At the end of H1 2011, the global ETF industry had 2,825 ETFs with 6,229 listings and assets of US$1,442.7 Bn, from 146 providers on 49 exchanges around the world. This compares to 2,252 ETFs with 4,570 listings and assets of US$1,025.9 Bn from 130 providers on 42 exchanges at the end of H1 2010.

Additionally, at the end of H1 2011, there were 1,162 other ETPs with 1,798 listings and assets of US$183.4 Bn from 57 providers on 23 exchanges. Combining ETFs and ETPs, there were 3,987 products with 8,027 listings, assets of US$1,626.1 Bn from 182 providers on 52 exchanges around the world. This compares to 3,075 products with 5,731 listings, assets of US$1,158.4 Bn from 156 providers on 44 exchanges, at the end of H1 2010.

The global ETF and ETP industry combined, had 3,987 products with 8,027 listings, assets of US$1,626.1 Bn from 182 providers on 52 exchanges around the world. This compares to 3,075 products with 5,731 listings, assets of US$1,158.4 Bn from 156 providers on 44 exchanges, at the end of H1 2010.

In the first half of 2011, global investment markets are faced with ongoing uncertainty on the outlook for the global economy; eurozone sovereign crisis; the EU’s Greek crisis; concerns over the United States growth sustainability; the end of QE2; social and political unrest throughout the Middle East and northern Africa; unpredictable weather; and China’s inflation problems. During this period, US$82.6 Bn of net new assets flowed into a broad spectrum of ETF products as investors responded to these events and were able to implement appropriate, highly focused investment strategies in a timely fashion.

ETFs are index based open-ended funds that can be bought and sold like ordinary shares on a stock exchange. They have become popular and widely used investment vehicles to facilitate many investment and diversification strategies – from short-term tactical applications to longer-term strategic applications. The ETP industry includes other product structures such as grantor trusts, partnerships, commodity pools and notes.

The ETF industry’s 10% increase in AUM for the first half – from US$1.311 trillion to US$1.1443 trillion – exceeded the 4.0% semi-annual increase in the MSCI World Index in US dollar terms, and also topped the industry’s 1.0% decrease in AUM over the same period in 2010.

Industry asset flows in the first half illustrate yet again that ETF and ETP product trends have come to represent sound ‘proxies’ for investor views and sentiments across the full range of asset classes and global markets. ETFs offer immediate exposure to a large array of indices with the flexibility to be traded at any time with multiple brokers when markets are open. The products offer a menu of cost-effective, transparent products that deliver diversified market exposure – attributes that were highly valued during 2011’s tumultuous first half.

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. 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.

Growing confusion around the various structures, holdings and classifications of exchange traded funds and other exchange traded products has been highlighted by many investors, regulators, as well as in many articles in the press. Product differences can create differences in the tax and regulatory treatment, counterparty exposure and performance for the investor. Given the growth in the number of different product structures, and underlining investments, both retail and institutional, are embracing ETFs but we are also seeing them doing more due diligence and scrutinising products much more thoroughly before they implement their investment views though ETFs and ETPs.

Year to date through the end of the first half 2011, US$82.6 Bn of net new assets went into ETFs/ETPs. US$52.8 Bn net inflows went into equity ETFs/ETPs, of which US$50.9 Bn net inflows went into ETFs/ETPs tracking developed market indices and US$1.9 Bn net inflows went into ETFs/ETPs tracking emerging market indices. US$19.6 Bn net inflows went into fixed income ETFs/ETPs, of which US$4.5 Bn went into corporate bond ETFs/ETPs, while money market ETFs/ETPs experienced US$0.7 Bn net outflows. US$6.2 Bn net inflows went into commodity ETFs/ETPs, of which ETFs/ETPs providing exposure to agricultural commodities saw US$4.6 Bn net inflows while ETFs/ETPs providing exposure to precious metals saw net outflows of US$1.0 Bn. US$6.1 Bn net inflows went into leveraged and inverse ETFs/ETPs, of which US$4.0 Bn went into leveraged inverse ETFs/ETPs and US$2.1 Bn went into inverse ETFs/ETPs.

Comparing the first half of 2011 to the first half of 2010 we see significant shifts in the level and allocation of the flows. YTD through the end of H1 2011, US$82.6 Bn net new asset flows went into ETFs/ETPs, greater than the US$64.8 Bn net inflows over the same period in 2010. Net new asset flows into equity ETFs/ETPs were US$52.8 Bn YTD, greater than the US$23.7 Bn net inflows over the same period in 2010 while fixed income ETF/ETP net inflows were US$19.6 Bn YTD, less than the US$26.4 Bn net inflows over the same period in 2010. Net inflows into commodity ETFs/ETPs were US$6.2 Bn YTD, less than the US$14.8 Bn net inflows over the same period in 2010.

The challenging market conditions of 2011 have 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.

ETFs make it easier for investors to participate in all domestic asset classes, global regions and industry sectors. Most importantly, ETFs give investors the opportunity to participate where markets have been showing promise.

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