ETF Securities Weekly Flows Analysis – No change in the Fed’s dot plot boosts gold prices
Strong inflows into precious metals ETPs (US$99mn) after no change in the Fed’s dot-plot.
Inflows into crude oil intensified last week as US stocks drop.
Investors took profits on EUR gains after the Dutch elections results.
No change in the Fed’s dot-plot boost precious metals. US$84.5mn of inflows into gold ETPs last week reversed the prior two weeks of outflows (US$71mn). As expected, the Fed raised interest rates by 25bps. However, the Fed left its so called dot-plot (its own estimate of where interest rates will end up) unchanged with three rate hikes this year, followed by another three in 2018. Its forecasts for growth and inflation were broadly unchanged. The more dovish-than-expected outlook lead the US dollar and yields on 10-yr US Treasuries to fall significantly, supporting gold price. Gold prices rose 1.7% following the Fed’s announcement. We expect the gold price to increase by 5 to 6% by mid-year, but decline toward current levels by year end.
Inflows into crude oil intensified last week as US stocks drop. We saw a second consecutive week of inflows into crude oil ETPs of US$60.5mn (after US$10mn the week before). Oil prices are recovering after US crude oil inventory were slightly reduced last week, for the first time since early January. Meanwhile, Saudi Arabia has announced willingness to extend production curbs in the second half of the year if global stocks remain above the five-year average.
Investors took profits on long EUR ETPs. We saw a reduction on long positions on EUR ETPs (US$26mn) and an increase in short EUR ETPs (US$23mn) after the euro appreciated 1.6% since the latest ECB meeting on March 9th on the back of expectations that the ECB will adopt a less accommodative policy stance. Meanwhile, the defeat of the far-right Eurosceptic candidate Geert Wilders in the Dutch elections also removed downward pressures on the Euro. We expect the Euro to appreciate by roughly 3% toward mid-year.
Positive economic surprise from China and a weaker US dollar support metal prices. We saw US$51mn of inflows into industrial metals ETPs including US$29mn inflows into copper ETPs after positive economic surprises from China. Both Chinese industrial production and fixed asset investments for February beat expectations, rising 6.3%yoy and 8.9%yoy from 6.0%yoy and 8.3%yoy in January respectively.
This week. March Flash PMIs for the Eurozone, US and Japan will provide investors a gauge for economic activity in the final month of the first quarter. Speeches by Fed Chair, Yellen and dissenting committee voter, Kashkari will be followed for hints of further dovishness.
Video Presentation
Morgane Delledonne, Fixed Income Strategist at ETF Securities provides an analysis of last week’s performance, flow and trading activity in commodity exchange traded products and a look at the week ahead.
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India’s vibrant economy and structural growth opportunities continue to be the envy of many emerging markets. But somewhat unique to this market are tax implications that investors should be aware of. Our Franklin Templeton Global ETF team examines these structural issues in Asia’s third-largest economy.
In merely a decade, India has taken a quantum leap from the world’s 11th largest economy to become its fifth largest. By many accounts, it is expected to remain one of the world’s fastest-growing major economies over the coming years. And even after a banner 2023 during which the country’s benchmark indexes surged and Indian Prime Minister Narendra Modi celebrated high-profile successes—from historic technological and space exploration achievements to rising global diplomatic clout—this election year has already marked more progress in supporting Modi’s pro-growth, pro-jobs efforts.
The world’s most populous nation has advanced ties with Western countries over free trade. In addition to agreements with Australia and the United Arab Emirates, it has worked to better integrate the “Global South’s” development needs and ambitions with that of the G20. Modi has touted innovative partnerships for a new multilateral rail and sea corridor to connect India with the Middle East and the European Union (EU)—seen as a counterweight to China’s vast Belt-and-Road infrastructure corridor.
India reached its latest notable trade pact, nearly 16 years in the making, in March with the European Free Trade Association—Iceland, Liechtenstein, Norway and Switzerland. The agreement lifts Indian tariffs to secure US$100 billion in foreign direct investment commitments from the non-EU markets to India across multiple sectors.
With India still an enviable investment powerhouse, it seems important to clarify a few aspects of this dynamic equity market.
How exchange-traded funds (ETFs) treat India capital gains tax (CGT)
Foreign investors should be aware that CGT is an integral part of investing in Indian equities that cannot be circumvented. Investors in India funds are subject to CGT implications regardless of fund provider, and CGT is based and calculated on a fund as a whole, not an individual investor’s position.
The details: Foreign investors owning local Indian stocks are subject to taxation on capital gains at a short-term rate of 15% for positions held for less than one year and at a long-term rate of 10% for positions held over one year.
To accrue or not to accrue: Consistent with market practice for US-listed India ETF providers, Franklin Templeton accrues unrealized CGT in its daily net asset value (NAV). This can lead to differences in performance relative to the benchmark, which does not include CGT. As a result, rising markets will typically lead to fund underperformance against a benchmark, while weaker market environments will typically generate outperformance (provided the fund is in an unrealized capital gain position where the current market value of fund holdings is above their historical book cost). See chart below.
For UCITS-listed India funds, there is a divergence in methods utilized by fund providers in accruing and reporting CGT. Some do not accrue unrealized CGT in the NAV, but will charge CGT to investors directly at redemption, which we believe leaves investors with a level of opaqueness and uncertainty over their ultimate proceeds. This method also creates an elevated NAV compared to what investors will actually experience. While Franklin Templeton’s approach to CGT may at times lead to a higher tracking difference,1 we believe investors benefit from increased transparency and a more reflective experience.
The magnitude and impact of CGT for a specific fund is heavily dependent on several variables, such as the timing of purchases and sales, performance of the holdings and their volatility, and the size of flows in and out of the fund relative to its assets under management (AUM).
Understanding the impact: The CGT impact to fund performance is driven by the path of returns, timing of individual lots and price points. Very broadly speaking, in rising markets, an NAV-accruing fund will likely underperform its benchmark and vice versa.
Consideration of comparability: Because different providers handle CGT differently, the comparability of fund performance metrics may be affected. As investors, it’s prudent to consider how these nuances may influence investment decisions within the broader context of your financial strategy.
The bigger picture: While CGT considerations are important, they should be viewed within the broader spectrum of investment objectives and risk tolerance. Taking a long-term perspective and being mindful of other important characteristics of the investment vehicle of choice may aid in the decision-making process.
In summary, India remains an attractive investment destination with compelling growth prospects for its equity markets. Investors seeking India allocation through an ETF should be aware of the current tax regime and what varying methods of accounting methodologies really mean for fund valuation.
Xtrackers II Target Maturity Sept 2033 EUR Corporate Bond UCITS ETF 1D (XB33 ETF) med ISIN LU2673523564, försöker följa Bloomberg MSCI Euro Corporate September 2033 SRI-index. Bloomberg MSCI Euro Corporate September 2033 SRI-index följer företagsobligationer denominerade i EUR. Indexet speglar inte ett konstant löptidsintervall (som är fallet med de flesta andra obligationsindex). Istället ingår endast obligationer som förfaller mellan oktober 2032 och september 2033 i indexet (ETF kommer att stängas i efterhand). Indexet består av ESG (environmental, social and governance) screenade företagsobligationer. Betyg: Investment Grade.
Den börshandlade fondens TER (total cost ratio) uppgår till 0,12 procent p.a. Xtrackers II Target Maturity Sept 2033 EUR Corporate Bond UCITSETF 1D är den enda ETF som följer Bloomberg MSCI Euro Corporate September 2033 SRI-index. ETFen replikerar det underliggande indexets prestanda genom samplingsteknik (köper ett urval av de mest relevanta indexbeståndsdelarna). Ränteintäkterna (kupongerna) i ETFen delas ut till investerarna (Minst årligen).
Denna ETF lanserades den 8 november 2023 och har sin hemvist i Luxemburg.
Bloomberg MSCI Euro Corporate SRI PAB Index syftar till att spegla resultatet på följande marknad:
Minsta utestående belopp på 300 miljoner euro per obligation
Endast obligationer utgivna av företag med en MSCI ESG-rating på BBB eller högre och en MSCI ESG Impact Monitor över 1 ingår
Indexet övervakar absoluta växthusgasutsläpp (“GHG”) genom att sätta en initial 50 % avkolning av absoluta växthusgasutsläpp i förhållande till moderuniversumet följt av en årlig 7 % avkolningsbana för absoluta växthusgasutsläpp.
Obligationer utgivna av företag som är involverade i alkohol, tobak, hasardspel, vuxenunderhållning, genetiskt modifierade organismer (GMO), kärnkraft, civila skjutvapen, militära vapen (inklusive minor, klusterbomber, kemiska vapen) är undantagna.
Handla XB33 ETF
Xtrackers II Target Maturity Sept 2033 EUR Corporate Bond UCITSETF 1D (XB33 ETF) är en europeisk börshandlad fond. Denna fond handlas på Deutsche Boerse Xetra.
Det betyder att det går att handla andelar i denna ETF genom de flesta svenska banker och Internetmäklare, till exempel DEGIRO, Nordnet, Aktieinvest och Avanza.
En ny börshandlad fond utgiven av Franklin Templeton har varit handelsbar på Xetra och Börse Frankfurt sedan i torsdags. Denna ETF investerar med katolska värderingar.
Franklin MSCI World Catholic Principles UCITS ETF (FLXA) ger investerare tillgång till en brett diversifierad aktieportfölj med cirka 800 stora och medelstora företag på utvecklade marknader som anses vara miljömedvetna och socialt ansvarstagande.
Jämförelseindexet, MSCI World Select Catholic Principles ESG Universal and Low Carbon Index, syftar till att visa ett lägre koldioxidavtryck och en bättre miljö-, social- och styrningsprofil jämfört med MSCI World Index.
Undantagna är företag som är verksamma inom kontroversiella affärsområden som vapen, hasardspel, vuxenunderhållning eller är inblandade i abort, preventivmedel, stamcellsforskning och djurförsök.
MSCI World Select Catholic Principles ESG Universal and Low Carbon Index-NR
Produktutbudet i Deutsche Börses XTF-segment omfattar för närvarande totalt 2 157 ETFer. Med detta urval och en genomsnittlig månatlig handelsvolym på cirka 14 miljarder euro är Xetra den ledande handelsplatsen för ETFer i Europa.