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Euro Pacific Advisors’ Portfolio Commentary: Q2 2017

euro pacific advisors fund manager portfolio commentary

Below is a quarterly update of Euro Pacific Bank’s mutual fund and separately managed account positioning, related market commentary, and outlook.

United States

US earnings season is positive and macroeconomic data indicating modest growth, but prospects for tax reform and fiscal boosts are diminishing and political risk is increasing.

United Kingdom

Recent data has softened concerns around the growth/inflation trade-off for the Bank of England. Potential of an imminent rate rise has faded. With growth forecasts weakening, we do not expect Bank of England tightening until Brexit risks have been reduced.

Europe

After a good run, European equities are becoming vulnerable to negative data surprises, although the euro looks set to run again after recent pullback.

World

Equity market volume globally yet to pick up, as risks remain.

Continued strong performance from our India shares in past two months but we are easing off this week and are looking to take profits on Tactical exposure replacing it with Japan exposure. We will retain India exposure in the Core component of the strategies.

Portfolio Actions

We will adjust the strategies to reflect our market views over the next two weeks. In summary, the main changes are:

An increase in European exposure
An increase in Japanese equities
A reduction in UK exposure
A reduction in Indian exposure

Regards,

Euro Pacific Advisors Management Team

August 2017 New Products & Platform Updates

New E-mini Russell 2000 Contract Options on CME

On 10 July 2017, the world’s largest derivatives marketplace, the CME Group, launched futures and options on the Russell 2000® Index. This Russell index offers access to US domestic companies with market capitalization of between 50M-10B.

The respective futures and options have traded on the ICE exchange since 2007 but are now returning to CME. The futures will be listed with quarterly contracts, and the September (RTYU7) and December (RTYZ7) ones are already available on GTS.

Introducing RANsquawk news feed

You can look forward to even more real-time FX news on the trading platforms, thanks to our latest agreement with FX news provider RANsquawk offering a filtered scrolling headline feed that comprises market relevant news, flow and commentary.

RANsquawk offers comprehensive text headlines for macro events in FX space. This service covers all G20 economic releases, central bank speakers and FX news for major currency pairs and crosses: EURUSD, USDJPY, USDCHF and GBPUSD.

Other currencies covered include AUD, NZD, CNY, NOK, SEK, INR, KRW, TRY, RUB, BRL and any currency in focus and affecting the wider market.

RANsquawk covers sovereign order flow, option barriers and expiries. Key levels in focus by FX desks are also included in the coverage of important European bond auctions and yield movement.

New regulatory requirement (BaFIN) for German domiciled retail clients

From 10 August 2017 the German Federal Financial Authority (BaFin) will introduce new regulatory requirements for German domiciled clients, which require that all trading accounts be converted to Limited Risk.

As a result, several notable updates to your trading account will occur in August. These are listed below.

August 4th 2017:

You will no longer be able to use positions in Stocks, ETFs and Bonds as collateral for margin trading, i.e. haircut of 100% will apply.

August 10th 2017:

Your account will automatically be converted to a Limited Risk Account which means that there will be no additional payments obligation, i.e. maximum loss can’t exceed your deposit.
Margin Requirements on FX and CFD instruments will depend on your Net Equity For Margin (NEFM), i.e. your Account Value less the value of Stocks, ETFs and Bonds positions;
- NEFM below EUR 100,000: No changes to margin requirements
- NEFM above EUR 100,000: Margin requirements will increase by a factor of 2 compared to standard margin requirements
Stop-Out procedures are initiated at Margin Utilization levels above 100%

If you have any questions about the transition to your Limited Risk Account please do not hesitate to contact us through the usual channels, or email us at [email protected].

Complaints

If you as a client or a prospective client of Euro Pacific Bank Intl Inc. have raised a question or an issue with Euro Pacific Intl Bank Inc. for instance with your account manager or another employee of Euro Pacific Intl Bank Inc. without receiving a satisfactory answer you may file a complaint with Euro Pacific Bank Intl Inc.

Please contact us in writing by using the following address:

Attn: Complaints
Euro Pacific Intl Bank Inc.
53 Palmeras St., 10th Floor
San Juan, 00901
Puerto Rico

Or by e-mail to [email protected].

GTS Browser Requirements

The minimum browser requirements for using the GTS-web are:

Desktop – Windows

Internet Explorer 11
Firefox 45+
Google Chrome 44+
Edge version 38+

Desktop – Mac

Safari (latest version)
Google Chrome (latest version)

Desktop – Chromebook

Google Chrome 44+

Desktop – Linux

Google Chrome 44+

Tablet

iOS 9+ or Andorid 4.1+
Safari 10
Google Chrome 48+
Edge 38+

Phone

iOS 9+ or Android 4.1+
Safari 10
Google Chrome 48+

July 2017 New Products & Platform Updates

Change to Daily Tom-Next Procedure

Effective Date: August 1st, 2017

In order to reduce risk and operational complexity, all your open FX spot positions will be rolled over once per day during the European session between 07:00 and 9:00 GMT, as of 1 August 2017.

This change will make it simpler to manage unrealised profits and losses due to the rollover in all currencies taking place at the same time of day.

NASDAQ and NYSE TotalView real time data subscriptions merge

From 1 August, 2017 NASDAQ (TotalView) Level 2 subscription and the NYSE, AMEX and Arca (TotalView) Level 2 subscription will be consolidated into one subscription to the service Nasdaq TotalView and Last Sale (NYSE and Nasdaq). The subscription will include access to Nasdaq Last Sale data. Applicable fees:

Nasdaq TotalView and Last Sale (NYSE and Nasdaq) Level 2 Private: 16 USD
Nasdaq TotalView and Last Sale (NYSE and Nasdaq) Level 2 Professional: 102 USD

As a result, current subscriptions on NASDAQ (TotalView) Level 2 and NYSE, AMEX and Arca (TotalView) Level 2 will be end dated as of 31 July, 2017. Subscriptions to Nasdaq TotalView and Last Sale (NYSE and Nasdaq) and need to be entered by clients who want to continue receiving the data.

Australian Securities Exchange subscription fee change

Australian Securities Exchange Level 2 Professional subscription will raise from 75 to 82 AUD.

Introduction to Carrying Costs and Holding Fee

brokerage, gts, trading-conditions

EFFECTIVE DATE: AUG 1ST, 2017

The global standards on bank capital (the Basel agreements) set stronger prudential rules for banks to keep sufficient capital reserves and liquidity to make them even more solid. These regulatory requirements are increasing the cost of holding the client’s positions and conducting business in Futures, Listed Options, and Expiring CFDs.

Therefore, as of August 1st, 2017, we will be introducing the following:

Carrying Cost on Futures, Listed Options, and Expiring CFDs
Holding Fee on bought Listed Options (above 120 days maturity)

Carrying Cost on Futures, Listed Options and Expiring CFDs

Overnight positions in Futures, Listed Options and Expiring CFDs will be subject to a carrying cost. The carrying cost will be calculated on the basis of the daily margin requirement and applied when a position is held overnight.

The funding rate used for calculating the carrying cost is based in the relevant Interbank-rate + markup (e.g. 150 bps).

Carrying Cost = Margin requirement * Holding time * (Relevant Interbank rate + Markup) / (365 or 360 days)

EXAMPLE: You BUY 1 Futures Contract in E-mini S&P 500 with a margin requirement of USD 5,500 and hold the position for 5 days.

Nominal Value	115,000 USD
Margin Requirement:	5,500 USD

Holding time:	5 days
1M USD LIBOR rate:	1.00%
Markup:	1.50%

Carrying cost:	*5,500 5 * (1.00%+1.50%) / 360 = 1.91 USD**

Holding Fee on Long Positions in Listed Options

From 1 August 2017, a Holding Fee on bought long dated Listed Options will apply.
The Holding Fee varies depending on the underlying asset class (Category) and will only apply to bought options with maturity beyond 120 days.
The fee will be calculated based on the below schedule and charged end-of-month.

Bought Options daily holding fees per million (Nominal Value)
Category	Interest Rates	Foreign-exchange rates and Gold	Equities	Precious metals, except gold	Commodities, except precious metals
<120 days maturity	N/A	N/A	N/A	N/A	N/A
>120 days maturity	0.10	0.70	1.10	1.00	1.60

Holding Fee per day = Nominal Value / 1,000,000 * Underlying Category Fee

EXAMPLE: You BUY 1 PUT Option on Coca-Cola Co, Expiry in 160 days, Strike 40.

Nominal Value	4,000 USD (Strike Price * 100 shares)
Category:	Equities (>120 days maturity)
Fee per million:	1.10 USD

Holding Fee per day:	*4,000 / 1,000,000 1.10 = 0.0044 USD**

May 2017 New Products & Platform Updates

brokerage, gts, news

Futures Position Management Changes (Reminder)

GTS is moving to FIFO netting on futures positions from:

27 May 2017 on the GTS-web platform, and not April 8th as previously communicated

This means that futures trades must be closed in the order they were opened; platform features which allow you to close trades in a different order will be removed:

Individual trades in a position cannot be closed directly.
You cannot place related stop and limit order to close specific trades.

Closing positions

To close or reduce a position, traders can place a trade using either the Close button on the position or by placing a trade using the Trade Ticket.

Related orders

Stop loss and take profit orders cannot be related directly to individual trades. Independent stop and limit orders can be placed instead and managed separately to the position if traders manually close a position, they must also manually cancel any orders.

These changes have already taken effect in GTS Pro, as described in last month’s update:

https://europacbank.com/support/april-2017-new-products-platform-updates/

One-Cancels-the-Other (OCO) Order to be added for Futures in GTS

One-Cancels-the-Other (OCO) order type for futures contracts will be added in GTS Pro and GTS-web platform on 27 May 2017, which will allow traders to continue placing Take Profit and Stop Loss futures orders with an OCO link, after the related order functionality for futures has been removed.

The controls for placing the Take Profit and Stop Loss orders can be toggled between a fixed Price or a distance in Percent from the current market price.

Input Field Usability Improvements in GTS

On 27 May 2017, usability improvements will be made around the price control toggle between Pips/Percent/Price in all Take Profit and Stop Loss dialogs.

Currently all available input types – Pips/Percent/Price – are shown in the main dialog. Traders choose which one to use and populate it with a value. The others input types remain empty in the dialog.

In the new dialog, the input type choice is brought up on the same level as Take Profit and Stop Loss. If a trader would want to change between input types (e.g. from Pips to Percent), click on the price control for the drop down arrow to appear and click again to choose another input type.

What is Net Free Equity?

Net Free Equity (NFE) is:

The cash balance of your main trading account
Plus/minus any unrealised profits or losses from open CFDs, FX Forwards and Futures on your main trading account
Plus the market value of any FX Options on your main trading account
Minus any margin required for financing open positions on your main trading account and sub-accounts

Cash collateral for NFE margin financing may differ from the trading margin requirement.

Interest is calculated daily and settled monthly – within seven business days after the end of each calendar month.

How do I monitor my Net Free Equity?

You can view the Net Free Equity in the “Interest Details” report of the “Account” tab of GTS.

How do I resolve my negative Net Free Equity?

If you have a negative Net Free Equity balance, you will accrue “overdraft” interest on your account. To avoid paying interest, please hold sufficient cash collateral. This can be done several ways:

Deposit cash from your bank account using your Transfers > Between Own Accounts function.
Sell shares or close a position.
If you have multiple sub-accounts, often negative Net Free Equity is the result of trading with the wrong sub-account—the sub-account that doesn’t have sufficient cash. If this is the case, move funds from the “positive” sub-account to the “negative” sub-account by making two transfers. First from the brokerage sub-account to your bank account, and then once the funds have settled, a second transfer from your bank account back to your brokerage account’s correct sub-account.

For further assistance please send a message inside your brokerage platform or email [email protected]

Changes to CZK Margin and Exposure Limit

EFFECTIVE: WED APR 19th at 13:00 GMT

In response to the Czech Central Bank’s decision to remove the peg on the Czech Koruna, we are now able to move the Czech Koruna to a free-floating currency margin schedule. The below table will represent the new schedule for the Czech Koruna tier rates based on your margin profile.

CCY	USD 0-1mm	USD 1-3mm	USD 3-5mm	USD 5-10mm	USD 10-25mm	USD 25-50mm	USD 50+mm
CZK	4%	4%	8%	8%	15%	20%	100%

Flat rates for the Czech Koruna will be set at 4% for a maximum currency limit of USD 3mm

These new tier and flat rates will be effective as of Wednesday, 19 April 2017, at 13:00 GMT.

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