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Quick Snapshot: June ETF/ETN Data

National Stock Exchange, Inc. recently released Exchange-Traded Fund (ETF) and Exchange-Traded Note (ETN) data for June.  Some highlights:

• Total ETF/ETN assets at the end of June were approximately $603.5 billion.
• The total number of ETF/ETN products increased to 837 from 804 a year ago.
• Net cash inflows to ETFs/ETNs in June totaled approximately $12.4 billion.
• Year-to-date net cash inflows were approximately $41.9 billion, an increase of nearly 102% over the same time period in 2008.
• ETF/ETN notional trading volume totaled approximately $1.5 trillion in June, 32% of all U.S. equity trading volume.

 As the data shows, ETFs and ETNs continue to log impressive gains in investor assets.  With their low cost structure, flexibility, transparency, tax efficiency, and wide asset class coverage, it’s clear that ETFs and ETNs are quickly becoming the preferred investment vehicle for all types of investors.

New ETFs This Week

This past week saw a highly diverse group of new ETFs launch, a continuation of the rapid development in the space as investors demand access to previously unattainable asset classes, countries, niche markets, or investment strategies.  Investors have taken notice of the powerful ability of ETFs to gain exposure to new areas and ETF providers are responding in an attempt to quell investors’ insatiable appetite.  This week’s offerings display innovation in the industry:

• June 30^th: MacroShares’ Housing ETFs, the first ETFs tracking US housing, began trading on the NYSE Arca. As discussed in a previous blog, the bullish MacroShares Major Metro Housing Up (UMM) ETF seeks to deliver three times the cumulative percentage change in the S&P/Case-Shiller Composite-10 Home Price Index while the bearish MacroShares Major Metro Housing Down (DMM) attempts to deliver three times the inverse cumulative percentage change in the index.
• July 1^st: Javelin launched the Dow Jones Islamic Market International Index Fund (JVS) which seeks to mimic the performance of the Dow Jones Islamic Market Titans 100 Index. This index is comprised of 100 companies from outside the US that abide by Islamic law and finance rules which include avoiding companies involved with alcohol, gaming, pork products, highly leveraged companies, etc.
• July 2^nd: ProShares launched the first ETF providing short and leveraged exposure to the Russell 3000 Index, which tracks the 3,000 largest companies in the U.S. The ProShares Ultra Russell 3000 ETF (UWC) aims to return 200% of the daily performance of the Russell 3000 Index. The ProShares UltraShort Russell 3000 ETF (TWQ) attempts to return 200% of the inverse daily performance of the Russell 3000 Index.

 In addition, on July 2^nd, iShares reached an agreement with Peru’s pension funds allowing for the creation of the first Peruvian ETF in the US, the iShares MSCI All Peru Capped Index Fund.  The Peruvian pension funds will essentially exchange shares of local companies in exchange for shares of the ETF.  Because of the lack of liquidity in the Peruvian market, this arrangement allows Barclays to access shares of companies that would otherwise be extremely difficult to acquire.  Peru’s Lima General Index is up 86% so far this year.

ICI Fund Flow Update

Recently the Investment Company Institute (www.ici.org) released May statistics on fund flows for mutual funds and exchange traded funds. Here’s what we gleaned from the May and prior months’ numbers:

Assets held in mutual funds and ETFs have risen dramatically since the end of February, owing to a combination of appreciation in market value and net capital inflows (net share creations).

In May both ETFs and mutual funds extended their asset growth at rates similar to March and April. For the three month period, ETF assets grew by 29% vs. 22% for non-money market mutual funds.

Interestingly, roughly 20% of ETF asset growth during the period was due to net capital inflows into ETFs, whereas only about 7% was due to net new share creations in mutual funds.

Also worth noting, 95% of March/April/May net mutual fund share creations were in the form of bond funds. 46% of ETF share creations were of the bond variety.

Investing in China with ETFs

From 2003 through 2008, China’s annual GDP growth rate ranged from 9.1% to 12.1%, hitting $4.3 trillion in 2008. By 2020, the size of the Chinese economy is expected to be the second largest in the world behind the US.

China’s economy has created a significant middle class and, as a result, a consumer economy is emerging.  In addition, the manufacturing and service industries in China are undergoing significant development, transformation and growth.

Prior to 2004, the only way to gain exposure to China through ETFs was via a broad emerging markets fund.  iShares then brought the first China-specific ETF to market with its FTSE/Xinjua China 25 Index Fund ETF. The ETF now holds nearly $6 billion in assets and leads a pack of six relatively broad ETFs covering China. In addition, there is a single ETF covering small-capitalization Chinese companies, another covering real estate and two covering China’s currency.

While the selection of vehicles for investing in China has expanded significantly over the past five years, look for continued innovation as the ETF industry develops, as the Chinese economy grows, and as investment access in China improves.

Below is a list of ETFs commonly used to access the Chinese market today: