Index providers MSCI and S&P Dow Jones Indices have created a new sector for real estate within the Global Industry Classification Standard (GICS) framework, elevating its position from an Industry Group within the Financials sector. The creation of this new sector will affect investors in Financials sector ETFs linked to MSCI and S&P DJI indices globally, with changes scheduled for 16 September. Different approaches are being taken by ETF issuers in how they deal with the reclassification.

European index provider Stoxx has announced three constituent changes to its flagship Euro Stoxx 50 Index. The substitutions, which come into effect on 19 September 2016, will result in portfolio rebalances for the almost 50 exchange-traded funds that track the index, such as the €6.5bn Lyxor Euro Stoxx 50 UCITS ETF. The Euro Stoxx 50 is the most widely followed gauge of the eurozone equity market.

The case for raising US interest rates has “strengthened”, the chairwoman of the Federal Reserve has said. Speaking at the Fed’s annual meeting at Jackson Hole, Wyoming, Janet Yellen was cautiously positive on the US economy and said “the case for an increase in the federal funds rate has strengthened in recent months”. Yellen’s comments have not come as much of a surprise, however, and ETFs were fairly quiet following the speech, with few major moves directly triggered by her comments. ETFs tracking the US utilities sector, such as SSGA’s $8 billion NYSE-listed Utilities Select Sector SPDR ETF (XLU), were perhaps the most obvious casualties of the speech, falling around 2.5%.

With negative interest rate policies being adopted by several central banks in the developed world, investors are beginning to turn their attention back to emerging market debt (EMD) in a hunt for yield. Already this year $5.7bn has flowed into EMEA-domiciled EMD ETFs. Antoine Lesné, Head of SPDR ETF Strategy & Research EMEA at SSGA, believes the asset class may offer an attractive return thanks to a healthy real yield differential, improving fundamentals and supportive monetary policies.

The research team at London-based ETF provider Source favours European equities over those of the US and holds a maximum overweight position in the Eurozone in its multi-asset model portfolio. Although the team is neutral on equities in general, it believes the Eurozone economy is still accelerating and valuations look attractive. Andras Vig, Director in the Source Research team, commented: “While there are pockets of risk in Europe – mostly in banks – we believe the prevailing negative sentiment is not justified.”

By Joachim Fels, PIMCO’s global economic advisor
From negative interest rates to Brexit to the Fed, investors have understandably been preoccupied with matters at hand lately. But it may be a good time to shift focus and look longer term: Over the past few years, emerging markets (EM) have been quietly undergoing positive, fundamental change that we think will likely increase value in the asset class.

The Shenzhen-Hong Kong Connect, a programme linking the Shenzhen and Hong Kong stock exchanges, has been given the green light to launch in December. The venture follows the successful launch of the Shanghai-Hong Kong Connect programme in November 2014, but will be the first of the two programmes to offer investors access to exchange-traded funds. Limits or quotas on how much foreigners can invest have also been lifted, thereby removing an important obstacle to the inclusion of China A-Shares in benchmark indices from MSCI and FTSE Russell – a move which would impact some major ETF allocations.

New research from exchange-traded fund issuer Source highlights the benefits of commodity ETFs that incorporate a dynamic trading strategy to manage exposure across the futures curve compared to those that are restricted to trading front-month contracts. According to the research, ETFs linked to so-called “second generation” indices, which deploy roll-optimised futures trading approaches, have delivered superior risk-adjusted returns compared to their “first generation” counterparts. Chris Mellor, Executive Director at Source, said: “Second-generation commodity indices generally offer better returns with a lower volatility than first-generation indices”.

Edinburgh-based pensions, insurance and investment company Aegon UK, part of the Dutch-owned group, has announced its acquisition of Cofunds, a leading UK investment platform, for £140m. Aegon has stated its intention to ‘enhance’ the platform through offering a wider choice of investments, which includes, for the first time, exchange-traded funds (ETFs). With £77.5bn of assets on the platform, the accession of ETFs is likely to result in greater adoption of ETFs among independent financial advisors (IFAs) who use the platform, many of whom have complained at the lack of access to ETFs.

Assets in smart beta exchange-traded funds hit an all-time high of $429bn at the end of July, according to data from ETF Consultancy ETFGI, and it is being supported by new products launched into the European market on an almost a weekly basis. Driving the uptake in smart beta ETFs are investors looking for risk-reducing strategies, according to new research from Morningstar. These ETFs attracted €2.16bn of net inflows between April and June, making up over one quarter – 27% – of the total inflows for the European ETF market. Morningstar’s research names four of the most “interesting” smart beta product launches this year.