The unprovoked invasion of Ukraine by Russia prompted what some described as a ‘black swan’ moment for markets, however, in few places was the attack felt more acutely than in commodities.
Brent Crude broke through the psychologically significant $100 mark for the first time since 2014, up as high as $105 a barrel.
The introduction of sanctions by several countries will effectively put Russia in economic isolation, a fact reflected in the price of benchmark Dutch gas futures booming 62% in a day and German power for March jumping 58% as the country’s government suspended the certification of the Nord Stream 2 pipeline.
The scale of Russian aggression played out many analysts’ worst-case scenarios, with the effect being a crushing start to trading for equities on Thursday. While the S&P 500 fell 1.7%, European equities were the main casualties, with the FTSE 100 dropping 3.9%, the DAX down as much as 5.4%, the CAC shedding 4.9% and the MOEX Russia index falling 45.2%.
Alarm bells were also ringing for key volatility indicators, with the CBOE’s VIX volatility index surging 42.9% this week while gold hit a 15-month high, rising 5.9% in the last 30 days – prompting some analysts to believe it will not be long until we hit the significant $2,000 mark.
While many equity indices began Friday on a brighter footing, this likely owes to the lack of new headlines to trump yesterday’s shock.
The effects of the conflict and the sanctions imposed on Russia will nonetheless be reflected in upcoming inflation numbers. Aside from energy, Russia and Ukraine combined account for 29% of global wheat supply, meaning consumers will be hit hard by increases in the cost of food. Russian citizens, especially, will face hardship as their livelihoods are affected by their leader’s decision to escalate conflict.
Retail access to passives improves
In brighter news, retail investors gained new ways of accessing diversified index fund funds via investment apps this week.
Moneybox’s UK retail users will now be able to gain exposure to 12 broad market and thematic ETFs, as the platform introduced products from BlackRock, Legal & General Investment Management, UBS Asset Management and Vanguard.
In Germany, Vanguard launched a new platform for private investors accessible in app form on iOS and Android. The Anglaeservice surveys clients on their level of risk appetite and then creates a blended equity and fixed income portfolio based on index funds, designed for long-term investment.
However, the week also contained a reminder that even in the seemingly low-cost world of index fund investment, there are still sharks looking for unwitting investors. Two simple FTSE 100 index trackers from popular banks, Halifax and Lloyds, were exposed for charging at least 1% fees per year, with the latter also carrying a bid-ask spread of more than 5%. Combined, the two products housed more than $1bn in assets under management (AUM).
Meanwhile, the FTSE 100 ETFs from BlackRock and HSBC charge fees of just 0.07%.
Few entry points
Finally, fixed-income specialists Tabula closed their debut product, the Tabula European IG Performance Credit UCITS ETF (TCEP), this week which debuted in September 2018.
The product changed index last year in an effort to garner more investor support but will now close its doors in March, with only€5.4mAUM.
Despite winning ETF Stream’s ETF of the Year in 2021 with its Tabula US Enhanced Inflation UCITS ETF (TINF), the issuer still manages just $700m across their product range – a reminder even those with innovative ways of addressing an exposure can find it hard to carve a niche in a market where scale matters.
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