By all counts, 2010 was a very strong year for ETPs across all three major global regions. The global ETP market grew (in USD terms) by an impressive 28%. The European market led the [percentage] growth registering 36% (in Euro terms), followed by the Asian market with growth of 31% (in USD terms) and the US market registered growth of 28%.
Growth in all three major regions was bolstered by very healthy cash flows (totalling USD176.2 billion) that contributed to 16% of the year’s growth. Recovering asset markets also gave ETP assets a strong push, contributing an average of 13% increase to AUM from market appreciation.
The global ETP market is expected to continue growing by close to 30% [probability weighted scenario: 27.5%] in 2011, according to Deutsche Bank Equity Research. In their view, the ETF part of the market will lead the [dollar] growth, fuelled by returning domestic equity investors both in the US and Europe. Market consensus growth estimates predict [ETF AUM weighted] average growth of 23.0% in North America and 13.2% in Europe, something which will benefit ETF AUM both from a market appreciation point of view as well as from increased allocation to the industry’s biggest asset class, equity.
2010 was the strongest product launch calendar for the industry with an impressive 648 new product launches. Europe led the way with 391 new product launches, followed by the US and Asia with 176 and 81 product launches respectively. Most of the new products launched, 533, were ETFs, with ETCs in Europe taking second position (106) and ETVs in the US taking third place (9).
Emerging markets were undoubtedly the biggest success story of 2010 in the global equity ETF market. In search of return opportunities and in light of increased mid-year volatility in both the US and European domestic markets, investors elevated ETFs to one of the major emerging market investment tools. The global ETF industry saw a total of USD42.0 billion of new flows to this corner of the market, with both the US and European markets strongly supporting this trend.
US equity emerging market inflows reached USD26.5 billion, while the respective number for Europe registered at EUR9.1 billion. The most popular ETF emerging markets benchmark, MSCI Emerging Markets, saw its ETF assets appreciate by USD41.3 billion over the year, while the index itself (NDUEEGF) rose by 19.0% in 2010. This follows returns of 78.5% in 2009. With US and European domestic investors returning to their own markets, the debate has now moved to whether this segment of the equity market has perhaps had its run. Several short emerging market ETF products have been launched in anticipation of this scenario materialising. Equity research analysts are however predicting continued average growth in emerging markets of close to 12%.
In the US market, fixed income had a very strong run. The asset class took in a total of USD33.0 billion of new money, with corporate and high yield ETF benchmarks gaining the lion’s share, amassing inflows of USD14.3 billion. The European fixed income market, while it received positive flows of EUR5.8 billion, it experienced much weaker activity [than the US], despite a major fixed income product push by many European providers. Fixed income investors’ interest in the European Union in the first three quarters of the year revolved around sovereign ETF indices (2010 inflows EUR3.6 billion), while corporate ETF benchmarks also saw a fair level of interest (2010 inflows €2.0 billion) especially in the third quarter of the year.
Gold, another one of the year’s big success stories, significantly contributed to bolstering ETC and ETV flows over 2010 and it single-handedly carries the credit for lifting the fortunes of the commodity ETP space in 2010. The US market saw USD13.1 billion of precious metals ETP inflows, while gold accounted for USD9.2 billion of those. In Europe, the picture was very similar to that in the US. The European commodity ETP market gathered EUR6.0 billion of inflows, while gold accounted for EUR5.1 billion. As equities markets continue to rebound, the spotlight this year is firmly set on ETFs, where we expect to see most of the cash flows in 2011. Subject to gold price dynamics, gold ETPs will continue to receive inflows, but unless we see a significant downward change in equity market sentiment, gold is likely to be on the slow burner [in terms of ETP flow growth] for the year ahead.