Already providing the broadest choice of ETF derivatives in Europe, Eurex has recently introduced another five new ETF options. We discussed the interesting market opportunities these options will provide with Michael Delew, Director, Capital Markets, at Wisdom Tree, the leading New York-based ETF sponsor and asset manager, and Matthew Riley, Equity & Index Sales EMEA at Eurex.
Michael, what trends do we currently see in the ETF market?
Three themes in the exchange-traded fund (ETF) space which have been very apparent this year include growing demand for ESG, the broad adoption of digital asset exchange-traded products (ETPs), and the continued rise of thematic investing.
Thematic investing, in particular, has played out in a number of ways, with investors looking for multiple avenues to access this long-term trend. As might be expected, this has resulted in large inflows into equity products that track themes such as electronic vehicle (EV) adoption, but it also affects the raw materials that play a part in the story. We’ve seen this in the form of interest in our products like WisdomTree Copper (COPA) and WisdomTree Nickel (NICK), which allow investors to easily access exposure to these metals in an ETP wrapper. We see increasing demand for these and other thematic commodities.
We think that ETPs will be the primary way that investors look for this exposure, as it provides an easily tradeable and accessible wrapper at low cost. It is also transparent and provides direct access for investors who might otherwise have to deal with the difficulties of trading futures or the custody of physical commodities.
Matthew, what is driving this demand for commodities and commodity ETPs in particular?
The global rebound in trade and industrial production that will likely continue as the global economy recovers from the pandemic is expected to continue to push prices higher. The recent all-time high in copper bears witness to this.
In addition to the practicalities around physically delivered commodity futures and options that Michael mentioned above, there are also many equity funds which would previously have taken exposure to the commodities through mining stocks, but are now seeking a more direct exposure to the commodity itself.
Michael, how can customers best implement them in their trading strategies?
The most obvious benefit of options is that they give investors the ability to use more advanced trading strategies and make returns when the market goes up or down. They can also play a very important role in providing downside protection and hedging. Specifically, options on an ETP allow investors who may be holding that product to hedge more effectively, rather than use other methods which may not represent the same exposure as the ETP.
Matthew, anything to add to the above?
I think it is also worth noting that ETPs have no inherent yield. While an equity index ETF will have a dividend ‘carry’ associated with it, an ETP on a commodity has no such income no dividend, so options are an excellent way of creating yield by selling calls and/or puts around your position.
Matthew, are regulatory requirements playing a role in this market segment?
With UCITS regulated funds now accounting for over 60 percent of all assets under management in Europe, the UCITS eligibility of our ETP options range is one of the key drivers of volume growth. The benefits of price transparency and liquidity also extend beyond the letter of the regulations to give investors comfort in the full spectrum of cross asset investments now available at Eurex.
Michael, where do you expect to see future areas of growth in ETFs and ETF options?
We expect investors to continue to be interested in trends and look for ETF issuers to provide access to new areas of innovation and growth. One of the best examples of this is the success of digital asset ETPs this year, and the institutional adoption of the asset class. We anticipate demand for this asset class to continue to grow and, as it does, more sophisticated investors moving into the space will look for options on these ETPs as ways to manage risk and hedge positions.
Communications issued in the European Economic Area (“EEA”): This document has been issued and approved by WisdomTree Ireland Limited, which is authorised and regulated by the Central Bank of Ireland.
Communications issued in jurisdictions outside of the EEA: This document has been issued and approved by WisdomTree UK Limited, which is authorised and regulated by the United Kingdom Financial Conduct Authority.
WisdomTree Ireland Limited and WisdomTree UK Limited are each referred to as “WisdomTree” (as applicable). Our Conflicts of Interest Policy and Inventory are available on request.
For professional clients only. Past performance is not a reliable indicator of future performance. Any historical performance included in this document may be based on back testing. Back testing is the process of evaluating an investment strategy by applying it to historical data to simulate what the performance of such strategy would have been. Back tested performance is purely hypothetical and is provided in this document solely for informational purposes. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance. The value of any investment may be affected by exchange rate movements. Any decision to invest should be based on the information contained in the appropriate prospectus and after seeking independent investment, tax and legal advice. These products may not be available in your market or suitable for you. The content of this document does not constitute investment advice nor an offer for sale nor a solicitation of an offer to buy any product or make any investment.
An investment in exchange-traded products (“ETPs”) is dependent on the performance of the underlying index, less costs, but it is not expected to match that performance precisely. ETPs involve numerous risks including among others, general market risks relating to the relevant underlying index, credit risks on the provider of index swaps utilised in the ETP, exchange rate risks, interest rate risks, inflationary risks, liquidity risks and legal and regulatory risks.
The information contained in 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 any province or territory thereof, where none of the issuers or their products are authorised or registered for distribution and where no prospectus of any of the issuers has been filed with any securities commission or regulatory authority. No document or information in this document should be taken, transmitted or distributed (directly or indirectly) into the United States. None of the issuers, nor any securities issued by them, have been or will be registered under the United States Securities Act of 1933 or the Investment Company Act of 1940 or qualified under any applicable state securities statutes.
This document may contain independent market commentary prepared by WisdomTree based on publicly available information. Although WisdomTree endeavours to ensure the accuracy of the content in this document, WisdomTree does not warrant or guarantee its accuracy or correctness. Any third-party data providers used to source the information in this document make no warranties or representation of any kind relating to such data. Where WisdomTree has expressed its own opinions related to product or market activity, these views may change. Neither WisdomTree, nor any affiliate, nor any of their respective officers, directors, partners, or employees accepts any liability whatsoever for any direct or consequential loss arising from any use of this document or its contents.
This document may contain forward looking statements including statements regarding our belief or current expectations with regards to the performance of certain assets classes and/or sectors. Forward looking statements are subject to certain risks, uncertainties and assumptions. There can be no assurance that such statements will be accurate and actual results could differ materially from those anticipated in such statements. WisdomTree strongly recommends that you do not place undue reliance on these forward-looking statements.
The products discussed in this document are issued by WisdomTree Commodity Securities Limited (the "Issuer"). The Issuer is regulated by the Jersey Financial Services Commission. Investors should read the prospectus of the Issuer before investing and should refer to the section of the prospectus entitled ‘Risk Factors’ for further details of risks associated with an investment in the securities offered by the Issuer.
Securities issued by the Issuer are direct, limited recourse obligations of the relevant Issuer alone and are not obligations of or guaranteed by Citigroup Global Markets Limited (“CGML”), Citigroup Global Markets Holdings Inc. (“CGMH”), Merrill Lynch International ("MLI"), Bank of America Corporation ("BAC") or any of their affiliates. Each of CGML, CGMH, MLI and BAC disclaim all and any liability whether arising in tort, contract or otherwise which they might have in respect of this document or its contents otherwise arising in connection herewith.
“Bloomberg®” and the Bloomberg Commodity Index(es)SM referenced herein are service marks of Bloomberg Finance L.P. and its affiliates, including Bloomberg Index Services Limited (“BISL”), the administrator of the indices (collectively, “Bloomberg”) and have been licensed for use for certain purposes by WisdomTree UK Limited and its permitted affiliates including WisdomTree Commodity Securities Limited (together, WisdomTree). Bloomberg is not affiliated with WisdomTree, and Bloomberg does not approve, endorse, review, or recommend the exchange-traded product(s) referenced herein. Bloomberg does not guarantee the timeliness, accurateness, or completeness of any data or information relating to the index(es).
Market Status ⓘ
The market status window is an indication regarding the current technical availability of the trading system. It indicates whether news board messages regarding current technical issues of the trading system have been published or will be published shortly.
Please find further information about incident handling in the Emergency Playbook published on the Eurex webpage under Support --> Emergencies and safeguards. Detailed information about incident communication, market re-opening procedures and best practices for order and trade reconciliation can be found in the chapters 4.2, 4.3 and 4.5, respectively. Concrete information for the respective incident will be published during the incident via newsboard message.
We strongly recommend not to take any decisions based on the indications in the market status window but to always check the production news board for comprehensive information on an incident.
An instant update of the Market Status requires an enabled up-to date Java™ version within the browser.