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Market turmoil encouraging uptake of ETFs, says BGI report

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The use of exchange-traded funds to implement exposure to cash, fixed income, commodities and equity indices is becoming more popular in the current market turmoil, according to a revie

The use of exchange-traded funds to implement exposure to cash, fixed income, commodities and equity indices is becoming more popular in the current market turmoil, according to a review by Barclays Global Investors.

At the end of November 2008 the ETF industry had 1,539 ETFs with 2,580 listings, assets of USD633.83bn, managed by 86 managers on 42 exchanges around the world.

Assets fell by 20.4 per cent, which is less than the 43.80 per cent fall in the MSCI World index in US dollar terms.

The number of ETFs has increased 31 per cent year to date. The average daily trading volume in US dollars has increased by 94 per cent to USD117.5bn year to date.

According to BGI the number of ETFs increased in 2008. Year to date, 414 new ETFs have been launched. There are plans to launch a further 570 ETFs: 38 in Europe, 469 in the US and 63 in the rest of the world.

There were 274 other ETPs with 532 listings and assets of USD48.19bn from 28 providers on 15 exchanges. Combining ETFs and other ETPs, there are currently 1,813 products with 3,112 listings and assets of USD682.03bn from 102 providers on 43 exchanges with 686 new products planned.

Inflows into ETFs continue despite many markets continuing to fall during November – the S&P 500 was down another 7.5 per cent in November.

In Europe mutual funds and hedge funds continue to see outflows, says BGI. In the first 11 months of 2008 investors have moved assets into ETFs providing exposure to fixed income and commodity indices while the assets in ETFs tracking equity indices, especially global (ex US) and emerging market indices, have declined.

European ETF assets under management have decreased by 2.8 per cent while the MSCI Europe Index is down 50.56 per cent year to date.

In Europe net sales of mutual funds (excluding ETFs) were minus USD505.7bn while net sales of ETFs domiciled in Europe were USD61.6bn during the first ten months of 2008, according to Lipper Feri.

Hedge funds are expected to see a 35-45 per cent shrinking in hedge fund assets by January 2009 from June 2008. Europe and Asia funds are likely to be more heavily impacted at first, according to Morgan Stanley analyst Huw van Steenis.

BGI forecasts that ETF assets under management in Europe will exceed USD200bn in 2009, USD1trn globally in 2009 and USD2trn globally in 2011.

It says the factors driving the anticipated growth include: growth in the number of institutional and retail investors who use ETFs and view them as useful tools; regulatory changes in the US and Europe and many emerging markets that allow funds to make larger allocations to ETFs; the number and types of equity, fixed income, commodity and other indices covered; development and growth of investment styles that employ products like ETFs that deliver low cost beta; the growing number of exchanges, which plan to launch new ETF trading segments; and the expectation that there will be a number of new issuers/managers of ETFs.

Globally, iShares is the largest ETF provider in terms of both number of products, 356 ETFs, and assets of USD288.44bn, reflecting 45.5 per cent market share. State Street Global Advisors is second with 98 products and USD129.18bn, 20.4 per cent market share; followed by Vanguard with 38 products and assets of USD40.23bn and 6.3 per cent market share at the end of November 2008.

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