European ETF trading commentary for the week ending 8 January 2009, provided by LaBranche Structured Products Europe (LSPE).

In the primary market, LSPE created healthy volumes of ETFs during the course of last week, the first of the year. Our creation/redemption ratio was 5:1 in favour of creations and the ratio of on-screen to OTC trading was a solid 10:1. There were good two-way trading volumes overall on-screen (IU.eu comment – on-exchange, using the exchanges’ screen-based trading systems, as opposed to trading conducted on a bilateral basis, “over the counter” or “OTC”), particularly in emerging market ETFs.

LSPE bought from the market the iShares MSCI AC Far East ETF (LSE: IFFF) in decent size. We sold large blocks of the db x-trackers MSCI Emerging Markets TRN ETF (LSE: XMEM), going short two million shares on-exchange to meet investor demand.

Bearing in mind that the Russian equity market was closed for two days last week, we saw extraordinary two-way volumes in the Lyxor ETF Russia (NYSE Euronext: RUS FP), with a skew towards investor purchases.  The market gained 9.1% over the period. Our short position in that fund reached 3 million shares as we met investor demand, while we created well over 1 million shares as well.  Russia outperformed other emerging markets such as China last year, no doubt partly due to the heavy oil and gas exposure in the relevant equity index (up to three quarters of the fund in Russia but only 11-12% in popular Chinese indices).

However the iShares DJ Stoxx 600 oil & gas (DE) sector ETF (XETRA: SXEPEX) gained a little less (4%) on the week.

Brazilian equity ETFs were up around 3.5% over the period. Broad-based Latin America ETFs did slightly better - the Lyxor ETF LATAM (NYSE Euronext: LTM FP) was up 4.2% over the week - with decent buy orders and good on screen volumes.

In a European equity market that gained around 2% there was profit-taking in ETFs based on the DJ Stoxx 600 telecoms sector (SXKP) Telecoms (down 3% on the week).  Meanwhile ETFs based on the utilities sector (SX8P) gained more than 4.4% with very good on-screen trading volumes, following investment bank recommendations to buy the underlying stocks. ETFs tracking the financials and banks sectors (SXFP and SX7P) also performed well over the week, with gains of 3% and 6.5%, respectively.

One final thing of note: we sold large amounts of dividend-weighted ETFs on US and European stocks, such as the Lyxor ETF Select Dividend 30 (NYSE Euronext: SEL FP, +3.7% on the week), the iShares DJ Stoxx Select Dividend 30 ETF (XETRA: SD3PEX, +4.2%), the iShares DJ Euro Stoxx Select Dividend 30 ETF (XETRA: SD3EEX, +4.0%) and the iShares DJ Stoxx US Select Dividend ETF (XETRA: DJDVPEX, marginally down on the week).  Demand for these funds is linked to the dividend payment season, which is about to restart.

This report is not an offer to sell or a solicitation of any investment products or other financial product or service, an official confirmation of any transaction, or an official statement of LSPE.