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ETFs continue to find favour with investors, says Source


Contrary to the suggestions of some market pundits, European ETFs have fared well in 2011, particularly in comparison to the rest of the rest of the UCITS fund industry, says Source.

ETP inflows as of end of November (which include ETFs and ETCs) stood at EUR19bn while, according to EFAMA, by the end of October all UCITS funds had seen outflows of EUR75.4bn.  ETP net new asset inflows represent 10% of 2010 year end levels.  While this is down from the historical trend of around 35% it still shows that investors continue to increase their use of ETFs relative to other investment vehicles. 
Two and a half years since launch, Source is seeing a significant share of new investments.  According to Deutsche Bank, at the end of November Source was rated third in terms of assets raised in the year to date.  While DAX remains the dominant source of new assets for ETFs (EUR11.6bn of the EUR19bn raised, or 58% of flows), Source raised most of its new ETP assets in a diverse range of products including physical gold, Man GLG Europe plus and PIMCO fixed income funds.
In the wake of significant debate about the ETF industry some themes are clear:
Investors value ETFs as a transparent, low cost trading and investment tool

The use of derivatives and stock lending is an important key issue for investors – but they are comfortable where the corresponding risks are well controlled and diversified

The more volatile the markets become, the more investors value daily information about their investments
In 2012, trading liquidity is likely to be an even more significant issue for investors. ETF on-exchange trading currently represents 5% of equity on-exchange trading volumes in Europe versus 25% in the US. Fragmentation across exchanges and currencies has hindered market growth.  However, regulators have called for a consolidated tape. This probably won’t arrive in 2012, but progress toward increased trading activity and transparency is vital for the market. 


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