are issued by ETFS Foreign Exchange Limited (“FXL”). FXL is regulated by the Jersey Financial Services Commission.
This communication is only targeted at professional investors. In Switzerland, this communication is only targeted at Regulated Qualified Investors.
The information contained in this communication is for your general information only and is neither an offer for sale nor a solicitation of an offer to buy securities. This communication should not be used as the basis for any investment decision. Historical performance is not an indication of future performance and any investments may go down in value.
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Feds Rate Delay is Disappointing Jan van Eck, CEO at Van Eck, discusses the reaction to the FOMC meeting and how that affects oil, gold, and emerging markets moving forward.
“The Fed’s decision was a bit of surprise to us, because we had been looking at the U.S. labor market statistics. Unemployment has been falling, and we thought that this was good enough data for the Fed, which is very data driven…, discusses our reaction to the FOMC meeting and how that affects oil, gold, and emerging markets moving forward.
“The Fed’s decision was a bit of surprise to us, because we had been looking at the U.S. labor market statistics. Unemployment has been falling, and we thought that this was good enough data for the Fed, which is very data driven…
Van Eck is a U.S.-based asset management firm with more than five decades of global investment expertise.
Founded in 1955 by John C. van Eck, Van Eck Global was among the first U.S. money managers helping investors achieve greater diversification through global investing. Today, the firm continues this tradition by offering innovative, actively managed investment choices in hard assets, emerging markets, precious metals, fixed income, and other specialized, domestic and international asset classes. Van Eck currently manages assets on behalf of more than 400 institutions including endowments, foundations, hospitals, pensions, and private banks. The firm’s traditional and alternative strategies are offered in both fund and separate account portfolios.
Market Vectors Exchange Traded Products (ETPs) have been offered by Van Eck since 2006 when the firm launched the United States’ first gold-mining ETF. Today, the firm offers over 50 ETFs which span several asset classes, including equity, fixed-income and currency markets. Many of the ETFs are based on pure-play indices, whose constituents must derive a majority of revenues from the target region/sector. Market Vectors is one of the largest ETP families in the U.S and worldwide.
Headquartered in New York City, Van Eck Global has a presence in other cities worldwide, including Shanghai (China), Frankfurt (Germany), Madrid (Spain), Pfaeffikon SZ (Switzerland) and Sydney (Australia).
