Analysis: Exchange traded funds enjoy surge

Despite falling global stockmarkets, money flowed into pan-European exchange traded funds (ETF) in 2008, according to research from Lipper.

Assets under management in pan-European ETFs rose 17.05% to €108.42 billion (£101.95 billion) in 2008.

Indeed the report – The Growth Pattern of the Pan-European ETF Segment Defies the Rough Market Condition – notes the second quarter of 2008 was the first time that assets under management (AUM) in pan-European ETFs was higher than €100 billion. They have stayed above this level since.

Detlef Glow, the head of central, north and eastern European research at Lipper, Frankfurt, says the growth in AUM was throughout all asset classes, with the exception of real estate-linked equities. This was despite the fact that no equity ETFs analysed in the report showed positive performance in 2008. The best performing funds were in healthcare and pharmaceuticals.

Meanwhile, only seven of the 75 bond funds analysed in the report showed negative performance in 2008.

“The flight to quality, after the turmoil of the sub-prime crisis, was especially reflected in the bonds part of the performance tables,” says Glow. “While the negative performance was driven by current movements of the British pound against the euro, the top performing funds were, in opposition to the majority of the market participants, long in duration.”

Assets into ETFs were also aided by the number of new funds launched in 2008, a trend which has continued into this year. Just today, iShares announced the launch of two new ETFs on the London Stock Exchange, including what it claims is Europe’s first product to provide exposure to the Gulf Cooperation Council (GCC) region in one fund structure.

The iShares MSCI GCC Countries ex-Saudi Arabia offers exposure to equity markets in Bahrain, Kuwait, Oman, Qatar and the United Arab Emirates. The iShares MSCI Emerging Markets SmallCap fund adds to group’s existing regional and country-based small cap offerings.

According to the report 215 ETFs were launched in 2008, raising a total of €8.23 billion over the course of the year.

Ben Yearsley, a senior investment manger at Hargreaves Lansdown, says the growth in AUM for ETFs in 2008 was “phenomenal”. However, he says this was largely driven by investor’s desire for commodities rather than equity funds.

“ETFs are the easiest way to access commodities,” says Yearsley. “There is no other easy way for a private client or institution to track either the oil or gold price.”


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