20 ★ Friday6 March 2020

Salim Ramji

Markets Insight

Travel stockstumbled afterSouthwest
Airlines arned of a drop in demand andw
a cruise ship operated byCarnival asw
quarantined following California’s first
coronavirus death.
Royal Caribbean nda Norwegian
Cruise Line lumped as the outlooks
darkened for wave season — the period
between January and March when ship
operators race to fill capacity for their
summer sailings.
Airlines fellwhen Southwest cut first-
quarter targets after experiencing a
“significant decline” in customer demand
and increased trip cancellations.
American Airlines as the sharpestw
faller after Bank of America downgraded
the carrier to “underperform”, sayingdebt
and operational leverage left it less able
to cope with a recession.
Bleach makerClorox ose after the USr
Environmental Protection Agency cited
its disinfectants on a list of 86 products
registered for use against Covid-19.
Marathon Petroleum lipped ons
reports thatSeven & i Holdings f Japan,o
the 7-Eleven owner, had scrapped a
proposed $22bn deal to buy the
company’s Speedway gas station chain.
Kroger ed the S&P 500 gainers afterl
better than expected fourth-quarter
results from the grocer.Bryce Elder

Wall Street Eurozone London

Continental lipped to a seven-year lows

after guiding lower current year forecasts.

Management forecast margins would

weaken again at both its tyre andcar

parts divisions in 2020 as coronavirus

disruptionadded tocost inflation.

Analysts read the guidance as

suggesting consensus earnings forecasts

were too high by nearly 20 per cent.

Air France-KLM nda Dufry, the duty-

free shop owner, followed US peers down

as Flybe’s failure pushed the cost of

insuring debt against default sharply

higher across the travel sector.

German broadcasterProSiebenSat.

dropped on weak 2020 guidance.

Tracker fund demand helped lift

HelloFresh fter the recipe box deliverya

group was added to Germany’s mid-cap

MDAX index.

A JPMorgan Cazenove upgrade to

“overweight” also helped with the broker

encouraged that online grocery orders

jumped in China after the virus outbreak.

Hugo Boss allied on a brighter thanr

expected outlook.

The fashion label, which had already

pre-announced headline full-year results,

targeted 2020 revenue growth of up to 2

per cent including coronavirus effects,

which have closed half of its Chinese

outlets.Bryce Elder

British American Tobacco tood out on as

tough day for UK stocks after Bernstein

Research turned positive.

Jack Bowles, BAT’s new chief executive,

has made rapid progress in restructuring

and “future-proofing” its business with

investments in next-generation products,

Bernstein said.

With BAT forecast to generate £31bn of

free cash flow over the next four years,

the investment case can switch from

being centred on debt to equity, and het

stock has the potential to double, the

broker said.

ITV ed the FTSE 100 fallers afterl

warning that advertising sales for April

were sharply lower as travel companies

cut budgets.

Cineworld lid following the delay ofs

No Time To Die, the latest Bond movie,

whose planned release was moved from

April to November.

More studios were likely to push back

the release of key titles, said Peel Hunt,

which cut Cineworld off its “buy” list.

It said the company would have trouble

backing out of a $2.1bn purchase of

Cineplex f Canada but did not see anyo

immediate threat to debt covenants.

Capita lumped after the outsourcers

said a restructuring would cost more than

thought.Bryce Elder

3 Under-pressure airlines drag European
stocks down
3 Yields on US and UK government
bonds hit record lows
3 Brent crude slides as Opec discusses
plans for output cuts

US and European stocks failed to cling on
to recent gains yesterday, despite
governments rolling out further large-
scale measures aimed at tackling the
coronavirus outbreak.
The US House of Representatives and
IMF on Wednesday approved $8bn and
$50bn packages, respectively, intended
to combat the spread of the contagion.
But the steady stream of discouraging
news from companies spelling out virus-
related disruption eft investorsl
struggling “to find the correct balance
between the need to de-risk on the back
of virus-related fundamental concerns
versus the growing appeal of risky
assets”, said analysts at Rabobank.
The region-wide Stoxx Europe 600
index fell 1.4 per cent with airlines among
the weakest performers.
The collapse of the UK’sFlybe urnedt
attention to other carriers. Europe’s travel
and leisure sector fell 2.8 per cent with
Ryanair own more than 5 per cent andd
Air France-KLM umbling 11 per cent.t
Finnair, Finland’s flag carrier, yesterday
announced that it had cancelled 1,
flights while America’sSouthwest
Airlines, the world’s biggest low-cost

carrier, revealed it expected a $200m-

$300m hit to first-quarter core sales.

The global MSCI ACWI Airlines index is

down more than 20 per cent this year,

underperforming the 5 per cent slide in

the MSCI’s broader benchmark.

On Wall Street, the S&P 500 index was

down 3.3 per cent at midday in New York

while the tech-heavy Nasdaq Composite

index fell 2.2 per cent.

In a sign of investor nerves, haven

assets rallied.

The yields on 10-year US and UK

government bonds hit all-time lows with

Treasuries touching 0.90 per cent and

gilts tumbling to 0.33 per cent.

Gold, meanwhile, climbed almost 2 per

cent to $1,666 an ounce.

“Gold and US T-bills still offer

protection from the financial and

economic effects of the coronavirus,” said

Luca Paolini, chief strategist at Pictet

Asset Management.

Brent crude, the global benchmark, slid

1.3 per cent to $50.45 a barrel while Opec

held discussions with Russia over a

potential cut to global oil output of 1.5m

barrels a day.Ray Douglas

What you need to know

Plummeting passenger numbers knock travel companies

Source: Bloomberg

Indices rebased









Mar  Mar



Stoxx  Travel & Leisure sector

Stoxx Europe  index

The day in the markets

Markets update

US Eurozone Japan UK China Brazil
Stocks S&P 500 Eurofirst 300 Nikkei 225 FTSE100 Shanghai Comp Bovespa
Level 3056.60 1488.31 21329.12 6705.43 3071.68 104496.
% change on day -2.35 -1.40 1.09 -1.62 1.99 -2.
Currency $ index (DXY) $ per € Yen per $ $ per £ Rmb per $ Real per $
Level 96.955 1.119 106.670 1.292 6.942 4.
% change on day -0.391 0.449 -0.578 0.780 0.124 2.
Govt. bonds 10-year Treasury 10-year Bund 10-year JGB 10-year Gilt 10-year bond 10-year bond
Yield 0.927 -0.690 -0.116 0.332 2.740 6.
Basis point change on day -2.980 -4.800 2.950 -3.600 0.000 14.
World index, CommodsFTSE All-World Oil - Brent Oil - WTI Gold Silver Metals (LMEX)
Level 348.15 50.81 46.65 1641.85 17.25 2633.
% change on day -1.55 -1.51 -1.14 1.63 2.62 0.
Yesterday's close apart from: Currencies = 16:00 GMT; S&P, Bovespa, All World, Oil = 17:00 GMT; Gold, Silver = London pm fix. Bond data supplied by Tullett Prebon.

Main equity markets

S&P 500 index Eurofirst 300 index FTSE 100 index

| |||||| ||||||||| ||||

Jan 2020 Mar

2880

3040

3200

3360

3520

| |||||||||||||||||||

Jan 2020 Mar

1440

1520

1600

1680

1760

| ||||| |||||||| ||||||

Jan 2020 Mar

6400

7040

7680

Biggest movers
% US Eurozone UK

Ups

Kroger Co (the) 7.

Clorox 2.

Humana 1.

Marketaxess Holdings 1.

Quest Diagnostics 1.

Hugo Boss 2.

Pernod Ricard 1.

Beiersdorf 1.

Deutsche Boerse 1.

Exor 1.

Admiral 2.
British American Tobacco 1.
Hikma Pharmaceuticals 0.
Vodafone 0.
Imperial Brands 0.
%

Downs

Royal Caribbean Cruises Ltd -15.

Norwegian Cruise Line Holdings Ltd -12.

Carnival -12.

Marathon Petroleum -9.

Alaska Air -9.

Prices taken at 17:00 GMT

Continental -12.

Thyssenkrupp -7.

Renault -7.

Henkel -6.

Oci -6.

Based on the constituents of the FTSE Eurofirst 300 Eurozone

Itv -12.

Evraz -11.

Carnival -7.

Tui Ag -7.

Rio Tinto -7.

All data provided by Morningstar unless otherwise noted.

T

he dominant narrative

surrounding exchange

traded funds over their

30-year history has been a

kind of active-versus-in-

dexing derby, in which investors must

chooseoneortheother.

Butthatisthewrongway flookingato

it.Thesedays,thereisaquietrevolution

under way in which index-tracking

ETFs are used within actively managed

portfolios.

In an ironic twist, it is active fund

managers who are among the fastest

growingsegmentsamongusersofETFs.

The world’s first ETF was created in

1990inCanada,launchedinMarchwith

little fanfare on the Toronto Stock

Exchange, far from financial hubs on

WallStreetortheCity.

They moved next to bourses across

Europe and Asia and now reflect the

preferences of hundreds of millions of

investors globally, having amassed

aboutUS$6tnoftheirassets.

ETFs helped drive management fees

lower across the industry but their

impactwentbeyondcosts.

First, they allowed investors to

unbundle index and active returns eas-

ily and transparently. More recently,

they have enabled them to express stra-

tegicand“factor”allocations(thatis,set

according to broad and persistent driv-

ersofreturns)withgreaterprecision.

There has been a virtuous cycle at

play over the years that underscored

and amplified the versatility of ETFs.

Widespreadadoptionsincethefinancial

crisis has led to more ETF buyers and

sellers, translating into lower trading

costsandmoreefficientexecutions.

Professional investors have discov-

ered that ETFs are often preferable to

dealing directly with individual

securities in many markets, especially

for positions of a tactical nature. Within

emerging market debt, for example, we

estimate that buying hundreds of bonds

individually can cost 40 times more

than buying a representative ETF with

similarmarketexposure.

To respond to this demand, market

participants that facilitate ETF opera-

tions developed sophisticated pricing

modelsandbondtradingtechnologies.

The result is that ETFs are helping to

modernise debt markets by fostering

liquidity andprice discovery, both in

ETFsandtheircomponentbonds.

Moreover, the transparency of on-

exchangetradinghasprovenvaluableto

active investors during times of stress,

since ETFs help establish real-time

prices when trading in the underlying

market is impaired. This was true in the

2008 financial crisis, the 2013 “taper

tantrum” and in late 2018 when the

marketworriedaboutinterestrates.

In December of 2018, a very volatile

period, trading of US high-yield corpo-

rate bond ETFs surged to a record and

they became instruments of price

discovery.

At the same time, volumes in individ-

ual high-yield bonds plunged to a four-

year low in the less transparent over-

the-counter market — where price quo-

tationsareoftennotreadilyavailable.

More recently, market volatility

linked to the coronavirus offered exam-

ples of how ETFs are go-to vehicles for

transferring risk. In January, trading

volumes in ETFs linked to mainland

Chinese stocks surged, for example,

while exchanges in Shanghai and Shen-

zhenwereclosedforseveraldays.

WhentradingresumedinChina,local

stock prices opened within a few basis

points of where relevant ETFs had

closed the previous day. And last week,

during one of the biggest market sell-

offs since 2008, ETFs set record trading

volumesaroundtheworldwhileprovid-

ingliquidityandpricediscovery.

Discretionary wealth managers rea

taking the lead when it comes to using

ETFs within actively managed portfo-

lios. As fees and commissions come

down, and demands mount for greater

transparency and persistent returns,

discretionary wealth managers are

using ETFs not only for strategic alloca-

tions but in seeking excess returns

through factors such as “quality” and

“minimumvolatility”.

Yes, there is still some friction

between the worlds of active and index.

Growth in ETFs has displaced the “star”

manager system. It is also true that, as

ETFs disrupted entrenched business

models, they facedscrutiny rom tradi-f

tional active managers, often connected

to their impact on markets. There was

plenty of scornful speculation from

fundmanagerswiththemosttolose.

But the great horse race between the

twoisover.Whatbegan30yearsagoasa

single obscure product is today best

understood as a technology that can

give investors greater flexibility, lower

costsandtheconvenienceofaccess.

This evolution in ETFs ill encouragew

healthy and transparent financial mar-

kets and can help improve outcomes for

investorsinthedecadesahead.

Salim Ramji is the global head of iShares

and index investments at BlackRock

Active managers

embrace ETFs as

great race is over

The world’s first ETF was

created in 1990 in Canada

with little fanfare on the

Toronto Stock Exchange

MARCH 6 2020 Section:Markets Time: 3/20205/ - 18:52 User:stephen.smith Page Name:MARKETS2, Part,Page,Edition:EUR , 20, 1