European ETF trading commentary for the week ending 27 August 2010, provided by LaBranche Structured Products Europe (LSPE).

Equity markets continued to deteriorate last week in the lead-up to a busy period for key US data (culminating with non-farm payrolls this Friday), while investors slowly return from their holidays. LSPE’s primary market volumes were at the same level as the week before, with redemptions slightly outweighing creations.

Our secondary ETF market volumes were reasonably strong on the back of rather thin underlying markets, with funds such as the db x-trackers MSCI Europe TR (Xetra: XMEU) and db x-trackers Emerging Markets (Xetra: XMEM) trading well above their average on-exchange volumes.

Surprisingly, some of the biggest redemptions reported by both iShares and Lyxor were in government bond ETFs across the board. From the iShares FTSE Gilts UK 0-5 (LSE: IGLS) to TIPS trackers to German government bond ETFs, no fund was spared. Investors are clearly still leaving safer assets in favour of better-performing and higher-risk products such as corporate bond trackers, including the iShares Markit iBoxx Euro Corporate Bond (LSE: IBCX) and iShares Markit iBoxx $ Corporate Bond (LSE: LQDE).

Things were not so clear-cut for LSPE as a decent portion of our creations was in long-term bond ETFs such as the iShares Barclays Capital Euro Government Bond 15-30 (LSE: IBGL) and Lyxor ETF EuroMTS 15+Y (NYSE Euronext: MTF). However, we did see substantial redemptions in short-term bond funds such as IGLS and the iShares Barclays Capital Euro Government Bond 3-5 (LSE: IBGX), and in the iShares Barclays Capital $ TIPS (LSE: ITPS), which together accounted for 44% of our redemption orders.

We registered strong demand for commodities ETPs, including both crude oil ETCs and the ETFS Leveraged Crude Oil ETC (LSE: LOIL). We continued to see strong buyers in most oil and gas ETCs, such as the ETFS Natural Gas ETC (LSE: NGAS), for the third consecutive week.

We saw strong creations in emerging markets ETFs, such as those tracking the MSCI Taiwan index, and in the iShares FTSE/XINHUA China 25 (LSE: FXC) and Lyxor ETF China Enterprise HSC (NYSE Euronext: ASI) funds, which accounted for over 50% of our creation orders. However, after five weeks of strong investment in the iShares MSCI Emerging Markets (LSE: IEEM), Lyxor ETF Russia (NYSE Euronext: RUS) and iShares MSCI Japan (LSE: IJPN) ETFs, we began to see large sellers of these funds last week.

We witnessed decent buyers of the iShares DAX DE ETF (Xetra: DAXEX), in which iShares reported its largest creations last week (€126 million). Meanwhile, we saw sellers of ETFs tracking the industrial goods (SXNP) and media (SXMP) sectors, but buyers of financials (SXFP).

Finally, please remember that US markets will be closed next Monday 6 September for Labour Day.

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.