Trading Ideas August: Buy ETF “DJ Stoxx Global select dividend 100”

Der starke Anstieg führender Indikatoren, die üppige Liquidität und die niedrigen Zentralbankzinsen könnten nach Ansicht der Experten der Deutschen Bank neue Asset-Price-Blasen bilden helfen.


Aber auch in den Anleihemärkten dürfte es zu Verschiebungen kommen. So erscheint der Bereich der Kurzläufer relativ teuer. Als Konsequenz dieser Einschätzungen gibt es im ETF-Trading-Portfolio eine Reihe von Veränderungen:

Die 25-Prozent-Position „IBOXX Euro Sovereigns Eurozone 1-3 year ETF“ wurde verkauft und stattdessen eine 25-Prozent-Position „Short IBOXX Euro Sovereigns Eurozone ETF“ erworben. Ebenfalls neu ins Trading Portfolio aufgenommen wurde eine 10-Prozent-Position „DJ STOXX Global Select Dividend 100 ETF“, in dem 100 dividendenstarke Werte enthalten sind.

Derzeit liegen die Dividendenrenditen über den Anleiherenditen. Mit gutem Gewinn verkauft wurde dafür die 10-Prozent-Position „DJ STOXX 600 Health Care ETF“. Die Analysten halten weiter an der Position „DJ STOXX 600 Banks Short ETF“ fest, auch wenn diese derzeit einen negativen Performancebeitrag bringt..


Trading Ideas ETF: Ideas and Flows – Deutsche Bank AG



Trading Ideas August: Buy ETF “DJ Stoxx Global select dividend 100”


ASSET ALLBanks and bonds look expensive

The ample liquidity and low central bank rates as well as the signs of a stabilisation of the world economy have significantly reduced investors’ risk aversion……

This development considerably has supported the credit market, and credit spreads have tightened palpably. The favourable development on the credit market has led to a strong rally on the equity markets over the past few weeks, with the Eurostoxx50 rising by 14.0% and the Stoxx600 by 11.9% since 10 July.

While Autos, Insurance, Basic Resources, Chemicals and Banks have performed best, all sectors have contributed to the strong performance. This market upswing and the strong rally in the high-beta sectors were not in line with our recommendations.

Beyond the strong performance of the credit market, three additional factors seem to have driven the rally: 1) the fact that EPS significantly beat the forecasts in the US Q2 earnings season (if not at the top line or as strongly as in Europe); 2) very low global interest rates and yields combined with ample liquidity provided by central banks; and 3) the first indications of a rise in real economic indicators and a continued uptrend in sentiment indicators. The strong rise in the banking sector led to a considerable fall in the “DJ Stoxx600 Banks short” ETF.

However, our long position in fixed income and the “Stoxx600 Healthcare” as well as the small positive performance in the “Currency valuation” ETF offset part of the negative performance of our short position on the banking sector. Nevertheless, the total outperformance of the portfolio declined to 9.9% ytd in the last few weeks

We still remain cautious for risky asset classes such as credit and equities. In our view the strong rise in leading indicators, the ample liquidity and low central bank rates might create fresh asset-price bubbles, which will eventually need to be deflated before we can see a more sustainable upswing on the equity markets. Moreover, the equity market has priced in a considerable rebound in global growth and equity investors obviously expect earnings to show a healthy development in the next few quarters. However, in our view most of the improvement in the global economy has been driven by fiscal and central bank stimulus.

This means that the current upswing is probably not sustainable and global GDP growth will likely lose traction in the course of 2009 and early 2010. We therefore see a considerable risk of disappointments in the next few months for equity-market investors. As a consequence, we stick to our current position “DJ Stoxx600 Banks short” ETF with a 30% weight. The rise in insolvencies, further downgrades in commercial real estate and the lacklustre growth environment should trigger a rise in risk provisions. We still expect that the European banking sector will underperform the broad equity markets in the next few weeks. However, we buy a small stake in dividend shares, as dividend yields are significantly higher than government bond yields – a fact which should considerably support this type of shares. We took profit from our position in the healthcare sector.

In the fixed-income area we took profits and sold our position “IBOXX Euro Sovereigns Eurozone 1-3 year”. From our vantage point the fixed-income markets seem very vulnerable.

Shorter durations in particular have become relatively expensive, as the central banks might start to end their very accommodative monetary policy in the next few months. Moreover, the rising fiscal deficits and higher debt issuance by governments seem to be not fully reflected in bond market prices so far. For that reason we buy the short IBOXX in order to benefit from a rise in yields on the European bond markets. This buy is also in line with the recent score on our scorecards, as the fixed-income space seems to be relatively unattractive. However, the scorecards also indicate that our position in IBOXX 10 -15years is still attractive in view of the high total score. From our fundamental vantage point it makes sense stick to this position as well.

First, although inflation in Euroland is very low at the moment (-0.6% yoy in July), the inflation expectations are significantly higher (around 2% yoy) and at least part of the higher expectations should be priced in. Thus, an ongoing lowinflation environment – which we expect – should support the longer end of the bond yield curve.

Second, the yield curve has become rather steep in recent months and investors are positioned to benefit from this steepening trend. If the central banks start to tighten monetary policy or only announce their plans to do so, this might lead to a major unwinding of these positions. In that case the long end should significantly outperform the short end of the yield curve.

Generally speaking, the equity and fixed-income markets are expected to drop in the next few weeks, while the long end of the European bond curve should be supported by low inflation and positioning. We therefore stick to the cautious and defensive stance of our portfolio. The main risk to our current positioning is a strong rise in the equity markets.

IDEA of the month

Buy ETF “DJ Stoxx Global select dividend 100”

In difficult times more investors look into old classical concepts which have worked well over long periods like value investing. A high dividend yield is the most simple measure of value investing. Companies with high dividend yield tend to be companies from mature sectors.

Companies with high dividend yield normally don’t have the strategy to re-invest their earnings to grow strongly, but distribute a significant part of their earnings to their share holders. In addition, dividend yields for the overall markets look currently high relative to bond yields in the US as well as in Europe (see charts below). The attractiveness of dividend yields relative to bond yields is an argument in favour of investments which generate dividend yield compared to investments which generate bond yields.

“db x-trackers DJ Stoxx 600 Banks short” ETF 30% weight

The Banking sector is up 130% since 9 March, but it is still 26% below the level of 12 months ago. Over the past four weeks Banks have performed strongly, in stark contrast to our Underweight position. Several banks have reported surprisingly high Q2 earnings with a strong performance in investment banking outweighing rising losses from bad loans. Banks with positive Q2 reporting include Credit Suisse, BNP Paribas, Unicredit, Standard Chartered,
BBVA and Erste Bank.

On the other hand, UBS reported a US$1.3bn quarterly loss for Q2. The company blamed costs related to its reorganization program, including job cuts and charges to improve the bank’s debt position. UBS gave a bleak outlook, saying that the overall economic environment remains recessionary and that a sustainable recovery „is not yet visible“. Many banks also reported rising risk provisions in Q2. In its June 2009 financial stability report, the European Central Bank stated that risks the banking system still faces include ‘capital buffers that do not appear to be sufficiently large in the eyes of market participants, hard-to-value assets that have remained on balance sheets and challenging prospects for improving profitability, as well as funding structures that have become increasingly and possibly too reliant on short-term borrowing via central bank liquidity operations.’ In this context, our analysts expect the coming credit cycle downturn to be pronounced despite support for the sector, including bad bank structures.

Overall, our analysts believe that lending-focused banks in particular face challenging quarters and might opt to transfer risk assets in a move to soften Basel II pro-cyclicality on risk weights. While this eases the expected pressure on capitalization levels, it is unlikely to eliminate our concern over individual banks’ internal ability to restore capital levels and quality to an extent that we deem necessary to navigate the next couple of years.

Other sources of concern include rising corporate-default rates, the poor US commercial real estate market, falling property prices in some euro-zone countries, and economic upheaval across Central and Eastern Europe. One of the key issues facing European banks is how they will respond to increased demand for lending. During H1 2009, demand for credit fell according to the ECB lending survey, but the latest expectations are for an improvement in credit demand in Q3 2009 (see the latest ECB survey).

The need for banks to reduce leverage could also reduce new business opportunities in 2009. Our analysts see regulations as a serious threat to European banks’ being willing to restart lending. The EU Commission proposed plans to introduce paneuropean counter-cyclical provisioning to all European banks using the Spanish model, and this could put the brakes on loan growth. Admittedly, the downgrade momentum for European banks has slowed a bit, to 4.2% over the past month and to 23.1% over the past three months. But earnings uncertainty for Banks remains very high, twice as high as for the overall market. High earnings uncertainty is reflected by huge amounts of “toxic assets” on the banks’ balance sheets. Risks to our call include a continuing strong recovery in equity markets in general, a faster normalization of the banking business than expected and takeovers in the banking sector, which could drive the sector valuation further upwards.

“db x-trackers Currency valuation” ETF 20% weight

In currency markets the majority of the participants are “liquidity seekers”. “Profit seekers” are a minority in currency markets and can generate returns on the expense of the “liquidity seekers”. Profit-seekers can generate returns by buying “under-valued” currencies and shorting “over-valued” currencies. A widely used measure to determine “under-valued” and “over-valued” valuation for currencies is the concept of “Purchasing Power Parity” where “fair” exchange rates are calculated by comparing the prices of a basket of goods in different countries. The ETF “db x-trackers Currency valuation” buys each quarter the three currencies with the “lowest” valuation out of the universe of the G10 currencies and sells the three currencies with the “highest” valuation using the PPP concept. In addition, the correlation to equities and bonds is very low and therefore the currency valuation index helps to diversify our ETF portfolio.

The index is currently long in the US Dollar, New Zealand Dollar, and the British Pound whereas the index is short in the Swiss Franc, Japanese Yen and the Norwegian Krona. Risks to the investment include that currencies movements become less rational again. Especially increased uncertainty about the economic development could trigger a flight back into expensive currencies like the Swiss Franc or the Japanese YEN (for more details on the “db x-trackers Currency valuation” ETF

Trading portfolio
We also hold the “db x-trackers iBoxx Euro Sovereigns Eurozone 15+ TR Index” with 15% weight and the “IBOXX Euro Sovereigns Eurozone short” at 25% weight. The current yield of the EONIA benchmark index is very low and in our view could well remain low for some time.

Therefore we find it not attractive to shift money back into the EONIA benchmark index. The risks to these two positions are relatively low, in our view. The trading portfolio below reflects the changes discussed above. The portfolio targets absolute return and has the EONIA index as benchmark.


Source: Trading Ideas ETF: Ideas and Flows – Deutsche Bank AG

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