ETFs: "No panic selling"

ETFs have not been spared from the bank quake either, with bank trackers in particular losing heavily. However, many are apparently taking advantage of the low prices to enter the market. Also in demand: gold and crypto trackers

21 March 2023. Frankfurt (Börse Frankfurt). There is still no real calm on the stock markets - despite the takeover of Credit Suisse by its Swiss competitor UBS, which was agreed over the weekend. ETF traders have a lot to do. "Today is unusually busy," reports Holger Heinrich from Baader Bank. But there can be no talk of a sell-off. "In the past day, there has been twice as much buying as selling with rising turnover compared to previous weeks."

"The uncertainty is still high," explains Torben Bendt of Lang & Schwarz. However, he does not see panic selling. In the major indexes such as the S&P 500, things are going surprisingly normally, he says. "And bank ETFs are rather bought."

The stock markets are clearly on the road to recovery on Tuesday morning. The DAX, which was still at 14,600 points yesterday Monday morning, had already recovered during the day. At noon on Tuesday, the index stands at 15,200 points.

Heavy losses for bank trackers

The crisis is hitting bank trackers particularly hard. The heavily traded iShares Euro Stoxx Banks 30-15 (<DE0006289309Y), for example, lost 19 percent within a few days, and the iShares Stoxx Europe 600 Banks (DE000A0F5UJ7) 16 percent. Recently, the prices have recovered, since the beginning of the year is even still a small plus.

For bank ETFs, Bendt reports a lot of turnover. "It is mainly purchases - not only since this week." For example, he is buying the iShares Stoxx Europe 600 Banks and the Lyxor Euro Stoxx Banks (LU1829219390), but also likes leveraged ETNs such as the WisdomTree Euro Stoxx Banks 3x Daily Leveraged (IE00BLS09N40). "There's a lot of speculation there."

U.S. bank ETFs are also being bought a lot, specifically the iShares S&P 500 Financials Sector (IE00B4JNQZ49), he said. The failure of California's Silicon Valley Bank had also stoked fears in the U.S. of a new financial crisis. Despite a major bailout by major U.S. banks, shares of U.S. regional bank First Republic had again plunged dramatically yesterday.

"First, second and third tier in demand"

Market-wide equity ETFs continue to be in demand. Heinrich points to the difference in stock market performance between Europe and the U.S. "While we lost up to 4 percent in Europe, there were gains in the U.S." In European equities, he says, the first, second and third rows are in demand. As examples, he cites Lyxor 1 Stoxx Europe 600 ESG (DE000ETF9603) and Deka MSCI Europe (DE000ETFL292) from the first series, iShares Stoxx Europe Mid 200 (<DE000593399>) from the second, and Lyxor MSCI EMU Small Cap (LU1598689153) from the third.

As far as U.S. trackers are concerned, Baader Bank customers rely on classic S&P 500 trackers, for example from UBS (IE00B7K93397), but also small caps with ESG filter (IE00B3VWM098). MSCI USA Minimum Volatility ETFs (IE00BKVL7331) and leveraged ETNs such as WisdomTree S&P 500 3x Daily Leveraged (IE00B7Y34M31) would also do well.

Coco bond discussion

Turnover is also high in bond ETFs, traders report. "A lot is going on in products that track bank bonds," notes Bendt. But also trading briskly on the Frankfurt Stock Exchange today is the iShares EUR Corp Bond ex-Financials 1-5yr ESG (IE00B4L5ZY03). This refers to European corporate bonds and explicitly excludes securities issued by financial institutions.

Incidentally, ETFs that track so-called coco bonds (contingent convertible bonds), such as those from WisdomTree (IE00BZ0XVF52, <IE00BFNN236>), lost heavily. The trigger here is also the demise of Credit Suisse, as holders of the $17 billion worth of low-ranking debt are walking away empty-handed. "One thing is unusual this time: shareholders, who normally still rank among the lowest-tier bondholders, can save part of the capital," comments Lukas Strobl in the Morningstar article "Are stocks better than CoCos now?" www.morningstar.de/de/news/233177/das-seltsame-ende-der-credit-suisse-sind-aktien-jetzt-besser-als-cocos.aspx. CoCo bonds, or AT1 bonds, are long-dated, subordinated bonds issued by financial institutions, usually with a fixed coupon, that automatically convert to equity upon a certain event. The asset class was created after the financial crisis so that investors - not taxpayers - would pay for the costs of insolvency.

Wanted: Gold and Bitcoin

According to Bendt, purchases of gold ETCs (DE000A2T0VU5, JE00B8DFY052) are conspicuously high. In the wake of the crisis, the price of gold had climbed above $2,000 an ounce for the first time in a year. At noon on Tuesday, it is still 1,966 US dollars.

Firmly also cryptocurrencies show. The Bitcoin has risen to 28,034 U.S. dollars, since the beginning of the year, this results in a plus of almost 70 percent. A lot is happening on the Frankfurt Stock Exchange in ETNs such as the ETC Group Physical Bitcoin (DE000A27Z304), the VanEck Bitcoin (DE000A28M8D0) and the 21Shares Bitcoin (CH0454664001). Bendt reports steady trading. "There has been no particular increase in demand for crypto ETNs."