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Global ETP market shrinks by 4.1 per cent in Q2

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The global exchange-traded products market shrunk by 4.1 per cent in quarter two 2010 and experienced its first decline in the past five quarters, a report by Deutsche Bank shows.

Euro sovereign concerns and worries about the strength of the recovery in the US kept investors scratching their heads about the likely trajectory of equity markets.

This situation put the quarterly growth of the global ETP market in negative territory (-0.85 per cent year-to-date), despite strong cash flows (USD44.1bn) in both the US (USD31.6bn), Europe (EUR9.8bn) and Asia (estimated at USD8bn).

While Deutsche Bank still expects positive growth for the global ETP market for the remainder of 2010, recent economic events lead it to also consider the possibility of growth between 15 and 20 per cent slowing, should equity market declines continue.

Global ETP market growth above 15 per cent is still within reach, but it is less likely as it necessitates both a very strong equity market rally (upwards of 20 per cent) as well as cash flow patterns at or above historical highs (USD80-90bn for the remaining two quarters) for the rest of the year.

The European market continued to defy falling equity markets and strong cash flow patterns contributed to growth of 13.4 per cent 2010 YTD. Growth in this region is expected to comfortably outstrip that of the other two major regions and could reach 25 to 30 per cent before year end. The US and Asian markets are more likely to grow at rates which could be at half those of Europe, both the US and Asia Pacific regions registered close to flat growth 2010 YTD.

Equity flows, while positive, continued to decline over Q2 2010. The month of May registered net outflows of USD250m in the US market, while in Europe, the exit from equities was more pronounced in June with EUR3.2bn of outflows. Fixed income registered strong inflows in both territories (US: USD10.7bn, Europe: EUR3.1 bn), with large allocations to sovereign benchmarks, despite sovereign solvency concerns in Europe.

The biggest flow-related story was gold. Q2 2010 global gold ETP inflows easily surpassed the cumulative gold inflows of the past five consecutive quarters put together and reached USD11.6bn. Taking into account AUM at the beginning of Q2’10, gold ETPs in Europe were more popular than in the US as they experienced a quarter-over-quarter increase of 43 per cent, to EUR20.4bn from EUR14.3bn.

The second quarter of the year registered 173 new product launches, the majority of which were ETFs (130), with the remainder being ETCs (41) and ETVs (two). Most of the new products were launched in Europe (110), with the US (47) and Asia (16) in second and third places respectively. This brings the total new ETP products launched to date in 2010 at 405, following the 232 ETPs launched in Q1’10.

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