Deborah Fuhr: where the smart money is headed
The use of exchange traded funds (ETFs) by retail and financial advisers in the UK is expected to increase after the retail distribution review, while more investors are using ETFs to implement tactical exposure to specific markets and asset classes.
What asset classes are investors using ETFs to access? The most popular are broad equities, government bonds, precious metals and emerging markets.
Net flows into ETFs can be viewed as a roadmap of the movement of smart money. At the end of April 2012, the European ETF industry had 1,295 ETFs, with 4,579 listings, assets of $291 billion, from 37 providers on 21 exchanges. Year to date, through end of April 2012, ETF assets have increased by 8.8% from $267.6 billion to $291 billion. In April 2012, ETFs saw net outflows of $4.7 billion.
Equity ETFs experienced net outflows of $5.2 billion, resulting primarily from ETFs tracking European indices with $5 billion net outflows. Fixed income ETFs gathered net inflows of $228 million, where $407.7 million went into government bond ETFs, while money market ETFs saw net outflows of $731.7 million.
Commodity ETFs gathered net inflows for the month of $126.5 million, of which $237.3 million went into ETFs providing exposure to precious metals, while ETFs tracking agriculture, energy, industrial metals and broad commodity indices experienced net outflows, totalling a combined $110.8 million.
In the first four months of 2012, ETFs in Europe saw net inflows of $1.5 billion. Commodity ETFs gathered $1.2 billion net inflows, of which $1 billion went into ETFs providing exposure to precious metals.
Fixed income ETFs saw net inflows year to date of $1.1 billion, of which $2.6 billion went into corporate bond ETFs, while government bond ETFs experienced $1.2 billion net outflows. Equity ETFs saw net outflows of $1.9 billion year to date, with $6.8 billion net outflows from ETFs tracking European equity indices, while $2.9 billion net inflows went into ETFs tracking emerging market equity indices. Leveraged inverse ETFs gathered net inflows of $0.4 billion, inverse ETFs experienced $0.2 billion net inflows, while leveraged ETFs saw net outflows of $0.4 billion.
The providers of ETFs benefiting from net asset flows in 2012 show Source Markets has gathered the largest net inflows of $1.5 billion, followed by UBS Global Asset Management with $1.2 billion and ETFlab Investment with $0.8 billion net inflows. iShares experienced the largest net outflows in April with $4.3 billion. db x-trackers experienced the largest net outflows year to date, with $1.4 billion, followed by Commerzbank with $0.6 billion and EasyETF with $0.6 billion net outflows.
Top three providers
In Europe, iShares is the largest ETF provider in terms of assets, with $113.9 billion, reflecting 39.1% market share; db x-trackers is second, with $43 billion and 14.8% market share, followed by Lyxor Asset Management with $36.6 billion and 12.6% market share. These top three ETF providers, out of 37, account for 66.5% of European ETF assets under management (AUM), while the remaining 34 providers each have less than 6% market share.
STOXX has the largest amount of ETF assets tracking its benchmarks, with $79 billion, followed by MSCI with $67.7 billion, and FTSE with $22.1 billion.
The tool box of ETFs continues to grow, with 70 being launched so far during 2012 by nine providers on four exchanges, while nine ETFs have delisted. The popularity of ETFs varies significantly as measured by AUM. Most consultants use AUM of $100 million as the breakeven point for a fund.
The top 100 ETFs, out of 1,295, account for 63.6% of European ETF assets under management. Some 63 ETFs have greater than $1 billion in assets, while 889 ETFs have less than $100 million in assets, 720 ETFs have less than $50 million in assets and 280 ETFs have less than $10 million in assets.
ETF average daily trading volumes increased by 1.2% from $3.49 billion in March 2012 to $3.54 billion in April 2012. It is important to remember that under the Markets in Financial Instruments Directive, ETF trade reporting is not required so we estimate only one-third of all ETF trades in Europe are reported on exchange. The London Stock Exchange does require ETF trades to be reported for trades in LSE-listed ETFs.