The final numbers for the ETF industry are in for 2009, and the results are truly impressive. Total ETF assets grew nearly 50% on the year, aided by a strong recovery in financial markets but also by strong cash inflows across the board. ETFs have clearly been established as much more than a passing fad, and seem poised to stage a challenge to mutual fund supremacy in coming years. While impressive, the total asset (more than $790 billion) and cash flow (almost $120 billion) figures for 2009 only tell the beginning of the story. A deeper dive into the industry numbers uncovered some mind-boggling statistics, and sheds some light on which areas may drive growth going forward:#10: Inflows To Fixed Income ETFs Totaled More Than $42 Billion In 2009 While this number alone is staggering, it becomes even more impressive when considering that our ETF Screener shows only 84 long, unleveraged fixed income ETFs available (by comparison, there are more than 600 equity ETFs). Given the tremendous success of these existing funds, additional launches in 2010 seem to be inevitable.#9: The 15 Largest ETFs Account For More Than 45% Of Total Assets The past year has seen more than 100 new ETF launches, and the rapid expansion of the ETF industry has been well documented. With more than 900 ETFs now available, investors can access a wide variety of regions, asset classes, and investment strategies. But the vast majority of ETF assets remain concentrated in a handful of funds, many of which offer “plain vanilla” exposure to widely tracked benchmarks.#8: There Are More Than 250 ETFs With $20 Million Or Less In Assets Further highlighting the imbalance between exchange-traded products, more than a quarter of available funds have less than $20 million in assets. It should be noted that this figure includes a number of recently-launched funds that have not had much time to grow an asset base, but the list also includes countless funds that have languished for years, unable to gain a sizable base of assets. Coming years could bring a wave of ETF consolidation that is significant in terms of number of funds, but relatively immaterial in dollar terms.#7: Exchange-Traded Commodity Assets Grew By 107% In 2009 The rise of the ETF industry has democratized the business of commodity investing, making this “fourth asset class” readily available to more investors than ever before. Assets in long commodity products grew from just under $35 billion at the end of 2008 to more than $72 billion at the end of 2009, making hard assets one of the fastest growing segments of the ETF market.#6 “Fund Of Funds” ETF Assets Grew By 244% In 2009 While most ETFs invest in a basket of underlying stocks, bonds, futures, or REITs, the number of ETFs that invest exclusively in ETFs is on the rise. Historically, most “fund of funds” ETF assets have been in a line of target retirement date products — ETFs designed to be a one-stop shop for investors planning to retire at a certain date. But the FOF space is now expanding into far more interesting areas, such as the hedge fund replication ETFs offered by IndexIQ and the actively-managed (perhaps over-managed) DENT. FOF assets increased from less than $100 million to $337 million in 2009, and this space could be poised for another big boom in 2010.#5: Global Equity ETFs Gained $37 Billion On U.S. Equity ETFs In 2009 The amount of assets in global equity funds is still dwarfed by U.S.-focused ETFs, but that gap closed considerably in 2009 for two reasons: 1) emerging markets posted much larger gains than domestic stocks on the year and 2) international funds took in more than $35 billion on the year, compared to outflows of $8.5 billion for domestic funds.#4: The Number Of ETF Issuers Increased By 43% In 2009 At the end of last year, there were 21 ETF issuers, excluding Bank of New York (NSX attributes the MDY fund to BONY). During 2009, three issuers went the way of the dodo: Northern Trust, SPA, and MacroShares (who actually disappeared twice). But 12 new sponsors burst on to the scene: ETF Securities, PIMCO, Schwab, Global X, Old Mutual, Emerging Global, Javelin, Grail, FaithShares, IndexIQ, Geary Advisors, and AdvisorShares. In aggregate, these 11 new issuers had accumulated more than $1.5 billion in total assets, showing that there is still room for product development and growth.#3: The United States Natural Gas Fund Took In $5.6 Billion Of Cash Last Year This haul is equal to almost eight times the fund’s total assets a year ago. And no single investor accounted for a significant portion of this total, as natural gas became one of the year’s hottest investment trends. Unfortunately for the sources of this haul, shares of UNG fell sharply in 2009 (see What’s Wrong With UNG?). Despite the $5.6 billion in inflows (4th best among all ETPs), total assets only grew by about $3.9 billion (12th place among all ETPs), a gap explained by a loss of more than 50% on the year.#2: ETN Assets Grew By 96% Last Year Criticism of exchange-traded notes has been relatively common in recent years, as analysts have warned of the credit risk associated with an investment in a senior, unsecured debt security. But cash is king, and investor dollars flowed into ETNs at a furious pace in 2009. Led by the iPath product line, which took in more than $3 billion in cash on the year, total ETN assets soared from $4.4 billion to $8.7 billion in 2009.#1: ETF Assets Turned Over 23 Times In 2009 Total ETF notional trading volume in 2009 was about $18.2 trillion, a mind blowing statistic on its own. Using a simple average of the beginning of year and end of year assets as a proxy for average industry assets on the year implies a turnover ratio of 22.9 times (by calculating notional trading volume divided by total assets). While the extreme turnover among leveraged ETFs inflates this number somewhat (the combined ratio for ProShares and Direxion is 161), the ratio still totals 18.4 after excluding the two major leveraged ETF players. Because of their relatively low expense ratios, many ETFs are ideal for long-term buy-and-hold investors. But it is apparent that most ETFs are not being held for long periods of time, being used perhaps more as a substitute for stocks than for mutual funds. Disclosure: No positions at time of writing.
updated Jan 06, 2010
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