ishares European Landscape For qualified investors in Switzerland only

Transcription

1 ishares European Landscape For qualified investors in Switzerland only

2 Agenda 1. ETF market overview 2. ETF usage in the Equity and Fixed Income space 3. ETF trading environment 4. ishares Capital Market Team 5. Appendix For professional clients / qualified investors only 2

3 ETF Market Overview - Introduction The European ETF Market is growing: ETFs account for 7% of all equity trading across the 5 major exchanges in Europe. 53 EMEA ishares have AUM>US$1B (100% more than Jan 2013). Across all issuers, 98 European ETFs have AUM> US$1B (51% more than July 2013). European ETP and ETF AUM and count by Year Europe AUM % market share as at end of December % 0.2% 21.1% 7.2% Developed Equity Fixed Income Others 61.3% Emerging Equity Commodities Source: BlackRock ETP Research, ETP Landscape. Data as of end June For professional clients / qualified investors only 3

4 ETF Market Overview from early adapters to mass adoption Market growth ETFs account for 7% of all equities traded across the five major exchanges in Europe 53 EMEA ishares have AUM >$1bn 100% more than Jan 2013 Across all issuers, 98 European ETFs have AUM > $1bn Client activity 80 ishares EMEA creations/redemptions >$100m in client inquiries to trade > $100m in 2013 $52B of client inquiries in % more than 2012 Market quality Bid-ask spreads across all ishares EMEA listings have decreased by 27% since 2012 European ETF on-exchange turnover in 2014 Q1 was ~$180B ishares EMEA gross creation/redemption activity in 2014 Q1 was $33B 43% more than 2013 Q1 Source: BlackRock, Deutsche Bank, Deutsche Borse, LSE, Six Swiss, Euronext, Borsa Italiana, Bloomberg For professional clients / qualified investors only 4

5 ETF Market Overview - European ishares Exposures Investors can expand their portfolios beyond traditional investments Equities Fixed Income Alternatives Cash Equivalents Commodities ishares funds aim to track indices, or subsets of them Global Developed Markets Government Inflation Property Private Equity Short Term Treasuries Money Market Baskets Single Straight-forward and transparent, ishares aim to deliver the return of the relevant index Emerging Markets Regional, Country Aggregate Investment Grade Corp. Infrastructure Ultra-Short Credit Large, Mid, Small - Cap High Yield Growth, Value, Dividend, Min Vol Covered Sectors / Industry Groups Emerging Markets *For Equity & Fixed Income exposure breakdown please see Appendix. For professional clients / qualified investors only 5

7 ETF usage - Market Penetration Fixed Income ETFs are only ~0.3% of total market Equity ETFs are ~3% of total market $ trillions ETPs 0.355T $ trillions ETPs 1.84T MFs $ 5.8 T MFs 10.5T Global Fixed Income Market 0 Global Equity Market Other Fixed Income Products MFs & ETPs Other Equity Products MFs & ETPs Global market as of Year-End MFs as of October ETPs of November Source: Bank of International settlement, Strategic Insight Simfund, BlackRock. Global market as of Year-End MFs as of October ETPs as of November Source: World Federation of exchanges, Strategic Insight Simfund, BlackRock. Potential for market growth in Fixed Income remains large, both versus the Mutual Fund market but also versus the overall Fixed Income market. The growth in use of Equity ETPs by institutional investors since early 2000 s has grown the market to a ~3% market share of the overall market. Half the growth in the Fixed Income market (~1.5%) would take the FI ETP market to ~US$1.5trn Source: BlackRock For professional clients / qualified investors only 7

8 ETF usage the benefits of using an ETF ETFs are index funds, i.e. funds aimed at delivering a benchmark index s returns, minus fees ETFs are listed and traded like a stock on major stock exchanges, globally. Therefore, they occupy a valuable position in the investment landscape: the intersection between an index fund and a flow product Index Fund Simplicity Transparency Risk control Cost control Consistency of returns Diversification Mutual Fund Open-End Fund Flow Product (Single Stock / Future) Trading flexibility on exchange Intraday pricing Listed options Ability to borrow / short Any transaction size Variety of trading strategies ETFs Transparency Investors can generally see the ETF composition at any given time Liquidity Diversification Flexibility Securities Lending Tax Efficiency ETFs offer two sources of liquidity Liquidity measured by secondary market trading volume The liquidity of the underlying assets via the creation and redemption process ETFs offer immediate exposure to a basket or group of securities for diversification through a single trade Broad range of asset classes, including equities, bonds, commodities, investment themes, etc. For illustrative purposes only. ETFs are listed on exchanges and can be traded at any time the market is open Pricing is continuous throughout the day ETF units and underlying assets can be lent out to potentially offset holding costs In-kind creation and redemption mechanism helps insulate ETF holders from unintended tax consequences Experienced portfolio management team actively seeks to minimize capital gains For professional clients / qualified investors only 8

9 Volume (No. of Shares) ETF usage - even when the underlying market is closed ETFs offering international and global exposures trade with high volumes and tight spreads even when the respective underlying markets are closed. Asian Markets Trading Asian Markets Trading European Markets Trading US Markets Trading Trading hours for European ETFs D Moving Average (IEEM LN) Source: Bloomberg. Data as of 12 th June 2013 For professional clients / qualified investors only 9

10 ETF usage - alternative to Derivatives 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% -1.00% -2.00% 1. Clients fully fund positions (model defaults to nearest achievable risk free rate, but this can be customised) 2. Zero transaction costs (both commissions and bid offer spread) equally for ETFs and Futures (incl. rolls) 3. We run scenarios where several roll strategies are used (e.g. expiry -2, -3) Broad results: performance of long futures vs. benchmark has deteriorated over past year EuroStoxx 50 Performance Comparison Futures roll 2 Futures roll 3 ETF S&P500 Performance Comparison 1.00% 0.50% 0.00% -0.50% -1.00% -1.50% -2.00% -2.50% -3.00% Futures roll 2 Futures roll 3 ETF Source: BlackRock, Bloomberg, Mar/Apr 2007 to Mar/Apr % 0.00% -1.00% -2.00% -3.00% -4.00% -5.00% -6.00% DAX Performance Comparison Futures roll 2 Futures roll 3 ETF % % % % % Source: BlackRock, July % 0.00% -2.00% -4.00% -6.00% -8.00% FTSE 100 Performance Comparison Futures roll 2 Futures roll 3 ETF MSCI EM Performance Comparison 2.00% 1.00% 0.00% -1.00% -2.00% -3.00% -4.00% -5.00% -6.00% -7.00% -8.00% -9.00% Futures roll 2 Futures roll 3 ETF1 ETF For professional clients / qualified investors only

11 ETF usage - alternative to Fixed Income Corporate Bonds Primary dealers face several trends that are impacting their ability to provide liquidity including: Basel III Regulations requiring higher bank capital Dodd-Frank key regulatory policies, particularly the Volcker Rule, reduce the ability of banks to hold inventory Counterparty Risk deteriorating rating quality of sell-side counterparts Liquidity has been reduced and spreads have widened Risk warehousing has been significantly reduced down 75% from the peak Market cap to inventory ratios have been reduced from ~8:1 at peak to ~66.1 today Bid-ask spreads have widened significantly, with IG bid-ask spreads widening as much as 57% from 2007 Primary Dealer Corporate Positions vs. Size of Market (USD Billions) '000 3'500 3'000 2'500 2'000 1'500 1'000 Primary Dealer Corp. Positions (>1 Yr Maturity) (LHS) Market Value of the IG Corp Index (RHS) Sources: Federal Reserve Bank of New York, Barclays, as of 3/31/2013. For professional clients / qualified investors only 11

12 ETF usage -alternative to Fixed Income Corporate Bonds Inefficiencies in Fixed Income markets are a key driver of increased ETF demand Key Underlying Issues in Fixed Income Markets Over-reliance on the primary market Secondary Market Liquidity in Europe continues to decline Access can be challenging Dealer inventory falling as capital and funding charges increase with banks under increased regulatory pressure Creating challenges for investors Liquidity Diversification Duration Management Portfolio Implementation For professional clients / qualified investors only 12

14 ETF trading environment - Sourcing Liquidity from the Layers ETF Liquidity - Multiple Layers ETFs offer multiple layers of liquidity. The secondary market volumes on screen are only a fraction of the true volumes Market Makers trade An ETF is at least as liquid as the underlying constituents Secondary Market MSCI Europe 15 m ADV What you see is not all there is As a result of multiple exchanges across Europe, the ADV on one exchange is not reflective of the total trading volumes for the fund To gauge the true ADV for a fund, the aggregate volumes across exchanges, and OTC volumes should be considered LSE Deutsche Borse OTC Borse Italiana Euronext SIX 37 bln ADV ETFs benefit from multiple layers of liquidity resulting in potentially lower entry / exit costs for the investor Source: BlackRock. For illustrative purposes. For professional clients / qualified investors only 14

15 ETF trading environment Spread improvements Extra layer of ETF liquidity Underlying BIDs ETF BIDs ETF ASKs Underlying ASKs Best Bid Best Ask ishares Spread Underlying Basket Spread ishares MSCI Emerging Markets ishares DAX ishares FTSE 100 ishares Markit iboxx Euro High Yield Bond 4 40 ishares J.P. Morgan $ ishares Markit iboxx Euro Emerging Markets Bond Corporate Bond Fund Equity Fixed Income Source: Bloomberg, TradeSpex Spread data is a 1 month trailing average as of 28 th Feb 2014 For professional clients / qualified investors only 15

16 ETF trading environment Total Cost of Ownerhsip Total Cost of Ownership: is NOT just TER. Can be broken down into internal and external factors ETF Performance INTERNAL Factors EXTERNAL Factors Physical replicating funds Swap based funds Total Expense Ratio (TER) Rebalancing costs Securities lending Total Expense Ratio (TER) Swap spread Trading costs + Creation/redemption = Brokerage fees Tax Total Cost of Ownership ishares believes TCO is an accurate measure of investing in an ETF and the funds liquidity is an important element of it. Source: BlackRock, for illustration purpose For professional clients / qualified investors only 16

18 ishares Capital Market Team how we can help you? ishares has a dedicated Client Execution Services (CES) team assisting clients to achieve best execution Market Insights Daily insights on market trends Analyse the effect of global markets on trading and liquidity Continuous monitoring of new creation flow and broker axes Transparent view of the broker inventory positions Monitor on-screen volumes to total potential liquidity of the underlying. Product Expertise Facilitate product spread and liquidity comparisons Assessment of ETF structure and its impact on trading Provide overview of spreads, creation and redemption costs, premium and discounts Independent assessment of the underlying market and discovery of the fair price. Execution Services Provide pre and post trade analysis Identify available liquidity through Authorised Participants Help source liquidity through relationships with market makers Help source ishares units for borrowing from existing holders Generate Transaction Cost Analysis (TCA) and provide limit order guidance. Our CES team helps investors from trade decision through to the actual execution. Considerations such as size of the trade versus the underlying liquidity, the trading venue and the timing can have impact on the cost the client will incur. For professional clients / qualified investors only 18

20 Appendix 1: Pre-trade Analysis guidance For illustrative purposes For professional clients / qualified investors only 20

21 Appendix 2: Pre-Trade Tool Data as at end of 10 th of Feb 2014 For professional clients / qualified investors only 21

22 Appendix 3: Distribution Trades What are distribution trades and how do they work? Distribution trades are opportunities to buy ishares ETFs cheaper than through a standard creation/buy order Dividend/coupon payments in distributing ETFs are structured to pay-out cash e.g. on a quarterly basis To minimise cash-drag of the ETF, dividends/coupons between distribution dates are reinvested in the underlying market As the ETF approaches ex-date, ishares used to sell securities in the market to obtain cash and meet the distribution obligations A distribution trade, routes the cash from a new investor to existing holders of the ETF to meet the distribution payment The creation of the new ETF shares is purely cash-based and there is no FX- or trading-costs involved as there is no need to reach out to the market and source the securities hence the creation of new ETF shares can be priced at a discount from normal condition. Cash reinvested Start of Year ishares Distribution Payment $$$ Cash reinvested Cash Creation $$$ New ETF shares Holder of ETF Cash reinvested Distributing Equity ETF Distributions at ishares ETF level to ETF holders Dividends of individual stocks in ETF New Investor Cash reinvested End of Year Only applies to distributing ETFs, ishares circulates open opportunities on a frequent basis Available on a first-come, first-serve basis only; available volume for distribution trades is limited Trade date is tied to the ex-date of the distribution, orders can be cancelled after having been submitted Source: BlackRock. For professional clients / qualified investors only 22

23 Appendix 4: Global Follow the Flow Report Extract: Global ETP Emerging Markets Data as of 17 th of July 2014 For professional clients / qualified investors only 23

24 Disclaimer Regulatory Information BlackRock Advisors (UK) Limited, which is authorised and regulated by the Financial Conduct Authority ('FCA'), having its registered office at 12 Throgmorton Avenue, London, EC2N 2DL, England, Tel +44 (0) , has issued this document for access by Professional Clients only and no other person should rely upon the information contained within it. For your protection, calls are ususally recorded. ishares plc, ishares II plc, ishares III plc, ishares IV plc, ishares V plc, ishares VI plc and ishares VII plc (together 'the Companies') are open-ended investment companies with variable capital having segregated liability between their funds organised under the laws of Ireland and authorised by the Central Bank of Ireland. The German domiciled funds are "undertakings for collective investment in transferable securities" in conformity with the directives within the meaning of the German Law on the investments. These funds are managed by BlackRock Asset Management Deutschland AG which is authorised and regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht. BlackRock Asset Management Schweiz AG, Bahnhofstrasse 39, P.O.Box 2118 CH-8022 Zurich, is the Swiss Representative and JPMorgan Chase Bank, National Association, Columbus, Zurich branch, Dreikönigstrasse 21, 8002 Zurich, the Swiss Paying Agent of the Fund. The Prospectus, Key Investor Information Document, the Articles of Incorporation, the latest and any previous annual and semi-annual reports of the Fund are available free of charge from the Swiss representative. Investors should read the fund specific risks in the Key Investor Information Document and the Prospectus. Restricted Investors 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 Canada. This document is not aimed at persons who are resident in the United States, Canada or any province or territory thereof, where the companies/securities are not authorised or registered for distribution and where no prospectus has been filed with any securities commission or regulatory authority. The companies/securities may not be acquired or owned by, or acquired with the assets of, an ERISA Plan. Risk Warnings Investment in the products mentioned in this document may not be suitable for all investors. Past performance is not a guide to future performance and should not be the sole factor of consideration when selecting a product. The price of the investments may go up or down and the investor may not get back the amount invested. Your income is not fixed and may fluctuate. The value of investments involving exposure to foreign currencies can be affected by exchange rate movements. We remind you that the levels and bases of, and reliefs from, taxation can change. BlackRock has not considered the suitability of this investment against your individual needs and risk tolerance. The data displayed provides summary information, investment should be made on the basis of the relevant Prospectus which is available from the manager. For professional clients / qualified investors only 24

25 Disclaimer In respect of the products mentioned this document is intended for information purposes only and does not constitute investment advice or an offer to sell or a solicitation of an offer to buy the securities described within. This document may not be distributed without authorisation from BlackRock Advisors (UK) Limited. Index Disclaimers DAX is a registered trademark of Deutsche Börse AG. S&P is a registered trademark of Standard & Poor s Financial Services LLC ( S&P ) and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC ( Dow Jones ) and have been licensed for use by S&P Dow Jones Indices LLC and its affiliates and sublicensed for certain purposes by BlackRock Fund Advisors or its affiliates ( BlackRock ). The Dow Jones Asia/Pacific Select Dividend 30 Index is a product of S&P Dow Jones Indices LLC or its affiliates, and has been licensed for use by BlackRock. The ishares Asia Pacific Dividend UCITS ETF (the Fund ) is not sponsored, endorsed, sold or promoted by S&P Dow Jones Indices LLC, Dow Jones, S&P, their respective affiliates, and none of S&P Dow Jones Indices LLC, Dow Jones, S&P nor their respective affiliates makes any representation regarding the advisability of investing in the Fund. BlackRock is not affiliated with the companies listed above. Index data source: S&P Dow Jones Indices LLC. 'FTSE ' is a trade mark jointly owned by the London Stock Exchange plc and the Financial Times Limited (the 'FT') and is used by FTSE International Limited ('FTSE') under licence. The FTSE 100 Index is calculated by or on behalf of FTSE International Limited ('FTSE'). None of the Exchange, the FT nor FTSE sponsors, endorses or promotes ishares FTSE 100 UCITS ETF (Inc) nor is in any way connected to the fund or accepts any liability in relation to its issue, operation and trading. All copyright and database rights within the index values and constituent list vest in FTSE. BlackRock Advisors (UK) Limited has obtained full licence from FTSE to use such copyright and database rights in the creation of this product. The iboxx referenced herein are the property of Markit Indices Limited and is used under license. The ishares Euro Corporate Bond Large Cap UCITS ETF and ishares Euro High Yield Corporate Bond UCITS ETF are not sponsored, endorsed, or promoted by Markit Indices Limited. "J.P. Morgan" and "J.P. Morgan EMBISM Global Core Index" are trademarks of JPMorgan Chase & Co. licensed for use for certain purposes by BlackRock Institutional Trust Company, N.A. ("BTC"). ishares is a registered trademark of BTC.J.P. Morgan is the Index Provider for the Underlying Index. J.P. Morgan is not affiliated with the Fund, BFA, State Street, the Distributor or any of their respective affiliates. J.P. Morgan provides financial, economic and investment information to the financial community. J.P. Morgan calculates and maintains the J.P. Morgan EMBISM Global Core Index, J.P. Morgan Emerging Markets Bond Index Plus, J.P. Morgan Emerging Markets Bond Index Global and Emerging Markets Bond Index Global Diversified. Security additions and deletions into the emerging markets bond indexes do not in any way reflect an opinion in the investment merits of the security. For professional clients / qualified investors only 25

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