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Weekly European ETF Trading Report
By Laurent Kssis | 18 October, 2011

European ETF trading commentary for the week ending 14 October, 2011, provided by Cowen International Trading Ltd.

Optimism about an EU debt solution and better US macroeconomic data alleviated some of investors’ concerns about the global economy and led to another weekly uptick for global equities, with the Euro Stoxx 50 index gaining 2.8 percent and the S&P 500 6 percent. Trading volumes for the week were light, however, compared with recent averages, suggesting an underlying lack of conviction.

European ETF turnover was down 13 percent and US turnover down 10 percent by comparison with the respective three-month averages, providing further evidence that the rally was related more to position covering than fresh money being put to work. It was another week during which equity ETFs experienced net outflows.

Cowen’s primary market volumes were marginally higher than in previous weeks as we executed orders in money market ETFs and UK Gilt funds, for example the iShares eb.rexx money market ETF (LSE: EBMMEX) and iShares' UK Gilts ETF (IGLT) (iShares reported combined purchase orders of US$111 million for these two funds).

Investors continued to move away from Asia and the sell-off in emerging market equities moved into its 11th consecutive week. Cumulative outflow from equity EM ETFs over those 11 weeks stands at around at €25 billion, equivalent to 4 percent of assets under management. Meanwhile, EM debt ETFs have lost 4.2 percent of their AUM over the same period. We executed redemption orders in iShares’ MSCI Japan ETF (IJPN), iShares' MSCI Eastern Europe ETF (LSE: IEER) and Lyxor's ETF MSCI Emerging Markets (NYSE Euronext: LEM) (Lyxor reported outflows of €30 million in LEM). IShares reported weekly combined redemptions of US$66 million in its MSCI Brazil ETF (LSE: IBZL) and IJPN. Notably, Lyxor's ETF Russia (NYSE Euronext: RUS FP) saw a net inflow for the first time in four weeks.

Liquid indices were in favour with investors this week. IShares reported inflows of US$223 million into its DAX DE ETF (Deutsche Boerse: DAXEX), while Lyxor reported €155m in its ETF CAC 40 (NYSE Euronext: CAC). Overall, inflows into Euro Stoxx 50 ETFs totalled US$100 million, with positive flows into iShares’ Euro Stoxx 50 ETF (LSE: EUE) outweighing net redemptions from Lyxor’s ETF Euro Stoxx 50 (NYSE Euronext: MSE).

Our ratio in the primary markets was 3:1 in favour of redemptions and sellers still outweighed buyers by a 6:1 ratio in our secondary markets. Our top ranking ETFs on-screen by volumes were db x-trackers MSCI World (LSE: XMWO), iShares' iBoxx euro fund (IBCX), Lyxor’s ETF EuroMTS 3-5 Y (NYSE Euronext: MTB), Lyxor’s Euro Corporate Bond ETF (NYSE Euronext: CRP) and iShares’ Markit iBoxx $ Corporate Bond ETF (LSE: LQDE), which between them accounted for over 30 percent of our on-screen trading.

In the commodities segment, we saw strong demand for Gold ETPs, with ETF Securities reporting inflows of US $152 million, the first positive inflows for a few weeks. Its Physical Gold ETC (LSE: PHAU) was in heavy demand compared with its Gold Bullion Securities (LSE: GBS), with a 9:1 ratio of creation orders between the two ETCs. We also saw some sporadic buyers of ETF Securities’ copper ETC, probably following on from the 25 percent drop in the metal’s price in September, although copper has rebounded 9 percent so far in October.

This report is neither an offer to sell nor a solicitation of any investment products or other financial service. Nor is it an official confirmation of any transaction or an official statement of CIT.

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