Investment in ETFs hits all-time high

Investment in ETFs, funds that offer exposure to a particular index or commodity but trade like regular shares, has hit an all time high according to a new report.

The report, published by data analysis company Lipper, revealed ETF turnover across Europe has risen to a monthly average of €51.4 billion for the second quarter of 2010. This is up 31% on the turnover for the previous quarter and 58% higher than that of the second quarter of 2009.

The overall assets under management in European ETFs hit an all time high in May 2010 of €186.9 billion.

ETFs have become increasingly popular because of their relatively low costs, tax efficiency and stock-like features.

Popular ETFs

According to the Lipper data, ETFs that replicate the performance of stock market indices are the most common. Equity ETFs contain 64% or €116.5 billion of total ETF assets. The largest equity ETF is the SPDR Dow Jones Industrial Average ETF Trust, with €6.3 billion of assets under management. The iShares S&P 500 ETF follows with €5.4 billion.

Bond ETFs, those that replicate the performance of baskets of government and corporate bonds, account for 18% of total assets under management in the industry. Next up are those that mimic the price of commmodities such as oil or gold, with 8% of the market. Real estate ETFs account for just 1% of the ETF market's assets.

The largest bond ETF by some distance is iShares Markit iBoxx Euro Corporate Bond, with assets of €3.3 billion.

Performance

Looking at performance, only six of the 116 bond funds analysed over the second quarter of 2010 produced negative returns. All of the best performing funds in the sector focused on government bonds.

The best performing bond ETF fund over the reporting period was the iShares USD Treasury Bond 7-10 USD which returned 28.13%. The worst performing fund was the EasyETF iTraxx® Europe Main which returned -2.11%.

In contrast to the bond sector, equity strategies struggled over the reporting period with 237 of the 615 equity ETFs analysed posting negative performance. Equity and money market funds were also the only two asset classes to experience declines in assets under management.

As in the previous quarters, the report showed that the majority of the ten best performing funds in the equity segment had their focus on emerging markets, while the investment focuses of the ten bottom-performing funds were on new energy, Spain, and Greece.

The top performing ETF overall was the ETFX DAXGlobal Gold which returned 29.91%, while the worst performer overall was the Lyxor ETF MSCI Greece which lost 39.49%.

More information

For more about ETFs and to find one which mimics the performance of a particular asset, go to Citywire's performance centre.