Global assets under management (AUM) in exchange traded funds (ETFs) and exchange traded products (ETPs) are expected to exceed the $2 trillion by early 2012, according to a new report.

The global ETF/ETP industry is expected to increase by 20 to 30 per cent annually over the next three years, said BlackRock's Global ETF Research and Implementation Strategy Team.

Blackrock is a leader in investment management, risk management and advisory services for institutional and retail clients worldwide.

According to a year-end industry recap and outlook produced by the BlackRock group, the global ETF and ETP industry combined had 3,503 products with 7,311 listings and assets of $1.482 trillion, from 168 providers on 50 exchanges around the world as of December 31, 2010. This compares to 2,672 products with 4,856 listings and assets of $1.156 trillion from 132 providers on 45 exchanges at year end 2009.

“The industry grew across the board during 2010 and we expect this to continue in 2011,” said Deborah Fuhr, global head of ETF Research and Implementation Strategy at BlackRock.

Considering ETFs separately, AUM will reach $2 trillion globally by the end of 2012, $1 trillion in the US in 2011 and $500 billion in Europe in 2013, Fuhr stated.

Taking ETFs and ETPs together, US AUM should reach $2 trillion in 2013, with European AUM reaching $500 billion in 2012.

Factors driving expanding use of the vehicle include the number and types of equity, fixed income, commodity and other indices covered, more fund platforms embracing ETFs, more active marketing of ETFs by online brokers, greater involvement by fee based advisors, the growing number of exchanges planning to launch new ETF trading segments, and regulatory changes in the US, Europe and many emerging markets that allow funds to make larger allocations to ETFs, Fuhr said.
 
“Demand for ETFs globally has surged as professional and retail investors alike have discovered their unique combination of benefits, such as versatility, transparency and significant cost advantages,” Fuhr stated.

“The availability of cost effective, flexible, liquid, diversified investment products that enable rapid implementation of a comprehensive range of investment strategies has struck a chord with investors – during both bull and bear markets.”

Capital flows in 2010 within ETFs demonstrate that the products are becoming key indicators for shifts in investor sentiment between asset classes.  “During 2010, developed and emerging equity ETFs enjoyed heavy inflows,” Fuhr said.

“On the other hand, fixed income and commodity ETFs/ETPs received smaller net new asset flows than in 2009 as some investors adjusted their risk profiles.”

In 2010, $169.4 billion in net new assets went into ETFs/ETPs, compared with $176.3 billion net new assets in 2009.

Equity ETFs/ETPs attracted $106.3 billion in net new asset flows in 2010, greater than the $69.1 billion for all of 2009. Net new asset flows into ETFs/ETPs tracking developed market equity indices were $64.2 billion in 2010, compared with $34.6 billion in 2009.

ETFs/ETPs tracking emerging market indices drew $42.1 billion in net new asset flows, compared with US$34.5 billion in 2009.

Fixed income ETF/ETP net new assets were $37.7 billion in 2010 compared with $54.3 billion for 2009. Net new assets going into ETFs/ETPs with commodity exposure were down significantly, from $46.2 billion in 2009 to $22.7 billion in 2010.

The challenging market conditions of 2008 and 2009 caused a significant shift in investors’ risk appetite and their desire for liquidity. During 2010, many investors found that ETFs met their need for greater transparency regarding cost, holdings, price, liquidity, product structure, and risk and return related to investment alternatives, Fuhr noted.
 
“ETFs make it easier for investors to participate in all domestic asset classes, global regions and industry sectors,” she said. “Most importantly, ETFs give investors the opportunity to participate where markets have been showing promise.”

At the same time, despite growth in the use of ETFs covering alternative asset class exposures, investors will continue to prefer ETFs based on broad-market indices that serve as core holdings,  Fuhr said.

“Greater transparency around product structure, replication of indices, and pricing is vital to helping investors make informed investment decisions when considering ETFs and ETPs,” she said.-TradeArabia News Service