wisdomtree Archives - Sida 3 av 23

Silver outlook 2019: not as good as gold

Alongside gold, silver has staged a rally late in 2018, gaining just over 10% in the month of December 2018. Silver’s close correlation with gold (around 80%) helps explain the sharp movement. As we discussed in Gold Outlook 2019, volatility in cyclical asset markets helped defensive assets like gold as investors sought refuge in a safe haven asset. We expect silver to rise to US$16.6/oz by Q3 2019, before easing to US$16.3/oz at the end of the year from US$15.7/oz at the time of writing (07/01/2019). Silver’s gain is likely to be less impressive than gold because manufacturing activity is slowing, and mining activity is likely to start increasing the supply of silver.

Figure 1: Silver price forecast

Source: WisdomTree, Bloomberg Historical Data, data available as of close 31 December 2018. Forecasts are not an indicator of future performance and any investments are subject to risks and uncertainties.

Approach

To formulate our forecasts, we utilise the framework outlined in Silver outlook: Searching for a silver lining. In contrast to gold, silver has many traits of an industrial metal, with more than 50% of its use in industrial applications. Supply and demand for physical silver matter more for silver, whereas gold prices tend to be driven more by monetary factors such as Treasury yields,

exchange rates and inflation.

Demand for silver could be weighed by decelerating manufacturing growth

Global manufacturing Purchasing Managers Indices (PMIs) peaked in early 2018. We expect PMIs to continue to decline in 2019, although avoid falling below the 50 demarcation between expansion and contraction. However, deceleration in manufacturing activity is likely to slow demand for silver.

Figure 2: Global manufacturing PMIs

Source: Bloomberg, WisdomTree, data available as of close 31 December 2018. Forecasts are not an indicator of future performance and any investments are subject to risks and uncertainties.

Mining activity could rise as capital investment has been recovering

With mining capital expenditure (capex) having recovered in 2018 after a prolonged period of restraint, we could start to see supply of silver increase as more metal comes out of the ground. Most silver comes as a by-product of mining for other metals. So, the fact that silver looked cheap relative to gold for the last few years, did not mean that miners would restrain from mining the metal.

Figure 3: Top 100 miners capital expenditure growth

Source: Bloomberg, WisdomTree, data available as of close 03 January 2019. Historical performance is not an indication of future performance and any investments may go down in value.

Silver in a supply surplus

The latest revision of data from the Silver Institute places silver in a supply surplus in both 2017 and 2018. In World Silver Survey 2018, published in H1 2018, the Silver Institute indicated that the silver market was in a deficit in 2017. The facts that they revised the deficit into a surplus and increased the surplus in 2018, indicates an overhang for the metal.

Figure 4: Physical silver supply-demand balance

Source: GFMS Thomson Reuters, Silver Institute, WisdomTree, data available as of close 31 December 2018. Forecasts are not an indicator of future performance and any investments are subject to risks and uncertainties.

Rising exchange inventory also indicates strong metal availability

Although most of the gains in silver inventory are in the form of eligible (i.e. meets exchange’s requirements but has not been pledged as collateral against a futures market transaction) as opposed to registered (i.e. meets requirements and has been pledged as collateral for futures market transactions), both have been rising. The trends indicate that there is ample metal availability.

Figure 5: COMEX silver inventory

Source: Bloomberg, WisdomTree, data available as of close 31 December 2018. Historical performance is not an indication of futur

e performance and any investments may go down in value.

Relatively cheap, possibly for a reason

The gold-to-silver ratio points to silver being cheap relative to gold, with the ratio over 1 standard deviation above its historic norm. However, with recent gains in silver, that gap is moderating. We believe that gold is likely to outshine silver as a pure defensive asset that does not have the same exposure to the industrial cycle.

Figure 6: Gold to silver ratio

Source: Bloomberg, WisdomTree, data available as of close 31 December 2018. Historical performance is not an indication of future performance and any investments may go down in value.

This material is prepared by WisdomTree and its affiliates and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date of production and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by WisdomTree, nor any affiliate, nor any of their officers, employees or agents. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not a reliable indicator of future performance.

DISCLAIMER

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.

The Fed’s legacy will live on

The legacy of the December Federal Open Market Committee (FOMC) meeting promises to have lasting effects well into the new year. Once again, there were no surprises on the outcome for the US Federal Reserve (Fed) funds target following this convocation. As widely expected, the policymakers implemented their 4th rate hike of 2018, pushing the upper band of the fed funds range up a quarter-point to 2.50%. This part of the Fed outlook was the “easy” part of the equation, now comes the more challenging aspect; what will the FOMC do in 2019?

The financial markets’ initial response to the outcome of this Fed meeting was an interesting one. Commentary waffled back and forth between a “hawkish” and “dovish” take. However, more importantly, in the US the ‘risk’ markets take was decidedly a negative one, as both the equity and high yield arenas came under visible selling pressure. As a result, the US Treasury (UST) 10-year note yield fell, flattening the yield curve, accordingly.

Experience has taught me that the markets are much smarter than I am, but one has to wonder; did the Fed really do anything surprising to warrant such reactions? In my opinion, the US policymakers delivered ‘as advertised’. The problem seems to be that there was a school of thought whereby there was hope for ‘no rate cut’ combined with a dovish policy statement and scaled-back rate-hike projections for 2019. As a result, heading into the meeting, fed funds futures did still tilt towards a December rate increase, but the outlook for this year was essentially scaled back to virtually no moves and a rate cut for 2020.

So, what were the key aspects of this FOMC meeting, and attendant Chairman Jerome Powell’s press conference, that will live on? Obviously, the rate hike comes in as number 1 on the list. The accompanying policy statement was the Fed’s attempt at “threading the needle”, i.e. acknowledging both a “strong” economy and giving a nod to monitoring “global economic and financial developments” for their possible “implications for the economic outlook.” In addition, they added the word “some” before their “further gradual increases” language regarding the target range for fed funds. Powell did mention at the press conference that “for now, financial conditions have tightened a little bit.” The Fed also dialled down their growth projections a tad, but their real Gross Domestic Product (GDP) forecasts did not envision any meaningful slowdown in economic activity. Finally, their Fed funds projections for 2019 were reduced to two rate increases from three, but they still showed one hike for 2020.

Conclusion

For 2019 we can expect a data dependent Fed, back to how the Fed normally operates. Telegraphing each and every move that will occur every three months is not the norm. Add in a new wrinkle as well: there will be press briefings following each FOMC meeting beginning in January. In other words, the markets will have to get used to the notion that each Fed meeting will now be ‘live’, i.e. policy moves could potentially occur at any given convocation. The primary focus on future decision-making will be on both economic/inflation and financial conditions, but it appears as if the tug-of-war between the Fed and the money and bond markets has only just begun.

DISCLAIMER

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.

An investment in ETPs is dependent on the performance of the underlying index, less costs, but it is not expected to match that performance precisely. ETPs involve numerous risks including among others, general market risks relating to the relevant underlying index, credit risks on the provider of index swaps utilised in the ETP, exchange rate risks, interest rate risks, inflationary risks, liquidity risks and legal and regulatory risks.

The information contained on this document is not, and under no circumstances is to be construed as, an advertisement or any other step in furtherance of a public offering of shares in the United States or any province or territory thereof, where none of the Issuers or their products are authorised or registered for distribution and where no prospectus of any of the Issuers has been filed with any securities commission or regulatory authority. No document or information on this document should be taken, transmitted or distributed (directly or indirectly) into the United States. None of the Issuers, nor any securities issued by them, have been or will be registered under the United States Securities Act of 1933 or the Investment Company Act of 1940 or qualified under any applicable state securities statutes.

The products discussed on this document are issued by one of WisdomTree Issuer PLC, Boost Issuer PLC, ETFS Metal Securities Ltd, ETFS Commodity Services Ltd, ETFS Oil Services Ltd, Swiss Commodity Securities Ltd, Gold Bullion Securities Ltd, ETFS Hedged Commodity Securities Ltd, ETFS Equity Securities Ltd, ETFS Foreign Exchange Ltd or ETFS Hedged Metal Securities Ltd (each of them separately, an “Issuer”).

This document may contain forward looking statements including statements regarding our belief or current expectations with regards to the performance of certain assets classes and/or sectors. Forward looking statements are subject to certain risks, uncertainties and assumptions. There can be no assurance that such statements will be accurate and actual results could differ materially from those anticipated in such statements. Therefore, readers are cautioned not to place undue reliance on these forward-looking statements.

Emerging Market vinnare 2019 säger Goldman Sachs

Tillväxtmarknaderna har gått sidledes under året, men men ETF-investerare kan hitta en tillväxtmöjlighet bland utvecklingsekonomierna när dessa marknader återhämtar sig. Det kan till och med bli bättre än så. Emerging Market vinnare 2019 säger Goldman Sachs.

Investeringsbanken Goldman Sachs förväntade sig att emerging market aktier, valutor och obligationer kan komma att att se en blygsam återhämtning nästa år, rapporter från Reuters. ”Vi förväntar oss blygsam positiv avkastning över de stora EM-indexen nästa år, om än med låg riskjusterad avkastning”, säger analytiker vid Goldman i sin 2019-prognosrapport.

Tillväxtmarknadsaktierna kan uppleva den största ökningen

De bankprojicerade tillväxtmarknadsaktierna kan uppleva den största ökningen med 12% i dollar, medan EM-valutorna bör stärkas med cirka 2% i genomsnitt på ekonomiska förbättringar och en blygsamt svagare amerikanska dollar. Samtidigt tillade de på den lokala valutamarknaden att ett noggrant spårat skuldindex för GBI-EM skulle kunna se en 10% återhämtning på en ”omhävd” basis och inkludera ”varaktiga effekter”.

Ett antal sätt att få exponering mot Emerging Market

Investerare som tror på tillväxtmarknaden har ett antal sätt att få exponering för det internationella segmentet. Till exempel har Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) och iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG) varit populära sätt att få bred exponering mot Emerging Market.

Dessutom ger något som Goldman Sachs ActiveBeta Emerging Markets Equity ETF (GEM) en smart beta- eller multifaktorstrategi till tillväxtmarknaderna. GEM försöker reflektera utvecklingen av Goldman Sachs ActiveBeta Emerging Markets Equity Index, som inkluderar exponering för att utveckla marknadslager, men väljer komponenter baserade på bra värde, stark momentum, hög kvalitet och låg volatilitet.

WisdomTree Emerging Currency Strategy Fund (NYSEArca: CEW) ger exponering mot amerikanska dollar rörelser sig mot en diversifierad korg av valutor från emerging market.

Dessutom finns VanEck Vectors Emerging Markets Local Currency Bond ETF (NYSEArca: EMLC) WisdomTree Emerging Markets Local Debt Fund (NYSEArca: ELD), SPDR Bloomberg Barclays Emerging Markets Local Bond ETF (NYSEArca: EBND) och iShares Emerging Markets Local Currency Bond ETF (NYSEArca: LEMB). De ger alla exponering mot emerging markets obligationer som är denominerade i sina lokala valutor, vilket bör ge en extra spark om tillväxtmarknadsländernas valutor stiger i värde mot den amerikanska dollarn. Detta inträffar om emerging market vinnare 2019.

How currency movements can impact ETP returns

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.

DISCLAIMER

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.

Rates going up…maybe not so fast

When examining the fixed income market outlook within the Euro zone, inevitably the discussion turns to Italy, and what the potential ramifications of this ongoing budget saga will be. Of course, the direction of European Central Bank policy (ECB) is closely linked here, but if we were to turn our attention to the broader economic outlook, how would that discussion pivot? Based upon recent data, it appears as if the widely held view that interest rates are poised to move higher may have to be revisited.

That being said, it is not as if we don’t think that Euro zone rates will, at some point, move higher, but the timing and magnitude of any potential increase could ultimately impact investment decisions. As we saw in the US, the ‘runway’ for an elevated rate setting can be much longer than expected, and traditional factors such as growth, inflation and central bank policy, do not always move in tandem.

Figure 1: Euro zone Purchasing Managers Indices (PMI)

Source: Bloomberg, as of 23 November 2018. Data for Italy and Spain only goes up to 31 October 2018. Historical performance is not an indication of future performance and any investments may go down in value.

With respect to Euro zone economic numbers, one could be easily forgiven for concluding that, perhaps, the peak in activity occurred last year. It’s not as if we are expecting a recession, but based upon recent data, a steady slowing in growth appears to be a potentially likely scenario. To provide some perspective, Euro zone real GDP rose up to +2.4% in 2017, but current consensus forecasts are looking for a reduced pace of +2.0% for this year and +1.7% for 2019.

The latest growth readings within the Euro zone certainly stood out, and not necessarily for positive reasons. German GDP came in at -0.2% in Q3 2018. This was weaker than expected and followed on the heels of a +0.5% gain in Q2 2018. In addition, it represented the first decline since 2015, and while it did reflect some temporary factors such as reduced auto production due to emissions testing, according to the statistics office, it was also the result of a drop in both exports and consumption. While the car production aspect could be reversed in upcoming data, the trade and consumption components certainly bear watching. For the Euro zone as a whole, growth also slowed to +0.2%, or half the pace of the prior period, and the lowest reading in four years.

Another important economic indicator to keep your eye on are the PMI reports. For the Euro zone and countries such as Germany, France, Italy and Spain individually, the readings seemed to have hit their peaks in late 2018/early 2018 and have been on a steady descent ever since (see figure 1). For the entire Euro zone, the latest figure fell to its lowest level in almost four years, highlighting the potential for further economic slowing.

Conclusion

Needless to say, this scenario has raised the debate regarding potential ECB action. While these numbers will more than likely not prevent the beginning of balance sheet normalization (expected to be announced at the 13 December 2018 policy meeting), it could push the ECB into a ‘later rather than sooner’ timetable for the first rate hike. For the record, the implied probability for this first rate hike has now been pushed out past October 2019, as of this writing.

Source of data unless stated otherwise: Bloomberg, 14 November 2018.