Tag Archives: european etfs

HEDJ

European ETF Strategy Unraveling

(Bloomberg) — A European stock trade that deployed the use of ETF products as a means of hedging currency exposure is one that enamored global investors throughout 2015 and drew more money than practically anything else in equities is blowing up in people’s faces.

As the moves in the the WisdomTree Europe Hedged Equity Fund (NYSE:HEDJ) show, the strategy of going long the region’s shares while hedging to mute the euro’s swings is unraveling. The exchange- traded fund has plunged a record 14 percent in December, erasing annual gains that swelled to as much as 23 percent in April and were still above 18 percent in July. Hit by withdrawals, its market value has fallen to $17 billion from more than $22 billion as recently as August.

Investors are pulling money from the fund like never before after Mario Draghi’s increase in European Central Bank stimulus failed to live up to expectations, triggering a decline in the region’s stocks and a strengthening of its currency.

“A lot of investors have been protecting themselves against a weaker euro, aiming for European equity returns which have been very strong this year as long as you hedged the euro,” said Ewout van Schaick, head of multi-asset portfolios at NN Investment Partners in The Hague. His firm oversees 180 billion euros ($198 billion). “That story seems to be over after the recent central bank actions. Investors are positive on European equities but are less sure it has to be on a hedged basis.”

The fund’s popularity grew earlier this year, when its hedge became of paramount importance as the ECB started its bond-buying program, triggering a weakening of the euro to levels not seen since 2003 and a 22 percent surge in the region’s stocks. In the first four months of the year, traders poured $13 billion in the ETF, making it the favorite vehicle to bet on European equities.

NYSE FEZ
Euro Stoxx 50 Index NYSE:FEZ

FEZ Fizzles. Fast forward to December, and things don’t look as good. The Euro Stoxx 50 Index, whose ETF tracker is NYSE:FEZ is down 7.1 percent through yesterday’s close, heading for its worst ending to a year since 2002, while the euro is set for its biggest monthly advance since April against the dollar.

Forecasters don’t see the currency moving much from now. It’ll weaken to $1.05 and stay at that level for the first three quarters of next year, before starting to rebound, according to projections. It’s hovered around $1.09 for most of December.

That doesn’t mean the consensus is turning bearish on European equities. Even without a significant weakening of the currency, strategists expect euro-area equities to climb another 12 percent by the end of next year, aided by a recovering economy, ECB stimulus and low valuations. The Euro Stoxx 50 rose 1.2 percent at 11:47 a.m. in London. At 14.2 times estimated earnings, companies on the gauge are cheaper than those on the Standard & Poor’s 500 Index or MSCI All-Country World Index.

“We still believe in European equities,” Van Schaick said. “The European economic recovery is in the earlier stage, so all the lights are green for Europe. They’re going to do a lot better than U.S. equities next year.”

european etf

European ETFs Displace Futures Products

(MarketsMedia) European ETFs and ETPs have gathered record net new assets in the first 11 months of this year, in many cases using as a displace to futures products. ETF Issuer BlackRock expects the size of Europe’s exchange-traded product market to double over the next three to four years.

ETFs/ETPs listed in Europe had gathered $72.6bn in net new assets at the end of last month, 18% above the record set at the same time last year, according to consultancy ETFGI’s Global ETF and ETP insights report.  ETFGI said in the report: “This marks the 14th consecutive month of positive net inflows.”

Source, the European ETF issuer, estimated that $100bn of assets have been switched globally into ETFs from futures over the last two years as ETF fees have fallen. Source added that investors who switch out of futures contracts into ETFs during the quarterly ‘roll’ this December could make record savings of 30 to 50 basis points on an annualised basis. December stock market futures expire on the 18th and investors would typically roll in the week leading up to this expiry date.

So far this year equity ETFs gathered the largest net inflows of $42.3bn, followed by fixed income with $24.9bn and then commodities with $1.2bn.

BlackRock’s ETF arm, iShares gathered the largest net inflows of $28.7bn in Europe in the year-to-date followed by Deutsche Bank’s db x/db ETC with $10.3bn. In third place was Societe Generale’s Lyxor AM with $8.6bn.

Robert Kapito, president of BlackRock, said this month that the asset manager remains very optimistic on its organic growth opportunities given secular tailwinds in ETFs and solid performance in active equity according to an analyst note from Goldman Sachs. Kapito presented at the Goldman Sachs US Financial Services Conference in New York on December 8.

The analysts said: “BlackRock expects the ETF industry to double over the next three to four years driven by an increasing number of uses for ETFs, specifically as an alternative to futures, increased adoption by broker-dealers to hedge risk and portfolio precision instruments.”

For the full story from MarketsMedia, please click here

Hedged-European-ETF

European ETFs Look Promising for 2015

MarketMuse update courtesy of extract from ETF Trends’ Tom Lydon.

European equities and related exchange traded funds could outperform in 2015, capitalizing on lower energy prices, an improved export outlook and potentially more European Central Bank easing.

For instance, the iShares MSCI EMU ETF (NYSEArca: EZU) and the SPDR EURO STOXX 50 (NYSEArca: FEZ) both focus on Eurozone countries.

Alternatively, investors seeking to capture Eurzone market exposure can also consider a hedged-equity ETF that will help diminish the negative effects of a depreciating euro currency. For example, the Deutsche X-Trackers MSCI Europe Hedged Equity ETF (NYSEArca: DBEU), iShares Currency Hedged MSCI EMU ETF (NYSEArca: HEZU)and WisdomTree Europe Hedged Equity Fund (NYSEArca: HEDJ) hedge against the euro currency and would outperform a non-hedged Europe equity ETF if the euro currency continues to depreciate.

DBEU, though, takes a slightly broader approach to the European markets, including about a 40% combined tilt toward the United Kingdom and Switzerland. HEZU and HEDJ only cover Eurozone member states.

Wall Street analysts believe that European equities could be one of the best places to invest in 2015, reports Sara Sjolin for MarketWatch.

“Europe was a market ‘darling’ this time last year, then became a pariah,” economists at Morgan Stanley said in a research note. “[Now] we like European equities, (especially cyclicals) and European ABS.”

Mislav Matejka, chief European equity strategist at J.P. Morgan, even predicts that Eurozone stocks could outperform U.S. equities next year.

Specifically, the investment banks are pointing to three factors that will support the region: the ECB, a cheap euro currency and low oil prices.

ECB President Mario Draghi has hinted that the central bank could introduce further stimulus in early 2015 and even enact a bond purchasing program.

“The mantra is ‘Don’t fight the ECB’ — the central bank is set to inject €1,000 billion and to add sovereign bonds to its buying program,” analysts at Société Générale said in a research note.

While the euro currency has depreciated 10% against the U.S. dollar so far, analysts believe there is more room to fall after the ECB enacts further easing. Consequently, the weak euro will help bolster the Eurozone’s large exporting industry, making goods cheaper for foreign buyers. Morgan Stanley predicts the cheap currency could add at least 2% to earnings per share for European companies next year.

Lastly, lower energy prices will have an immediate effect on consumers, allowing Europeans to spread around their cash for discretionary purchases and spur growth. Additionally, the cheap oil will lower input costs for companies’ profit margins and lift earnings.

Furthermore, analysts believe that if the ECB begins a quantitative easing plan, the financial sector will be a key beneficiary. Most major Eurozone banks are already in good shape and should capitalize on improved credit supply and loan demand. For targeted Europe financial exposure, investors can take a look at the iShares MSCI Europe Financials ETF (NYSEArca: EUFN). However, the ETF does not hedge against currency risks.

 

 

 

BlackRock To Buy Credit Suisse European ETF Business

reuters(Reuters) – BlackRock Inc has won the bidding for Credit Suisse Group AG’s European exchange-traded fund business, according to a source familiar with the situation.

The deal is expected to be announced shortly, said the source, who declined to be identified because the deal is not yet public. The value of the deal could not be determined.

A BlackRock spokeswoman and a Credit Suisse spokeswoman declined to comment.

Credit Suisse put its $17.6 billion ETF unit up for sale in October, sources told Reuters at the time.

In November, Credit Suisse said it was integrating its private banking and asset management divisions into a new wealth management unit.

BlackRock and State Street Global Advisors, the asset management arm of State Street Corp, were among the companies bidding for the business, but State Street dropped out of the bidding in December.

Credit Suisse is the fourth largest ETF provider in Europe, with 58 ETFs and a 5.3 percent market share as of December 31, according to ETFGI, a London-based ETF research firm.

BlackRock is the largest ETF provider in Europe, with more than 42 percent of the $331 billion European ETF market. Its 202 European iShares ETFs had $139.6 billion in assets as of December 31, the research firm said.

Credit Suisse’s ETF business would be the second international ETF business BlackRock has acquired in the past several months.

BlackRock bought Toronto-based Claymore Investments, a Canadian ETF operation, from Guggenheim Partners LLC, in March.

“This acquisition shows BlackRock’s further commitment to being the dominant player in ETFs in every market they are in,” said Dave Nadig, director of research at IndexUniverse LLC, a San Francisco-based firm that tracks ETFs.

In October, BlackRock Chief Executive Laurence Fink told Reuters it was looking at a “fill-in ETF acquisition in another country.

(Reporting By Jessica Toonkel; editing by Carol Bishopric)