SPDR ETFs’ Antoine Lesne comments on upcoming ECB meeting

Mar 9th, 2016 | By | Category: ETF and Index News

The major event to watch this week will be the meeting of the Governing Council of the European Central Bank (ECB) which takes place on 10 March 2016. Investors have begun laying down tactical bets across asset markets as anticipation grows as to whether the ECB will introduce further stimulus measures into Europe.

Head of SPDR ETF sales at SSGA investigates impact of ECB meeting

The main focus of the upcoming ECB meeting will be whether the central bank extends its quantitative easing programme from EUR 60bn to EUR 80bn.

Antoine Lesne, Head of SPDR ETF Strategy & Research, EMEA, explains the major themes to be discussed and comments on where investors may find value following the possible outcomes of the meeting:

“The eurozone’s inflation rate dipping below zero has fuelled speculation more quantitative easing (QE) will come out of this week’s ECB meeting. Most commentators are expecting an extension of QE outside of the 2017 deadline; however, the focus will be on whether Draghi announces an increase in the size of the program from 60bn to 80bn euros. Hence there is the potential for market disappointment if Draghi doesn’t do ‘whatever it takes’ to feed expectations. Should this happen, it wouldn’t inevitably lead to a sell-off, but markets have been rebounding on the basis there will be more QE.

“To date, the impact of ECB quantitative easing on euro fixed income performance has been mixed. Despite negative yields, investors continue to gain exposure to fixed income ETFs for both structural and diversification reasons. Flows have remained fairly strong in the EMEA ETF euro fixed income universe with $8.5bn invested year to date, a trend we expect to continue.

“Whatever comes out of Thursday’s meeting, the key is to not panic and to remain invested in European markets. In the long-term, investors may do well to hold European dividend strategies which tend to benefit from this low yield environment. Meanwhile exposure to sectors benefiting from easier credit conditions such as European Financials may continue to be positively monitored by investors. From a bond portfolio standpoint, euro government bonds benefited from inflows positioning ahead of the meeting; peripheral spread would be expected to continue to tighten in the event of prolonged and stronger QE.”

With Lesné’s comments in mind, investors may wish to consider the following exposures:

  • The SPDR S&P Euro Dividend Aristocrats UCITS ETF (EUDI LN) tracks the S&P Euro High Yield Dividend Aristocrats Index. The methodology driving the construction of the index stipulates that constituents must have increased or maintained their dividend pay-outs for a minimum of 10 years. Furthermore, selected constituents are weighted according to their dividend yields while single issuer and sector caps of 5% and 30% respectively are applied. As of 7 March 2016, the fund had 40 holdings. The major country exposures are in France (32.3%), Germany (19.5%), the Netherlands (13.0%), Spain (10.9%) and Italy (8.7%) while the major sector exposures are in industrials (19.8%), financials (18.5%), utilities (17.1%), consumer discretionary (16.2%) and consumer staples (8.1%). The fund has a total expense ratio (TER) of 0.30%.
  • The SPDR MSCI Europe Financials UCITS ETF (FNCL LN) tracks the performance of the MSCI Europe Financials Index. The index captures large- and mid-cap representations across 15 developed market countries in Europe with all securities being classified in the financials sector as per the Global Industry Classification Standard. As of 7 March 2016, the fund has major country exposures to the United Kingdom (31.0%), France (12.8%), Switzerland (12.2%), Germany (11.9%), Spain (8.9%) and Sweden (6.9%). The TER of the fund is 0.30%.
  • SSGA recently launched a suite of ETFs targeting exposure at various segments of the euro area Treasury yield curve. They offer investors the tools to tactically position their portfolios ahead of specific shifts and twists in the curve. The funds  offer exposure to the investment grade eurozone government bond market which currently includes bonds from Austria, Belgium, Cyprus, Finland, France, Germany, Ireland, Italy, Luxembourg, Malta,Netherlands, Portugal, Slovakia, Slovenia and Spain Each fund has a TER of 0.15%. The suite includes:
    SPDR Barclays 3-7 Year Euro Corporate Bond UCITS ETF (SPPI)
    SPDR Barclays 7+ Year Euro Corporate Bond UCITS ETF (SPPL)
    SPDR Barclays 5-7 Year Euro Government Bond UCITS ETF (SYB6)
    SPDR Barclays 7-10 Year Euro Government Bond UCITS ETF (SYB7)
    SPDR Barclays 10+ Year Euro Government Bond UCITS ETF (SYBV)
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