ETFs resilient despite downturn, according to BGI

Exchange-traded funds (ETFs) continue to hold up well in the face of the recent economic downturn, according to research on the industry covering the first quarter of 2009 by San Francisco-based Barclays Global Investors (BGI).

While assets under management (AUM) have fallen across the globe, the slide is less pronounced than that seen on major benchmark indexes. On the year-to-date, global ETF AUM had decreased by 10.9%, which is less than a corresponding fall of 12.5% in the MSCI World Index, noted BGI. Sixty-six new ETFs were launched during that time.

At the end of the first quarter, total industry AUM was $633.55 billion, comprising 1,635 ETFs, many of which are listed on more than one exchange. There were plans to launch 729 new ETFs, said BGI.

The figures might indicate continued investor demand for the transparency and liquidity of ETFs, which are open-ended investment funds designed to track a given benchmark. They are also free from counterparty risk, as investors have recourse to the underlying assets held by the fund. This sets them apart from investments that have caused problems since the onset of the credit crisis, including hedge funds, structured products and collateralised debt obligations.

While the products are holding up at a global level, however, the European ETF industry appears to be doing better than the larger US ETF industry.

In the US, AUM dropped by 13.5% for the year to date, while in Europe the fall was 5%. Over this period, the US saw 15 new funds launched and 21 delisted - a net decline of six funds. Contrastingly, Europe saw 39 new funds launched and 25 delisted - a net increase of 14 funds.

Average daily trading volumes remain far higher in the US than in Europe, however, according to BGI. In the US, they rose 10.2% on the year to date, reaching $84.9 billion. In Europe, average daily trading volumes saw only a modest increase of 2.4%, to $2.07 billion.

The BGI research also revealed that short interest in US ETFs was at highly elevated levels last month. In March, short interest in US ETFs equalled 14% of shares outstanding, or $1.856 billion shares. Up from December's level of $1.439 billion, this is the highest proportion of shares outstanding since October 2008.

See also: The end for ETNs?
Deutsche Bank launches ETF of hedge funds
Rainy day funds
Bust beneficiaries