5 Observations About The ETF/ETN Market

June 24, 2008

As I read through last week's ETF Watch, my head started to spin. 

The ETF business is evolving and growing (by product number anyway) as fast as ever.

I was talking to Darek Wojnar from iShares yesterday, and he quantified a remarkable statistic. It's one I was aware of, but actually hearing it is dramatic. He had pointed out this fact in his presentation at the FRA conference here in New York yesterday morning. He had a clever way of putting it, but the gist is that in the last couple of years, more ETFs have been launched than in the previous history of ETFs (1993-2005). And you thought we were on a fast pace of ETF development from 1999-2005. What it means practically, of course, is that the total number of ETFs nearly DOUBLED last year. In the U.S. from 343 to 601, with maybe another 50 or so added on in 2008 (the number is up over 1,200 globally).

Heather, it would be great to compile interesting stats like that for ETFR aggregating everything (number in registration, number listed in the last 12 months/YTD, flows for new and established funds, etc.). I love that report Heather does for us. Click here to dive in yourself.

I remember us saying in ETF Watch about a year ago that there were more ETFs in registration than had been listed previously. We can't be THAT far from it now, though ETF assets, with the market, have stalled a bit in 2008.

I decided to really plunge into ETF Watch and come out with some interesting observations. Here are my top 5:

1. The Flows data continues to move all over the place.

  • SPY is at $72 billion now after nearly cracking $100 billion at one point, while IVV is on the verge of cracking that top 5 at $16.6 billion (nearly tied with #4 QQQQ and #5 GLD - $16.9 and $16.8 billion respectively).
  • Sandwiched in between are the two biggest bleeders, the week before anyway, EEM and EFA, which had lost $2.7 and $2.3 billion, but still sit in the stratosphere at $44 billion and $24 billion.
  • DIA is out of the top 10 ... the old standby has been a victim to the trend toward broad asset allocation funds (plus GLD).
  • Another standard from the old days, MDY is all the way at 10 and was No. 2 on the inflows a week ago with $600 million coming in (to nearly $10 billion total). No. 1, not surprisingly, was XLE (the Energy Spider), bringing in nearly a billion that week.

2. BGI is busy playing catch-up, filling in all sorts of gaps where there's been some product success in the market, as with EM Small and more international, generally: nuclear, clean energy, etc.

3. Grail has just the one fund in registration, and still strikes me as an odd entrant as VC firm-turned-aspiring asset manager.

4. The pipeline is filled with a lot of new products that I have no idea WHAT they are until I dig into the prospectus a bit (we have all the links in ETF Watch). For example, who knew that the Claymore/Raymond James SB-1 Equity ETF will track an index of Raymond James Strong Buys, and initially would hold only ETFs (though the part I don't get is that the strong buys appear to be individual equities, not sectors).

5. On the other hand, there are a lot of products WITH clear stories, but an unclear market. I would put the IndexIQ-themed products like Innovative Leaders and Customer Loyalty funds and MACRO Medical Inflation ETFs firmly in that camp. Clear and interesting ideas, but will there be takers.

I'll leave it at that for today. I still need to shower up and go moderate a panel that includes Gary Gastineau ... so I'll need a strong cup of coffee as well.


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