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ETF Landscape
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End August 2010
Assets
• YTD assets have increased by 1.5% from US$705.5 Bn to US$715.7 Bn, compared to the 5.9% decrease in the
MSCI US Index in US dollar terms.
• In August 2010, US domiciled ETFs/ETPs experienced net outflows totalling US$1.9 Bn. Equity ETFs/ETPs saw
US$6.9 Bn net outflows, of which US$11.6 Bn was from net redemptions of North American equity ETFs/ETPs while
US$4.5 Bn went into Emerging Markets equity ETFs/ETPs. Fixed Income ETFs/ETPs saw net inflows of US$3.0 Bn,
of which US$0.9 Bn went into High Yield ETFs/ETPs and US$0.8 Bn into Government bond ETFs/ETPs. Commodity
ETFs/ETPs experienced US$0.9 Bn net inflows, of which US$1.0 Bn went into Precious Metals ETFs/ETPs in
August 2010.
• YTD, US domiciled ETFs/ETPs experienced net inflows totalling US$48.0 Bn. Fixed Income ETFs/ETPs saw net
inflows of US$28.1 Bn, of which US$10.3 Bn went into Government bond ETFs/ETPs and US$5.6 Bn into
Aggregate/Broad fixed income ETFs/ETPs. Equity ETFs/ETPs saw US$12.0 Bn net inflows, of which US$13.9 Bn
went into Emerging Markets equity ETFs/ETPs while North American equity ETFs/ETPs saw net outflows of
US$6.4 Bn. Commodity ETFs/ETPs saw US$7.8 Bn net inflows, of which US$9.2 Bn went into Precious metals
ETFs/ETPs while Energy ETFs/ETPs saw net outflows of US$1.0 Bn YTD.
ETFs
• YTD the number of ETFs increased by 12.8% with 124 new ETFs launched, while 25 ETFs were delisted.
• The top 100 ETFs, out of 871, account for 82.9% of US ETF AUM, while 389 ETFs have less than US$50.0 Mn in
assets and 152 ETFs have less than US$10.0 Mn in assets.
• 29 January 2010 marked the 17th anniversary of ETFs in the US.
Data as at end August 2010.
Source: Global ETF Research & Implementation Strategy Team, BlackRock, Bloomberg.
Trading volume
• YTD the ETF average daily trading volume in US dollars has increased by 15.6% to US$52.9 Bn.
• In August 2010, US ETF turnover was 26.6% of all US equity turnover, greater than the 24.7% in
December 2009.
Mutual funds
• In the US, net sales of mutual funds (excluding ETFs) were minus US$331.0 Bn, while net sales of ETFs domiciled
in the US were positive US$38.8 Bn during the first six months of 2010 according to Strategic Insight.
ETPs
• Additionally, there were 160 other Exchange Traded Products (ETPs)1 with assets of US$98.2 Bn from 18
providers on one exchange.
Assets
• YTD assets have increased by 2.7% from US$1,036.0 Bn to US$1,064.4 Bn, compared to the 7.5% decrease in the
MSCI World Index in US dollar terms.
ETFs
• YTD the number of ETFs increased by 18.7% with 401 new ETFs launched, while 38 ETFs were delisted.
• The number of ETFs listed in Europe surpassed the US in April 2009, now with 985 ETFs listed in Europe, compared
to 871 in the US at the end of August 2010.
• There are currently plans to launch 944 new ETFs.
• The top 100 ETFs, out of 2,308, account for 63.3% of global ETF AUM, while 1,204 ETFs have less than
US$50.0 Mn in assets and 483 ETFs have less than US$10.0 Mn in assets.
Trading volume
• YTD the ETF average daily trading volume in US dollars increased by 13.4% to US$57.5 Bn.
ETF providers
• Globally, iShares is the largest ETF provider in terms of both number of products, 453 ETFs, and assets of
US$492.7 Bn, reflecting 46.3% market share; State Street Global Advisors is second with 110 products and
US$139.6 Bn, 13.1% market share; followed by Vanguard with 47 products and assets of US$113.3 Bn and 10.6%
market share at the end of August 2010.
• The top three ETF providers, out of 129, account for 70.1% of global ETF AUM.
Data as at end August 2010.
Source: Global ETF Research & Implementation Strategy Team, BlackRock, Bloomberg.
Index providers
• MSCI ranks first in terms of AUM tied to its benchmarks with assets of US$258.7 Bn and 336 ETFs, while Standard
& Poor’s (S&P) ranks second with US$227.9 Bn and 278 ETFs, followed by Barclays Capital with US$111.9 Bn and
81 ETFs.
Mutual funds
• Globally, net sales of mutual funds (excluding ETFs) were minus US$283.3 Bn, while net sales of ETFs were
positive US$71.3 Bn during the first six months of 2010 according to Strategic Insight.
ETPs
• Additionally, there were 874 other Exchange Traded Products (ETPs)1 with 1,439 listings and assets of
US$135.0 Bn from 48 providers on 20 exchanges.
1 ETPs are products that have similarities to ETFs in the way they trade and settle but they do not use an open-end investment company structure. The use of other structures including
grantor trusts, partnerships, notes and commodity pools by ETPs can create different tax and regulatory implications for investors when compared to ETFs which are funds.
Data as at end August 2010.
Source: Global ETF Research & Implementation Strategy Team, BlackRock, Bloomberg.
Mutual funds
• In Europe net sales of mutual funds (excluding ETFs) were US$55.2 Bn while net sales of ETFs domiciled in Europe
were US$21.2 Bn during the first six months of 2010 according to Lipper FMI.
ETPs
• Additionally, there were 387 other Exchange Traded Products (ETPs)1 with 885 listings and assets of US$19.7 Bn
from nine providers on six exchanges.
1 ETPs are products that have similarities to ETFs in the way they trade and settle but they do not use an open-end investment company structure. The use of other structures including
grantor trusts, partnerships, notes and commodity pools by ETPs can create different tax and regulatory implications for investors when compared to ETFs which are funds.
Data as at end August 2010.
Source: Global ETF Research & Implementation Strategy Team, BlackRock, Bloomberg.
Assets
• YTD assets have risen by 10.7% from US$28.5 Bn to US$31.6 Bn, compared to the 0.9% decrease in the MSCI
Canada Index in US dollar terms.
ETFs
• YTD the number of ETFs increased by 36.4% with 41 new ETFs launched.
• 9 March 2010 marked the 20th Anniversary of the first ETF globally, which was listed in Canada in 1990.
Trading volume
• YTD the ETF average daily trading volume in US dollars has decreased by 23.0% to US$0.7 Bn.
ETF providers
• iShares is the largest ETF provider in terms of assets with US$24.5 Bn in 36 ETFs, reflecting 77.6% market share;
Claymore Securities is second with 28 products and US$3.9 Bn, a 12.3% market share; followed by BetaPro
Management with 56 products, assets of US$2.5 Bn and 7.9% market share at the end of August 2010.
ETPs
• Additionally, there was one other Exchange Traded Product (ETP)1, 20 cross listings and assets of US$0.4 Bn from
one provider on one exchange.
1 ETPs are products that have similarities to ETFs in the way they trade and settle but they do not use an open-end investment company structure. The use of other structures including
grantor trusts, partnerships, notes and commodity pools by ETPs can create different tax and regulatory implications for investors when compared to ETFs which are funds.
Data as at end August 2010.
Source: Global ETF Research & Implementation Strategy Team, BlackRock, Bloomberg.
Assets
• YTD assets have increased by 23.9% from US$38.9 Bn to US$48.2 Bn, compared to the 3.8% decrease in the
MSCI AC Asia Pacific ex-Japan Index in US dollar terms.
ETFs
• YTD the number of ETFs increased by 40.6% with 54 new ETFs launched, while two ETFs were delisted.
ETF providers
• State Street Global Advisors is the largest ETF provider in terms of assets with US$10.3 Bn, in six ETFs, reflecting
21.4% market share; iShares is second with 15 products and US$9.1 Bn, a 19.0% market share; followed by
Hang Seng Investment Management with three products, assets of US$5.7 Bn and 11.8% market share at the end
of August 2010.
Mutual Funds
• In Asia Pacific ex-Japan, net sales of mutual funds (excluding ETFs) were minus US$29.0 Bn, while net sales of
ETFs domiciled in Asia Pacific ex Japan were positive US$8.4 Bn during the first six months of 2010 according to
Strategic Insight.
Trading volume
• YTD the ETF average daily trading volume in US dollars has decreased by 18.0% to US$0.7 Bn.
ETPs
• Additionally, there were 14 other Exchange Traded Products (ETPs)1 with 17 listings and assets of US$1.1 Bn from
ten providers on five exchanges.
1 ETPs are products that have similarities to ETFs in the way they trade and settle but they do not use an open-end investment company structure. The use of other structures including
grantor trusts, partnerships, notes and commodity pools by ETPs can create different tax and regulatory implications for investors when compared to ETFs which are funds.
Data as at end August 2010.
Source: Global ETF Research & Implementation Strategy Team, BlackRock, Bloomberg
Assets
• YTD assets have decreased by 1.5% from US$24.6 Bn to US$24.3 Bn, which is less than the 3.4% decrease in the
MSCI Japan Index in US dollar terms.
ETFs
• YTD the number of ETFs increased by 8.8% with six new ETFs launched.
Trading volume
• YTD the ETF average daily trading volume in US dollars has decreased by 20.9% to US$0.1 Bn.
Mutual Funds
• In Japan, net sales of mutual funds (excluding ETFs) were US$33.6 Bn, while net sales of ETFs domiciled in Japan
were US$2.1 Bn during the first six months of 2010 according to Strategic Insight.
ETF providers
• Nomura Asset Management is the largest ETF provider in terms of assets with US$12.7 Bn, in 32 ETFs, reflecting
52.5% market share; Nikko Asset Management is second with 14 products and US$5.4 Bn, a 22.4% market
share; followed by Daiwa Asset Management with 22 products, assets of US$4.7 Bn and 19.6% market share at
the end of August 2010.
ETPs
• Additionally, there were nine other Exchange Traded Products (ETPs)1 with 20 cross listings and assets of
US$0.3 Bn from four providers on two exchanges.
1 ETPs are products that have similarities to ETFs in the way they trade and settle but they do not use an open-end investment company structure. The use of other structures including
grantor trusts, partnerships, notes and commodity pools by ETPs can create different tax and regulatory implications for investors when compared to ETFs which are funds.
Data as at end August 2010.
Source: Global ETF Research & Implementation Strategy Team, BlackRock, Bloomberg
At the end of August 2010 the Latin American ETF industry had 21 ETFs with 347 listings, and assets of US$11.9 Bn
from three providers on three exchanges. There were 276 ETFs cross listed in Mexico at the end of August 2010,
while there are 309 ETFs registered for sale in Chile and 290 ETFs registered for sale in Peru.
Assets
• YTD assets have increased by 20.7% from US$9.8 Bn to US$11.9 Bn, compared to the 3.6% decrease in the MSCI
EM Latin America Index in US dollar terms.
ETFs
• YTD the number of ETFs has increased by 23.5% with four new ETFs launched.
Trading volume
• YTD the ETF average daily trading volume in US dollars has increased by 34.1% to US$0.3 Bn.
ETF providers
• iShares is the largest ETF provider in terms of assets with US$7.3 Bn, in 18 ETFs, reflecting 61.2% market share;
BBVA Asset Management is second with US$3.4 Bn in two ETFs, a 28.6% market share at the end of August 2010.
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1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Aug-10
ETF Assets $0.5 $0.4 $1.1 $2.4 $6.7 $15.6 $33.9 $65.6 $84.6 $102.3 $150.7 $227.7 $299.4 $406.8 $580.7 $497.1 $705.5 $715.7
ETP Assets $2.0 $5.0 $3.8 $4.0 $6.1 $8.9 $14.4 $25.9 $40.5 $45.3 $88.1 $98.2
# ETFs 1 1 2 19 19 29 30 81 101 113 117 152 201 343 601 698 772 871
# ETPs 2 14 17 17 17 17 20 37 71 136 142 160
Total 871 $715.7 100.0% 787 -$3.9 $41.1 99 12.8% $10.3 1.5%
AUGUST
# ETFs ADV ASSETS NNA
EXPOSURE /ETPs (US$ Mn) (US$ Mn) (US$ Mn) YTD-10 NNA (US$ Mn) 2009 NNA (US$ Mn)
Equity 739 51,369.3 574,620.8 (6,881.3) 11,972.8 36,476.3
North America - Equity 452 44,144.4 368,890.2 (11,647.9) (6,425.7) 1,987.0
Active 3 0.1 11.9 - 4.1 12.8
Broad 242 35,236.5 284,015.1 (9,646.1) (8,148.4) (11,180.1)
Consumer Goods/Services 26 1,133.3 8,189.9 (102.8) 1,334.1 287.2
Energy 31 1,594.6 15,565.8 (434.2) 1,326.7 1,145.3
Financials 29 2,789.4 14,913.1 (180.5) (871.4) 1,409.1
Healthcare 21 326.7 7,432.0 (534.5) (350.6) (400.8)
Industrials 14 531.8 4,150.7 (346.6) 387.2 914.1
Materials 11 573.4 4,145.4 (259.8) (188.1) 1,206.2
Other 5 8.7 1,832.1 (4.1) (91.0) (77.1)
Real Estate 18 1,015.2 13,078.6 0.9 7.5 4,377.4
Technology 36 676.0 9,131.2 (459.7) (544.8) 2,626.7
Telecommunications 6 14.1 1,066.3 57.9 102.6 139.4
Utilities 10 244.8 5,358.2 261.5 606.1 1,526.9
Asia Pacific - Equity 28 435.6 17,629.6 (91.0) 89.6 1,825.8
Europe - Equity 27 196.6 8,548.7 104.4 809.5 1,574.0
Global - Equity 58 103.1 11,497.7 296.0 511.5 3,353.7
Global (ex-US) - Equity 69 1,071.8 52,169.9 (6.5) 3,134.9 691.4
continued…
continued…
DOW JONES U.S. SECTOR ETFs 5,141.2 -12.8% 252.6 167.7 -76.7 -408.4 -28.2
iShares Dow Jones U.S. Basic Materials IYM US DJUSBM -2.0% -1.4% 619.2 -24.1% 57.2 44.1 -26.2 -187.6 246.4
iShares Dow Jones U.S. Consumer Goods IYK US DJUSNC -2.1% 2.2% 272.5 -16.9% 17.0 2.6 11.6 -59.4 -105.4
iShares Dow Jones U.S. Consumer Services IYC US DJUSCY -4.0% -0.4% 170.6 6.0% 17.0 3.7 -31.0 17.8 -11.6
iShares Dow Jones U.S. Energy IYE US DJUSEN -4.2% -10.2% 584.9 -18.5% 9.5 4.5 -3.0 -57.5 9.6
iShares Dow Jones U.S. Financial IYF US DJUSFN -7.3% -4.7% 414.1 -13.0% 38.3 73.0 -22.1 -35.9 -105.5
iShares Dow Jones U.S. Healthcare IYH US DJUSHC -1.4% -8.4% 525.3 -15.2% 38.5 3.3 -3.0 -31.6 -356.3
iShares Dow Jones U.S. Industrial IYJ US DJUSIN -7.0% -1.2% 276.3 -4.4% 7.8 7.1 -26.5 -5.0 -11.7
iShares Dow Jones U.S. Technology IYW US DJUSTC -7.1% -10.2% 1,118.3 -17.8% 13.1 12.5 -52.3 -94.9 263.3
iShares Dow Jones U.S. Telecommunications IYZ US DJSTELT -1.4% 2.3% 649.9 2.1% 39.9 12.6 42.2 20.2 106.8
iShares Dow Jones U.S. Utilities IDU US DJUSUT 1.1% 1.0% 510.2 4.2% 14.2 4.4 33.6 25.5 -63.9
S&P EQUAL WEIGHT SECTOR ETFs 266.3 -2.5% 4.5 6.1 -38.3 10.1 100.3
Rydex S&P Equal Weight Consumer Discretionary RCD US S25 -6.1% -1.2% 23.5 28.6% 1.4 0.1 0.0 6.9 2.3
Rydex S&P Equal Weight Consumer Staples RHS US S30 -2.8% 3.1% 12.8 29.4% 0.1 0.1 0.0 2.5 -1.9
Rydex S&P Equal Weight Energy RYE US S10 -6.7% -8.9% 13.7 -21.8% 0.2 0.2 0.0 -3.0 9.3
Rydex S&P Equal Weight Financial RYF US S40 -6.7% 0.6% 15.0 8.9% 0.0 0.3 -3.4 1.8 1.0
Rydex S&P Equal Weight Health Care RYH US S35 -3.0% -8.1% 47.1 -31.1% 0.0 2.3 -13.7 -16.3 -1.4
Rydex S&P Equal Weight Industrial RGI US S20 -7.5% -1.3% 34.5 76.8% 0.1 0.2 0.0 16.5 8.4
Rydex S&P Equal Weight Materials RTM US S15 -3.7% -1.7% 31.0 -9.3% 0.5 0.5 2.6 -2.7 17.8
Rydex S&P Equal Weight Technology RYT US S45 -5.6% -6.7% 74.5 -6.8% 0.2 2.3 -26.2 2.1 58.5
Rydex S&P Equal Weight Utilities RYU US S55 1.0% -0.6% 14.3 21.9% 1.9 0.2 2.4 2.4 6.4
S&P SELECT SECTOR ETFs 30,412.5 -3.0% 7,044.4 3,953.2 -1,537.5 1,034.6 3,483.0
Consumer Discretionary Select Sector SPDR XLY US IXY -3.8% 2.0% 1,661.6 13.6% 782.5 238.9 -88.0 217.4 493.0
Consumer Staples Select Sector SPDR XLP US IXR -1.7% 1.5% 3,152.6 38.7% 369.2 209.7 -1.4 893.2 -117.0
Energy Select Sector SPDR XLE US IXE -5.0% -9.3% 5,779.2 2.9% 1,391.0 814.4 -212.8 768.0 195.0
Financial Select Sector SPDR XLF US IXM -7.8% -5.3% 5,216.5 -23.8% 1,737.1 1,059.6 -250.2 -1,255.6 -1,805.0
Health Care Select Sector SPDR XLV US IXV -1.5% -8.9% 2,492.4 -15.0% 521.3 238.5 -227.3 -187.1 599.0
Industrial Select Sector SPDR XLI US IXI -6.9% 2.4% 2,532.6 21.7% 558.2 517.6 -398.2 551.6 631.0
Materials Select Sector SPDR XLB US IXB -3.0% -5.4% 1,807.7 0.4% 691.6 340.6 -124.3 161.1 469.0
Technology Select Sector SPDR XLK US IXT -5.6% -8.8% 3,679.3 -21.3% 545.9 268.8 -412.4 -573.2 1,545.0
Utilities Select Sector SPDR XLU US IXU 1.5% 1.4% 4,090.8 11.6% 447.5 265.2 177.2 459.2 1,473.0
Index returns are for illustrative purposes only and do not represent actual fund performance. Index performance returns do not reflect any management fees, transaction costs or
expenses. Indices are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results.
MSCI US INVESTABLE MARKET SECTOR ETFs 5,506.8 2.5% 58.5 50.0 11.7 797.7 3,017.9
Vanguard Consumer Discretionary VCR US MZUSI0CD -4.9% 1.6% 234.3 19.3% 2.2 3.5 0.3 37.9 60.2
Vanguard Consumer Staples VDC US MZUSI0CS -1.6% -0.1% 547.2 -5.4% 2.2 4.9 -33.5 -40.1 -59.6
Vanguard Energy VDE US MSCIEN -4.7% -11.0% 1,041.0 0.5% 16.5 8.9 -39.3 118.5 302.2
Vanguard Financials VFH US MZUSI0FN -7.6% -4.3% 464.5 -7.7% 4.3 4.4 -2.8 -14.9 39.7
Vanguard Health Care VHT US MZUSI0HC -2.2% -9.2% 557.6 -6.4% 7.5 3.3 -15.2 12.8 -20.0
Vanguard Industrials VIS US MSCIIN -7.7% -0.8% 294.9 -12.1% 1.1 2.7 -5.3 -42.2 103.3
Vanguard Information Technology VGT US MZUSI0IT -7.0% -10.6% 1,137.0 16.3% 4.7 10.2 47.1 288.1 408.7
Vanguard Materials VAW US MZUSI0MT -2.8% -4.5% 414.8 -15.4% 9.6 5.3 -26.2 -56.5 203.1
Vanguard Telecommunication Services VOX US MSCITC 1.5% -2.0% 241.0 21.8% 1.1 2.1 11.6 39.4 15.2
Vanguard Utilities VPU US MZUSI0UT 0.5% -1.3% 574.6 25.2% 9.2 4.6 12.9 115.9 139.9
Vanguard REIT VNQ US RMZ -1.2% 14.5% 5,656.4 20.7% 130.6 118.2 62.2 338.9 1,825.2
S&P GLOBAL SECTOR ETFs 4,068.2 -8.4% 34.2 34.5 135.4 67.8 1,120.5
iShares S&P Global Consumer Discretionary RXI US SGD -3.6% -0.4% 93.0 8.7% 0.6 0.5 0.0 9.1 44.4
iShares S&P Global Consumers Staples KXI US SGCS -0.8% 1.1% 280.1 -10.8% 2.7 3.8 -17.1 -30.6 58.4
iShares S&P Global Energy IXC US SGES -4.3% -12.7% 1,035.3 -4.5% 1.5 8.2 75.3 112.7 337.7
iShares S&P Global Financials IXG US SGFS -6.7% -8.2% 262.5 -21.2% 19.7 3.4 15.9 -37.2 83.9
iShares S&P Global Healthcare IXJ US SGH 0.3% -7.9% 444.6 -16.3% 0.8 2.5 -21.7 -31.0 -110.0
iShares S&P Global Industrials EXI US SGN -5.8% -0.3% 161.2 3.9% 0.1 1.0 -2.2 10.1 66.5
iShares S&P Global Materials MXI US SGM -2.1% -7.1% 767.3 -15.8% 2.4 3.0 5.9 -59.8 473.3
iShares S&P Global Technology IXN US SGI -7.1% -10.0% 480.1 5.8% 1.2 4.6 27.2 88.9 61.7
iShares S&P Global Telecommunications IXP US SGT 0.6% 1.1% 325.0 0.6% 4.1 5.2 32.4 12.2 52.8
iShares S&P Global Utilities JXI US SGU -0.2% -6.3% 219.1 -13.0% 1.2 2.3 19.6 -6.5 51.7
MSCI ACWI ex US SECTOR ETFs 46.5 100.0% N/A 0.5 0.0 46.2 N/A
iShares MSCI ACWI ex US Consumer Discretionary AXDI US MSWDUCDN -2.5% -0.7% 5.3 100.0% N/A 0.0 0.0 5.3 N/A
iShares MSCI ACWI ex US Consumer Staples AXSL US MSWDUCSN 0.2% 1.7% 5.4 100.0% N/A 0.1 0.0 5.4 N/A
iShares MSCI ACWI ex US Energy AXEN US MSWDUENN -3.8% -14.2% 5.0 100.0% N/A 0.1 0.0 5.1 N/A
iShares MSCI ACWI ex US Health Care AXHE US MSWDUHCN 3.0% -6.6% 5.1 100.0% N/A 0.1 0.0 5.0 N/A
iShares MSCI ACWI ex US Industrials AXID US MSWDUINN -3.6% -1.5% 5.0 100.0% N/A 0.0 0.0 5.0 N/A
iShares MSCI ACWI ex US Information Technology AXIT US MSWDUITN -6.6% -8.1% 4.9 100.0% N/A 0.0 0.0 5.1 N/A
iShares MSCI ACWI ex US Materials AXMT US MSWDUMTN -1.7% -6.5% 5.3 100.0% N/A 0.0 0.0 5.1 N/A
iShares MSCI ACWI ex US Telecommunication Servic AXTE US MSWDUTCN 0.2% 0.1% 5.3 100.0% N/A 0.0 0.0 5.1 N/A
iShares MSCI ACWI ex US Utilities AXUT US MSWDUUTN -0.6% -8.1% 5.1 100.0% N/A 0.1 0.0 5.0 N/A
Index returns are for illustrative purposes only and do not represent actual fund performance. Index performance returns do not reflect any management fees, transaction costs or
expenses. Indices are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results.
Total 160 $98.2 100.0% 107 $2.0 $7.0 18 12.7% $10.1 11.4%
ETPs are products that have similarities to ETFs in the way they trade and settle but they do not use an open-end investment company structure. The use of other structures
including grantor trusts, partnerships, notes and commodity pools by ETPs can create different tax and regulatory implications for investors when compared to ETFs which are funds.
Data as at end August 2010.
Source: Global ETF Research & Implementation Strategy Team, BlackRock, Bloomberg.
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ETF Assets Total $0.8 $1.1 $2.3 $5.3 $8.2 $17.6 $39.6 $74.3 $104.8 $141.6 $212.0 $309.8 $412.1 $565.6 $796.7 $711.1 $1,036.0 $1,064.4
ETF Commodity Assets $0.0 $0.1 $0.3 $0.5 $1.2 $3.4 $6.3 $10.0 $25.6 $32.4
ETF Fixed Income Assets $0.1 $0.1 $4.0 $5.8 $23.1 $21.3 $35.8 $59.9 $104.0 $167.0 $203.6
ETF Equity Assets $0.8 $1.1 $2.3 $5.3 $8.2 $17.6 $39.6 $74.3 $104.7 $137.5 $205.9 $286.3 $389.6 $526.5 $729.9 $596.4 $841.6 $824.3
ETP Assets Total $2.0 $5.1 $3.9 $4.1 $6.3 $9.3 $15.9 $32.5 $54.6 $61.2 $119.7 $135.0
# ETFs 3 3 4 21 21 31 33 92 202 280 282 336 461 714 1,173 1,596 1,945 2,308
# ETPs 2 14 17 17 18 22 64 170 347 517 625 874
ETFs
AUM (US$Bn) 1,064.4 2.7% 715.7 1.5% 230.9 1.7% 24.3 -1.5% 48.2 23.9% 11.9 20.7% 31.6 10.7%
# ETFs 2,308 18.7% 871 12.8% 985 19.1% 74 8.8% 180 40.6% 21 23.5% 150 36.4%
# Listings 4,922 28.6% 871 12.8% 3,140 28.8% 77 8.5% 284 38.5% 347 86.6% 176 32.3%
# Providers 129 19.4% 30 3.4% 37 8.8% 6 0.0% 56 33.3% 3 0.0% 4 0.0%
# Exchanges 43 7.5% 2 0.0% 19 5.6% 2 0.0% 13 0.0% 3 0.0% 1 0.0%
ADV (US$Mn) 57,516.4 13.4% 52,914.3 15.6% 2,704.8 0.7% 121.8 -20.9% 731.9 -18.0% 298.7 34.1% 735.3 -23.0%
ETPs
Assets (US$Bn) 135.0 12.7% 98.2 11.4% 19.7 25.4% 0.3 11.1% 1.1 37.0% - - 0.4 100.0%
# ETPs 874 41.0% 160 12.7% 387 117.4% 9 80.0% 14 16.7% - - 1 100.0%
# Listings 1,439 55.7% 160 12.7% 885 98.0% 29 163.6% 17 13.3% 23 228.6% 21 61.5%
# Providers 48 29.7% 18 5.9% 9 200.0% 4 100.0% 10 42.9% - - 1 100.0%
# Exchanges 20 11.1% 1 0.0% 6 20.0% 2 0.0% 5 25.0% 1 0.0% 1 0.0%
Total
Assets (US$Bn) 1,199.3 3.8% 813.9 2.6% 250.5 3.3% 24.6 -1.2% 49.3 24.2% 11.9 20.7% 32.0 12.2%
# ETFs/ETPs 3,182 24.1% 1,031 12.8% 1,372 36.5% 83 13.7% 194 38.6% 21 23.5% 151 38.5%
# Listings 6,361 33.9% 1,031 12.8% 4,025 39.5% 106 29.3% 301 36.8% 370 91.7% 197 35.9%
# Providers 159 21.4% 44 4.8% 42 23.5% 8 33.3% 60 36.4% 3 0.0% 4 0.0%
# Exchanges 46 7.0% 2 0.0% 19 5.6% 2 0.0% 13 0.0% 3 0.0% 1 0.0%
1 2 3 4 5
BZ CN CL MX US
Providers 2 4 - 2 30
6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
A B F FR G GR H I IT N NO R SAR SL SA SP S SW T UAE UK
Providers 1 1 1 9 9 2 1 2 4 4 2 1 1 1 7 2 2 6 5 1 9
AUM US$Bn 0.0 0.0 0.2 51.0 90.2 0.1 0.0 0.2 1.7 0.2 0.6 0.0 0.0 0.0 1.8 1.3 2.0 29.5 0.1 0.0 53.5
A (Austria), B (Belgium), F (Finland), FR (France), G (Germany), GR (Greece), H (Hungary), I (Ireland), IT (Italy), N (Netherlands), NO (Norway), R (Russia) SAR (Saudi Arabia), SL (Slovenia), SA (South Africa),
SP (Spain), S (Sweden), SW (Switzerland), T (Turkey), UAE (United Arab Emirates), UK (United Kingdom)
27 28 29 30 31 32 33 34 35 36 37 38
AU CH HK IN IND J MY NZ SG SK TW TH
P listings 11 12 37 15 1 74 4 6 20 59 12 3
1 2 3
Canada Mexico US
P listings 1 - 160
T listings 21 23 160
Providers 1 - 18
4 5 6 7 8 9 10 11 12
Botswana France Germany Israel Italy Nether- South UAE UK
lands Africa
Providers - 1 6 7 - - 2 1 5
13 14 15 16 17 18
Australia Hong India Japan Singapore South
Kong Korea
P listings 5 - 8 9 - 1
P listings = Primary listings
T listings = Total listings
T listings 5 1 8 29 2 1 Providers = Primary ETF providers
Assets in primary listings only
Providers 1 - 8 4 - 1
Data as at end August 2010.
Assets US$ Bn 0.6 - 0.5 0.3 - 0.0
Source: Global ETF Research & Implementation Strategy Team, BlackRock, Bloomberg.
260 1,100
240 1,000
220
900
200
800
180
160 700
140 600
120 500
100 400
80
300
60
200
40
20 100
0 0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Aug-10
ETF Assets Total $0.7 $5.7 $10.7 $20.4 $34.0 $54.9 $89.7 $128.5 $142.7 $226.9 $230.9
ETF Commodity Assets $0.4 $2.0 $3.3 $4.9 $15.2 $20.0
ETF Fixed Income Assets $1.0 $2.9 $5.2 $12.1 $21.0 $41.1 $51.6 $54.6
ETF Equity Assets $0.7 $5.7 $10.7 $19.4 $31.0 $49.3 $75.7 $103.5 $96.6 $159.8 $154.1
ETP Assets $1.1 $2.1 $4.9 $7.0 $15.7 $19.7
# ETFs 6 71 118 104 114 165 273 423 636 827 985
# ETPs 2 32 56 123 178 387
continued…
Total 985 3,140 $230.9 100.0% 74 $1.6 $26.0 158 19.1% $4.0 1.7%
ETFs should be viewed as a tool for both active and passive managers
600,000
400,000
200,000
-200,000
-400,000
-600,000
2002 2003 2004 2005 2006 2007 2008 2009 YTD JUN-10
All ETF 8,782.5 4,105.8 11,755.1 13,109.9 19,354.3 20,961.0 76,545.5 47,193.7 21,169.7
All Index-tracking 17,607.6 14,292.8 23,662.7 26,880.9 30,234.9 26,598.2 78,260.0 74,257.0 27,994.9
All Europe (Ex-ETFs) 149,202.0 288,513.5 234,604.6 450,509.1 413,256.6 115,780.6 -495,109.2 220,587.2 55,166.4
Total 387 $19.7 100.0% 18 $0.6 $3.3 209 117.4% $4.0 25.4%
AUGUST
# ETFs ADV ASSETS NNA
EXPOSURE /ETPs (US$ Mn) (US$ Mn) (US$ Mn) YTD-10 NNA (US$ Mn) 2009 NNA (US$ Mn)
Equity 742 2,241.7 154,604.0 1,162.2 14,801.4 32,725.0
Europe - Equity 439 1,639.6 91,321.4 585.4 2,597.3 18,205.5
Broad 271 1,358.7 80,258.1 474.6 (178.9) 14,818.5
Consumer Goods/Services 39 48.7 1,439.2 (208.0) 71.9 335.4
Energy 10 12.0 838.5 22.0 (36.4) 322.1
Financials 26 76.2 2,610.7 174.2 39.1 825.5
Healthcare 11 7.2 961.4 55.5 (58.7) 145.9
Industrials 11 40.6 493.1 (54.6) 95.0 136.6
Information Technology 12 2.5 330.6 14.5 (1.8) 12.4
Materials 19 58.4 1,342.9 (33.6) (177.6) 522.5
Private Equity 1 0.7 85.9 4.0 44.8 34.2
Real Estate 12 5.6 1,493.4 91.1 272.1 333.6
Telecommunications 11 13.0 761.8 (8.2) (165.7) 425.0
Utilities 11 15.3 608.1 53.9 (65.1) 361.3
Other 5 0.6 97.9 - 50.9 (67.4)
North America - Equity 79 149.3 15,984.9 (37.1) 2,857.9 1,561.5
Asia Pacific - Equity 53 112.9 9,913.6 122.0 1,823.6 2,662.0
Global - Equity 56 84.0 10,164.8 (130.7) 1,756.2 2,799.6
continued…
continued…
Total 0.0% -9.2% 3,743.9 8,178.0 -14.7% 57.7 -3.6 -77.2 -227.4
Index returns are for illustrative purposes only and do not represent actual fund performance.
Index performance returns do not reflect any management fees, transaction costs or expenses.
Indices are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results.
Source: Global ETF Research and Implementation Strategy Team, BlackRock, Bloomberg.
50 200
45 180
40 160
35 140
30 120
25 100
20 80
15 60
10 40
5 20
0 0
2001 2002 2003 2004 2005 2006 2007 2008 2009 Aug-10
ETF Assets $3.7 $3.8 $6.6 $8.6 $10.5 $18.1 $27.0 $23.8 $38.5 $48.2
ETP Assets $0.1 $0.5 $0.8 $1.1
# ETFs 4 11 20 27 32 49 68 96 132 180
# ETPs 4 6 12 14
40 80
35 70
30 60
25 50
20 40
15 30
10 20
5 10
0 0
2001 2002 2003 2004 2005 2006 2007 2008 2009 Aug-10
ETF Assets $6.6 $21.0 $27.6 $30.3 $31.8 $34.6 $34.2 $27.4 $24.6 $24.3
ETP Assets $0.0 $0.3 $0.3 $0.3
# ETFs 8 18 18 15 13 13 15 61 68 74
# ETPs 1 4 5 9
14 24
22
12
20
18
10
16
8 14
12
6 10
8
4
6
4
2
2
0 0
2002 2003 2004 2005 2006 2007 2008 2009 Aug-10
ETF Assets $0.1 $0.4 $0.4 $1.3 $2.6 $6.0 $5.1 $9.8 $11.9
# ETFs 1 1 2 2 2 6 10 17 21
35 160
30 140
120
25
100
20
80
15
60
10
40
5 20
0 0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Aug-10
ETF Assets $0.4 $4.0 $3.1 $3.4 $5.5 $7.4 $10.6 $13.0 $18.0 $15.7 $28.5 $31.6
ETP Assets $0.4
# ETFs 1 3 14 15 16 16 20 26 46 77 110 150
#ETPs 1
• ETFs are open-ended index tracking funds1. • ETFs are generally liquid:
• ETFs are managed by asset managers. – Liquidity reflects liquidity of underlying basket
• ETFs are bought and sold through brokers. of shares not the trading volume of the ETF –
as long as trading with a broker which is an
• Trade on the exchange like any other stock. authorised participant.
• Settle like any other share on the exchange. – Creation/redemption process makes ETFs as
• Can be purchased, cleared and held in brokerage or liquid as their underlying shares.
custodial account. – Unique structure for brokers who enter into
• Can go long or short. legal agreements with the ETF asset managers
• Are lendable and marginable. to be authorised participants, creation/
redemption agents or liquidity providers:
• Transparent underlying portfolios generally
available daily. o Portfolio of securities can be exchanged
for ‘Creation Units’.
• Real Time indicative NAV.
o ‘Creation Units’ can be redeemed for
• ETFs will generally price around their NAV due to underlying portfolio.
the creation/redemption process.
o Creation/redemption (‘in kind’) feature
• Benefits: allows for arbitrage and results in the
– ETFs are not a derivative. fund trading near Net Asset Value.
– Flexible.
– Transparent.
– Liquid.
– Small minimum investment.
– Ability to trade with multiple counterparties.
1 Note a few active funds which disclose their portfolios daily have been approved and listed.
2,308 ETFs with 4,922 ETF listings 874 other ETPs* with 1,439 ETP listings
Total: 3,182 products with 6,361 listings
*Other Exchange Traded Products (ETPs) include Holding Company Depository Receipts (HOLDRs), Exchange Traded Commodities (ETCs),
Exchange Traded Currency products, and Exchange Traded Notes (ETNs). Data as at end August 2010.
Source: Global ETF Research & Implementation Strategy Team, BlackRock.
Source: BCG Global Asset Management 2009, ‘Conquering the Crisis’, July 2009, Projections 2008–2012
Considerations: Products:
Transparency
• What is my Benchmark? Portfolio Trading
Client Service
• What are my Regulatory guidelines?
• What are my Mandate Constraints?
Product Choice
• What are my counterparty risk guidelines? ETFs
• What are my Tracking Risk guidelines?
Liquidity • How can I gain Long and/or Short exposure?
• How can Securities Lending add value? ETNs
• What is my Time Horizon?
Portfolio • What are the Tax implications?
Management • What are my Liquidity Requirements?
• What Costs are involved? ETCs*
Swaps
Securitised Products
Certificates, Warrants, Equity Linked Notes, Local
Access Products
* Exchange Traded Commodities (ETCs)
• Market exposure:
Implement a wide variety of investment strategies using a broad range of market exposures
• Directional views:
Establish a broad directional market position, use long & short trades to implement market view(s)
• Core satellite:
Strategic Achieve strategic focus
• Rebalancing:
Adjust drift in a portfolio’s asset allocation or style
• Completion:
Add uncorrelated instruments and/or asset classes to strategy
• Interim beta:
Maintain exposure to a given market while searching for a specific market opportunity
• Cash management:
Invest cash rapidly and cost effectively to gain desired market exposures
• Derivatives alternative:
Tactical Broad opportunity set of Delta 1 exposures with single line cash based settlement
• Exposure management:
Shift portfolio emphasis by adjusting exposures (e.g. duration, credit)
• Thematic:
Implement thematic exposures (e.g. dividends, alternatives)
Transparency Investors can generally see the ETF composition at any given time
• ETFs are listed on exchanges and can be traded at any time the market is open
Flexibility
• Pricing is continuous throughout the day
Cost effectiveness • The average total expense ratio (TER) for equity ETFs in the us is 34 bps versus
93 bps (per annum) for the average equity index tracking fund and 146 bps
(per annum) for the average active equity fund1
Securities lending • ETF units and underlying assets can be lent out to potentially offset holding costs
The strategies discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or
sell, or an offer to sell or a solicitation of an offer to buy any security. There is no guarantee that any strategies discussed will be effective.
relatively modest share, institutions actually 0% 20% 40% 60% 80% 100% 120%
represent roughly half the assets invested in Plan sponsors
ETFs in the United States according to recent Money ma na gers
industry estimates. Note: Based on responses from 70 U.S. plan sponsors and money managers using ETFs.
Source 2010 Greenwich Market Pulse - ETFs
• Almost half the institutional users in the Greenwich
Associates annual study say they employ ETFs for Greenwich Associates asked the institutions participating
what they consider ‘tactical’ tasks related to the in the survey to name the providers they use for ETFs.
management of their portfolios. Approximately The results reveal two things:
20% of institutional ETF users say they employ the 1) iShares/BlackRock is by far the most widely used
funds to implement ‘strategic or long-term’ provider of ETFs among US institutions; and
investment decisions, and an equal share report 2) Most institutions that employ ETFs use more than one
that they use ETFs for both tactical and provider: 89% of institutional ETF users obtain ETFs
strategic purposes. from iShares/BlackRock, whereas 60% use
1
Greenwich Associates surveyed U.S. pension funds, endowments,
SPDRs/State Street and 51% use Vanguard.
foundations, and money managers that identified themselves
as ETF users. Seventy institutions participated in the survey,
including 43 plan sponsors and 27 money managers. The survey
was conducted from 8 March to 16 March 2010. Source: Greenwich Associates: ETFs Gain Foothold in Institutional Market, April 2010.
are slightly more apt to predict an increase in use: -20% 0% 20% 40%
Approximately 65% expect to be devoting more
Note: Based on responses from 70 US plan sponsors and money managers using ETFs.
assets to ETFs in the next 12 months, compared Source 2010 Greenwich Market Pulse – ETFs
with half of plan sponsors. About 20% of plan
sponsors expect to reduce their use of ETFs. Nearly 30% of institutions that do not use ETFs say
they lack familiarity with the product. One way to
address this lack of information would be for providers
to win over investment consultants, who would then
be in a position to explain the product to their
institutional clients as both a tool for tactical
adjustments and a means of obtaining desired
exposures. The results of this recent Greenwich Market
Pulse suggest that many investment consultants are
not currently recommending ETFs or even initiating
discussions with their clients about the product.
Source: Greenwich Associates: ETFs Gain Foothold in Institutional Market, April 2010.
3,000 3,000
2,500 2,500
2,000 2,000
1,500 1,500
1,000 1,000
500 500
0 0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Other 0 0 1 2 5 11 10 10 10 30 15 15
Latin America 0 0 0 4 5 8 7 19 40 36 57 68
Asia Pacific 1 1 4 11 23 19 23 35 38 51 60 79
Canada 3 7 24 32 55 68 62 58 73 77 95 101
Europe 16 29 60 152 233 302 315 351 430 461 608 618
United States 145 241 342 561 782 889 1,010 1,154 1,333 1,559 1,781 2,045
Total 165 278 431 762 1,103 1,297 1,427 1,627 1,924 2,214 2,616 2,926
Source: Global ETF Research & Implementation Strategy Team, BlackRock, Thomson Reuters.
Type of Institution 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Investment Advisor 109 200 319 549 802 923 1,023 1,167 1,380 1,564 1,946 2,152
Hedge Fund 9 20 30 73 114 144 152 180 209 285 340 438
Bank and Trust 14 19 30 67 92 109 120 139 161 174 189 193
Pension Fund 5 8 9 15 22 28 28 33 45 36 45 48
Brokerage Firm 14 11 15 15 16 25 28 31 37 40 45 48
Insurance Company 13 19 27 39 50 60 65 66 74 80 23 17
Endowment Fund 1 1 1 3 3 3 5 5 7 8 9 9
Private Equity 0 0 0 0 0 0 0 0 1 4 7 9
Holding Company 0 0 0 0 0 1 2 3 3 4 3 5
Corporation 0 0 0 0 1 1 1 1 4 16 5 4
Foundation 0 0 0 0 1 0 2 1 2 3 3 2
Sovereign Wealth Fund 0 0 0 0 0 0 0 0 0 0 0 1
Venture Capital 0 0 0 1 2 3 1 1 1 0 1 0
Grand Total 165 278 431 762 1,103 1,297 1,427 1,627 1,924 2,214 2,616 2,926
Source: Global ETF Research & Implementation Strategy Team, BlackRock, Thomson Reuters.
Source: Global ETF Research & Implementation Strategy Team, BlackRock, Thomson Reuters.
Sample portfolios are for illustrative purposes only and should not be construed as a recommendation to purchase or sell, or an offer to sell, or a solicitation of an offer to buy any security.
Source: BlackRock.
*A fund may price a security using a different pricing source than used by the Index Provider itself.
Source: Fixed Income Index Guide, BlackRock.
Government – term Barclays Capital Barclays Capital traders Daily Mid prices
Government – short About 80% comes from Barclays Capital traders Daily Mid prices
Barclays Capital
treasury The rest comes from third party vendors
Corporate Barclays Capital About 80% comes from Barclays Capital traders Daily Bid prices
Bid prices
Citigroup Citigroup Individual Citigroup trader pricing Daily
(Japan mid prices)
Intraday 9:00 am
eb.rexx Deutsche Börse Eurex Bonds Traded price data
- 5:00 pm CET
Intraday 9:00 am
EuroMTS EuroMTS MTS Markets Bid prices
- 5:30 pm CET
International Index
$ Corporate iBoxx Consortium Intraday Bid prices
Company (IIC)
600%
# of Recomposition 500%
Index Commodities Weighting Method Frequency
400%
S&P GSCI 24 World Production Monthly
300%
Rogers International Discretion of
36 Annual 200%
Commodity Index Committee
Thomson Equal Weighted 100%
Reuters/Jefferies 19 within broad Irregular
0%
CRB Index sectors
Dow Jones UBS Liquidity and -100%
19 Annual
Aug-98
Apr-99
Dec-99
Aug-00
Apr-01
Dec-01
Aug-02
Apr-03
Dec-03
Aug-04
Apr-05
Dec-05
Aug-06
Apr-07
Dec-07
Aug-08
Apr-09
Dec-09
Commodity Index Production
S&P GSCI TR
Thomson Reuters/Jefferies CRB Index TR
Rogers International Commodity Index TR
DJ-UBS Commodity TR
Index returns are for illustrative purposes only and do not represent actual fund performance. Index performance returns do not reflect any management fees, transaction costs
or expenses. Indices are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results. Data as at end December 2009.
Source: Global ETF Research & Implementation Strategy Team, BlackRock, Bloomberg.
Rogers Rogers
DJ UBS Thomson International DJ UBS Thomson International
Commodity Reuters Commodity Commodity Reuters Commodity
Commodity Measure S&P GSCI Index Jefferies CRB Index (RICI) Commodity Measure S&P GSCI Index Jefferies CRB Index (RICI)
Energy 70.38% 31.09% 39.00% 44.00% Agriculture 12.91% 31.09% 34.00% 31.90%
WTI Crude Oil $/barrel 35.95% 13.92% 23.00% 21.00% Wheat $cents/bushels 2.88% 5.71% 1.00% 6.00%
Brent Crude Oil $/barrel 14.92% - - 14.00% Kansas Wheat $cents/bushels 0.59% - - 1.00%
RBOB Gasoline $cents/gallon 4.67% 3.56% 5.00% 3.00% Corn $cents/bushels 3.17% 6.83% 6.00% 4.75%
Heating Oil $cents/gallon 4.63% 3.49% 5.00% 1.80% Soybeans $cents/bushels 2.33% 7.93% 6.00% 3.35%
GasOil $/metric ton 5.95% - - 1.20% Soybean Oil $cents/pound - 3.08% - 2.00%
Natural Gas $/mmBtu 4.27% 10.11% 6.00% 3.00% Soybean Meal $/short ton - - - 0.75%
Livestock 5.08% 6.54% 7.00% 3.00% Cotton $cents/pound 1.31% 2.21% 5.00% 4.20%
Live Cattle $cents/pound 2.77% 4.00% 6.00% 2.00% Sugar $cents/pound 1.55% 2.07% 5.00% 2.00%
Feeder Cattle $cents/pound 0.50% - - - Coffee $cents/pound 0.73% 3.26% 5.00% 2.00%
Lean Hogs $cents/pound 1.82% 2.53% 1.00% 1.00% Cocoa $/metric ton 0.36% - 5.00% 1.00%
Precious Metals 3.68% 13.04% 7.00% 7.10% Orange Juice $cents/pound - - 1.00% 0.60%
Gold $/troy oz 3.28% 9.74% 6.00% 3.00% Rubber JPY/kilogram - - - 1.00%
Silver $/troy oz 0.40% 3.30% 1.00% 2.00% Lumber $/1k board fleet - - - 1.00%
Palladium $/troy oz - - - 0.30% Canola CAD/metric ton - - - 0.75%
Platinum $/troy oz - - - 1.80% Rice $/cwt - - - 0.50%
Industrial Metals 7.95% 18.25% 13.00% 14.00% Oats $cents/bushels - - - 0.50%
Aluminium $/metric ton 2.51% 5.53% 6.00% 4.00% Rapeseed EUR/metric ton - - - 0.25%
Copper $/metric ton 3.48% 7.56% 6.00% 4.00% Azuki Beans JPY/bag - - - 0.15%
Lead $/metric ton 0.44% - - 2.00% Greasy Wool AUD/kilogram - - - 0.10%
Nickel $/metric ton 0.88% 2.77% 1.00% 1.00%
Tin $/metric ton - - - 1.00% TOTAL 100.00% 100.01% 100.00% 100.00%
Zinc $/metric ton 0.65% 2.39% - 2.00% Data as of: May-10 Jul-10 Jan-10 Jan-10
Source: Global ETF Research & Implementation Strategy Team, BlackRock, S&P, Dow Jones, Lyxor, RICI Handbook 2010.
These types of products are designed to rebalance daily which means that investors cannot expect the ETF to
achieve its stated performance objective (-1x,-2x,+2x,+3x etc) over any period greater than one trading
day. Investors can also use inverse (short) and leverage inverse ETFs to implement hedges and short
economic exposure.
A significant effect on longer term returns is index volatility and its effect on compounding. In periods of high
volatility the relationship breaks down as the effects of compounding become more pronounced, while in
periods of low index volatility the effects are less apparent.
Leveraged
Index Leveraged x2 Inverse x1 Inverse (x2)
Period Index % Return ETF % Return ETF % Return ETF % Return
Start 100.00 100.00 100.00 100.00
Day 1 102.50 2.5% 105.00 5.0% 97.50 -2.5% 95.00 -5.0%
Day 2 101.00 -1.5% 101.93 -2.9% 98.93 1.5% 97.78 2.9%
Day 3 98.00 -3.0% 95.87 -5.9% 101.87 3.0% 103.59 5.9%
Day 4 99.00 1.0% 97.83 2.0% 100.83 -1.0% 101.48 -2.0%
Day 5 102.00 3.0% 103.76 6.1% 97.77 -3.0% 95.33 -6.1%
Day 6 105.00 2.9% 109.86 5.9% 94.89 -2.9% 89.72 -5.9%
Day 7 110.00 4.8% 120.32 9.5% 90.38 -4.8% 81.17 -9.5%
Day 8 102.00 -7.3% 102.82 -14.5% 96.95 7.3% 92.98 14.5%
Day 9 108.00 5.9% 114.92 11.8% 91.25 -5.9% 82.04 -11.8%
Day 10 100.00 -7.4% 97.89 -14.8% 98.00 7.4% 94.20 14.8%
For illustrative purposes only
Total 0.0% -2.1% -2.0% -5.8% Source: BlackRock
Round trip execution costs Commission, bid/ask spread Commission, bid/ask spread Usually commission
Holding cost Total Expense Ratio (TER) Roll, basis risk, margin Financing
FINRA, the Financial Industry Regulatory Authority which regulates all securities firms doing business in the US, issued a
regulatory notice in June 2009 to provide guidance on leveraged and inverse ETFs. The notice states that "...inverse and
leveraged ETFs that are reset daily typically are unsuitable for retail investors who plan to hold them for longer than one trading
session, particularly in volatile markets...”.
The following is taken from the notice: Exchange-traded funds (ETFs) that offer leverage or that are designed to perform
inversely to the index or benchmark they track - or both - are growing in number and popularity. While such products may be
useful in some sophisticated trading strategies, they are highly complex financial instruments that are typically designed to
achieve their stated objectives on a daily basis. Due to the effects of compounding, their performance over longer periods of
time can differ significantly from their stated daily objective. Therefore, inverse and leveraged ETFs that are reset daily typically
are unsuitable for retail investors who plan to hold them for longer than one trading session, particularly in volatile markets.
This Notice reminds firms of their sales practice obligations in connection with leveraged and inverse ETFs. In particular,
recommendations to customers must be suitable and based on a full understanding of the terms and features of the product
recommended; sales materials related to leveraged and inverse ETFs must be fair and accurate; and firms must have adequate
supervisory procedures in place to ensure that these obligations are met.
Most leveraged and inverse ETFs “reset” daily, meaning that they are designed to achieve their stated objectives on a daily basis.
Due to the effect of compounding, their performance over longer periods of time can differ significantly from the performance
(or inverse of the performance) of their underlying index or benchmark during the same period of time. For example, between
December 1, 2008, and April 30, 2009:
• The Dow Jones U.S. Oil & Gas Index gained 2 percent, while an ETF seeking to deliver twice the index's daily return fell 6
percent and the related ETF seeking to deliver twice the inverse of the index's daily return fell 26 percent.
• An ETF seeking to deliver three times the daily return of the Russell 1000 Financial Services Index fell 53 percent while the
index actually gained around 8 percent. The related ETF seeking to deliver three times the inverse of the index's daily
return declined by 90 percent over the same period.
This effect can be magnified in volatile markets. Using a two-day example, if the index goes from 100 to close at 101 on the first
day and back down to close at 100 on the next day, the two-day return of an inverse ETF will be different than if the index had
moved up to close at 110 the first day but then back down to close at 100 on the next day. In the first case with low volatility,
the inverse ETF loses 0.02 percent; but in the more volatile scenario the inverse ETF loses 1.82 percent. The effects of
mathematical compounding can grow significantly over time, leading to scenarios such as those noted above.
Source: Regulatory Notice 09-31, Financial Industry Regulatory Authority
On 26 March, FSA published its feedback statement (Policy Statement 10/6) to its Consultation Paper of June 2009 (CP09/18)
relating to proposals to improve the clarity with which adviser firms describe their services to consumers, and introduce a system
of ‘adviser-charging’ to remove the potential commission-bias through the influence of product providers.
The Policy Statement contains final rules in relation to ‘adviser-charging’ and ‘service-labelling’ and FSA will proceed with the
proposals set out in the consultation. Therefore, with effect from 1 January 2013, advisers will be prevented from receiving
commissions paid by product providers. FSA notes that it wants adviser firms to have charging structures that are product
neutral in that the charges reflect the services provided to the client, not the particular product provider or type of product.
Product providers are no longer required to monitor ‘appropriate adviser-charging’ (with reference to so-called ‘decency limits’)
though there remains a requirement to obtain and validate instructions from the client if the charge is deducted (by the provider)
from the client’s investment. This creates a significant challenge for providers as due to a result of increasing disintermediation,
in part due to the growth of platforms, the end-consumer will not be a direct client of the firm. FSA accepts that bespoke share
classes to provide for a full range of possible adviser charges (when taken from funds) is impractical and recognises the value of
cash accounts provided by platforms or other third-parties to collect adviser charges. This is a particularly important
development for factory-gate priced products such as most ETFs, however, it is uncertain whether the current practice of
rebating a proportion of the annual management charge, if this is used to fund the consumer cash account, will be acceptable
and FSA states that it intends to consult further on whether any rebates should be prohibited.
In addition, FSA will proceed with proposals for advisers to describe the advice provided as either independent or ‘restricted’. As
noted in previous editions, firms offering independent advice will need to demonstrate that their recommendations are based on
a comprehensive and unbiased analysis of the market and that any products selected are made in the interests of clients. If a
firm elects to limit its product range to certain investments or strategies, it will need to describe the services it offers as
‘restricted’ and this fact must be clearly disclosed to the consumer. FSA notes that it may be possible for certain advisers
servicing specialist client groups to retain the independence ‘label’ even where certain products are excluded from the scope of
their advice, although the firm would have to demonstrate that the product or strategy was not appropriate for their clients. FSA
observes that this exception is unlikely to be of benefit to most firms since most retail investment products are likely to be
appropriate for the vast majority of retail investors. Separately, FSA notes it was clear from responses received that it was not
widely understood that ETFs already fall within the current definition of packaged products and for the avoidance of doubt, it is
made clear that any products which might achieve similar outcomes as more traditional retail investment products are potentially
caught by the new rules.
Source: Policy Statement 10/6, Distribution of retail investments: Delivering the RDR – feedback to CP09/18 and final rules, Financial Services Authority, BlackRock.
In addition to the feedback statement, FSA has also published the long-awaited Discussion Paper on the role of platforms in
facilitating the delivery of the RDR objectives. In particular, the paper discusses how platforms should be remunerated in a post-
RDR world and FSA has made clear that its ultimate objective is to separate or ‘unbundle’ product and platform charges to
provide greater transparency to consumers. FSA expresses a clear preference for the ‘wrap’ model where either the consumer
pays a wrap fee or product charges are rebated, although clearly the latter scenario will be subject to further consideration. FSA
goes on to say that it would be prepared to prevent all payments to platforms by product providers as it observes that payments
are often to secure ‘shelf-space’, have little relationship to the utility service provided by the platform and typically are used for
purposes which do not directly benefit the consumer, a view which draws strong parallels with the position under the MiFID
Inducements regime. This is not FSA’s final view on this topic but it does clearly call into question the economics of how
platforms will be paid post-RDR.
There is no requirement for platforms to extend their service model to be able to trade listed instruments such as ETFs, but with
the increasing adoption of ETFs by advisers, many platforms are already reviewing and building the functionality to provide wider
securities access. Also, in response to calls from the industry, the FSA intends to make compulsory the transferability of
investments from one platform to another.
The FSA intends to formally consult on proposals to regulate platforms in the summer and expects to publish final rules by the
end of this year, which does not give platforms a significant amount of time to implement the necessary changes to their
business models, which will inevitably require significant input from product providers and the adviser community. Comments on
the Discussion Paper are invited up to and including 26 May and BlackRock, like many of our competitors, continue to work with
the Investment Management Association and other industry practitioners to ensure that our views are fully represented in
ongoing discussions with the FSA.
Source: Policy Statement 10/6, Distribution of retail investments: Delivering the RDR – feedback to CP09/18 and final rules, Financial Services Authority, BlackRock.
The Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) issued an investor
alert on Tuesday 18 August 2009 entitled ‘Leveraged and Inverse ETFs: Specialized Products with Extra Risks for Buy-and-
Hold Investors’:
“The SEC staff and FINRA are issuing this Alert because we believe individual investors may be confused about the
performance objectives of leveraged and inverse exchange-traded funds (ETFs). Leveraged and inverse ETFs typically are
designed to achieve their stated performance objectives on a daily basis. Some investors might invest in these ETFs with the
expectation that the ETFs may meet their stated daily performance objectives over the long term as well. Investors should be
aware that performance of these ETFs over a period longer than one day can differ significantly from their stated daily
performance objectives.”
Source: Leveraged and Inverse ETFs: Specialized Products with Extra Risks for Buy-and-Hold Investors, Financial Industry Regulatory Authority.
U.S. Commodity Futures Trading Commission (CFTC) held hearings on Energy Position Limits and Hedge Exemptions on
July 28, July 29 and August 5, on whether federal position limits should be set on the energy markets.
The hearings provided critical input from a wide range of industry participants and academics to the Commission’s efforts to
examine different approaches to regulate energy markets. The Commodity Exchange Act states that the Commission shall
impose limits on trading and positions as necessary to eliminate, diminish or prevent the undue burdens on interstate
commerce that may result from excessive speculation. The CFTC’s hearings examined the role of position limits in energy
markets in fulfilling the CFTC’s mission to ensure the fair, open and efficient functioning of futures markets.
Goldman Sachs, JPMorgan Chase and other leading banks are exempt from most commodity-trading limits in order to
manage risks as they serve as market makers. The Commodity Futures Trading Commission is looking into whether those
exemptions should stand, as it considers blanket limits on a variety of commodity markets.
A number of ETPs/ ETFs providing exposure to commodities have recently issued notices that they have suspended their
creation process.
Source: Hearings on Energy Position Limits and Hedge Exemptions, U.S. Commodity Futures Trading Commission.
The following is taken from the SEC’s press release announced on 25 March 2010: The SEC staff is conducting a review to
evaluate the use of derivatives by mutual funds, exchange-traded funds (ETFs) and other investment companies. The review will
examine whether and what additional protections are necessary for those funds under the Investment Company Act of 1940.
Pending the review's completion, the SEC has determined to defer consideration of exemptive requests under the Investment
Company Act to permit ETFs that would make significant investments in derivatives. The staff's decision will affect new and
pending exemptive requests from certain actively-managed and leveraged ETFs that particularly rely on swaps and other
derivative instruments to achieve their investment objectives. The deferral does not affect any existing ETFs or other types of
fund applications.
“It's appropriate to engage in a more thorough review of the use of derivatives by ETFs and mutual funds given the questions
surrounding the risks associated with the derivative instruments underlying many funds,” said SEC Chairman Mary Schapiro.
Source: Press Release: SEC Staff Evaluating the Use of Derivatives by Funds, 2010-45, U.S. Securities and Exchange Commission.
Funds registered under the Investment Company Act of 1940 and structured for tax purposes as Regulated Investment
Companies (RICs) under the U.S. Tax Code were previously allowed a package of U.S. tax benefits to non-U.S. shareholders
(generally called ‘flow-through’ benefits) as a result of the 2004 American Jobs Creation Act. These flow-through benefits
have generally expired as of 31-Dec-09.
The three effected flow-through benefits are:
• Exemption from U.S. withholding tax (30% or lower treaty rate) on fund distributions where such distributions represent
Qualified Interest Income (QII). QII is certain fund income derived from interest income on debt of U.S. resident issuers
(i.e., obligations issued by Treasury and U.S. corporations). This applied to fixed income ETFs.
• Exemption from U.S. withholding tax on any short-term capital gains included in fund distributions. This applied to fixed
income and equity ETFs.
• Relief from U.S. Estate Tax on fund holdings by non-U.S. resident persons, where the underlying assets would have been
exempt from Estate Tax if held directly by the non-U.S. resident person.
The purpose of these three flow-through benefits was to allow a non-U.S. resident RIC shareholder the same treatment on a
flow-through basis as if the investments were owned directly by the non-U.S. resident RIC shareholder.
The US Congress recently passed the HIRE Act, which contains provisions still commonly known as FATCA (the legislation
previously being the Foreign Account Tax Compliance Act).
FATCA is a system designed at getting financial institutions (of all descriptions) around the world to identify US investors -
even where they hold indirectly via non-US entities - and report details of these to the IRS. This responds to high levels
of political concern in the US over tax evasion, especially by wealthy individuals.
In order to encourage compliance with this legislation, the US will from 1 January 2013 impose a 30% US withholding tax
on the gross sales proceeds (as well as income) derived by any part of that financial institution from holdings of US financial
assets – unless that institution agrees to enter the reporting regime. Funds and fund managers are included in the definition
of 'Foreign Financial Institutions' (FFIs) and so FATCA goes greatly wider in reach than the existing 'Qualified Intermediary'
system, with which it will coexist.
The impacts on the financial world are undoubtedly complex and potentially far reaching. The basic wording of the HIRE Act
leaves many questions of detail unanswered, so financial institutions are waiting keenly for draft regulations to be issued by
the US Treasury later this year.
It does however currently appear that holdings of US ETFs by non-US investors would be subject to the 30% withholding from
gross sales proceeds, where held through a non-US financial intermediary who does not become FATCA compliant when the
regime goes live in 2013.
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