ETFs: Regulatory (High) Impact Commerzbank, leaders in ETF February 2018
What are ETFs? Securities that track the value of an index, commodities or a basket of assets and trade like a stock on the exchange Exchange Traded Fund Bought and sold on different stock exchanges around the world Listed products globally Easy access Trades like a stock Various execution methods (VWAP, TWAP, MOC, Risk etc.) Constant liquidity and prices throughout the day Tracks the valuation of the underlying index or basket of assets, instead of single security Diversified risk Tax-efficient 1
ETF: The Perfect Tool For Portfolio Construction Advantages Cost-effective Liquid Drawbacks Limited outperformance (ETFs track indices) Tracking Error vs Desired Benchmark Transparent Versatile Asset Class Tax-efficient Coupon, Dividend, Maturity Management Included Stock Tradable during the day Fund Diversified Diversified Investment ETFs Diversified funds that trade like stocks 2
Evolution: The Structural Forces Behind The Success of ETFs 3
A US$4.5 Trillion ETF Industry 5,000 4,500 Equity AUM Fixed Income AUM Other Asset Class AUM 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Jan-09 Aug-09 Mar-10 Oct-10 May-11 Dec-11 Jul-12 Feb-13 Sep-13 Apr-14 Nov-14 Jun-15 Jan-16 Aug-16 Mar-17 Sources: BlackRock, as of September 2017 4
Three Structural Forces Behind The Rise of ETFs Shift to Fee-based Advisory Shrinking Bank Balance Sheets Shift from Active to Passive Investment 5
1) Gradual Move to Fee-Based Advisory Europe North America Asia Australia $27 billion Advisory style $3,188 billion $717 billion $379 billion Regulatory Driven Market Forces MIFID II - Fee-based Traditional Non-fee Sources: BlackRock Global ETP Landscape, as of August 2017 6
2) Shrinking Bank Balance Sheet Example: Fixed Income ETFs Regulatory Pressure on Bank Balance Sheet Reduced Bank Holding of Corporate bonds Fixed Income ETF AUM +24% CAGR Shrinking Derivatives Market 7
2) Shrinking Bank Balance Sheet Tier I Common Equity in Major US Banks Fixed Income Asset AUM (USD billion) 18.00% 800 16.00% 700 14.00% 12.00% 600 500 +24% CAGR 400 10.00% 300 8.00% 200 6.00% 100 4.00% 2009 2010 2011 2012 2013 2014 2015 2016 0 2009 2016 Morgan Stanley Citigroup Wells Fargo Other Em Mkts High Yield Inv grade Sov Debt JP Morgan Goldman Sachs Bank of America Source: Bloomberg and Blackrock 8
3) Rise of passive Investing 9
ETF: Standardized, Abundant, Liquid, Cost Effective, Versatile ETFs On the up and up Helped by regulatory changes Still a very contrasted global picture Commerzbank can help you 10
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