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James Williams, Hedgeweek

UCITS attracted EUR13billion in December… investment-grade credit ETFs see continued favour among investors…

ETF flows are surging in credit, according to the latest Bank of America Merrill Lynch “Follow the Flow” global research report. So far this year, there has been USD4billion of inflows into investment grade credit compared to USD2.4billion for high-yield.

Investors seem to be reverting out of emerging market debt, with USD1.4billion of outflows recorded last week. The report notes that since last May, the cumulative outflow for EM debt funds has been almost USD44.5billion. Last week, high-grade funds attracted USD603million marking the eighth consecutive week of inflows. High-yield funds attracted USD291million last week. The report noted: “Credit flows were again concentrated in mid-term funds, with short-term and long-term funds seeing only very light changes. Inflows into credit ETFs were solid last week; the inflow into HY ETF funds was the 23rd in a row and the 6th for IG ETFs. Leveraged loan funds continued to see inflows over the last week, though the pace has slowed a bit lately.”
This week (12 February 2014) saw the commencement of reporting on financial derivative instruments (FDIs) to trade repositories under the European Market Infrastructure Regulation, known as EMIR. The reporting applies to all financial counterparties and non-financial counterparties and as such will apply to alternative UCITS funds that trade in FDIs.
EMIR sets out the minimum details that should be reported to a trade repository in relation to FDIs such as the asset class, notional amount, economic exposure, currency and maturity date of the derivative contract, reported JDSupra. UCITS will be able to delegate their EMIR reporting obligations to a third party. Alternatively, they may arrange for a counterparty to report on the FDI positions instead. However, the UCITS remains liable for compliance with EMIR reporting and will be held accountable in the result of misreporting by the third party to the respective trade repository.
UCITS attracted EUR13billion of net inflows in December according to the latest industry report by the European Fund and Asset Management Association (EFAMA). The drop came on the back of large net outflows from money market funds and net withdrawals from bond funds during the month.

Long-term UCITS (UCITS excluding money market funds) registered increased net sales of EUR31billion, compared to EUR21billion in November. 

Net sales of equity funds totalled EUR20bn, up from EUR10bn in November. Net sales of bond funds returned to negative territory in December with net outflows of EUR6bn compared to net inflows of EUR6bn in the previous month. Money market funds registered large net outflows of EUR19bn, which can be explained by cyclical end-year withdrawals.

Total net assets of UCITS increased 0.1 per cent in December to EUR6.92trillion.
Peter De Proft, director general, said: "Overall, 2013 was another good year for the European investment fund industry, thanks to increased investor optimism amid encouraging economic data and rising stock markets.
“On the whole, 2013 saw a strong acceleration in the investor demand for equity and balanced funds.  This happened despite highly volatile stock markets during the first half of the year.  Bond funds continued to attract net new money, albeit significantly less than in 2012 because rising long-term interest rates and persistent uncertainty about bond market developments caused a significant slowdown of investor demand.  On the other hand, 2013 was another difficult year for money market funds as historically low levels of short-term interest rates reduced very much the attractiveness of this fund type."
Lyxor this week extended its range of emerging market ETFs with three new products. The Lyxor UCITS ETF MSCI EM Beyond BRIC (BBEM) is linked to the MSCI EM Beyond BRIC Index, which targets stocks in fast-growing non-BRIC markets. The Lyxor UCITS ETF MSCI Select OECD Emerging Market GDP (LEMO) is the first ETF to track the MSCI Select OECD Emerging Markets GDP Weighted Index which gives investors exposure to countries belonging to the Organisation for Economic Co-operation and Development. The index tracked by this ETF has been constructed using a weighting methodology whereby each OECD country is weighted based on GDP data rather than the size of its equity market.
The third ETF, Lyxor UCITS ETF MSCI Mexico, tracks the MSCI Mexico Index. 
All three ETFs have been listed on the NYSE Euronext Paris. 

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