World Federation of Exchange (WFE), September 2012 Focus
ETFs and ETPs: Why are they one of the fastest growing investment products?
ETFs and ETPs have gathered the largest net inflows accounting for USD 76 billion, followed by fixed income ETFs and ETPs with USD 47 billion and commodity ETFs and ETPs capturing USD 10.5 billion.
Fixed Income ETFs and ETPs have also proven to be very popular this year with USD 47 billion in net new assets, which is USD 1 billion more than the total new assets they received last year. Within the Fixed Income universe corporate bond products have gathered the largest net inflows with USD 18.5 billion, followed by high yield products with USD 11 billion and broad/aggregate bond exposures with USD 4.9 billion.
Equity focused ETFs and ETPs have gathered USD 76 billion which is USD 7 billion more than this time last year. Products providing exposure to the United States/North American equities have gathered USD 39 billion, followed by emerging market equity with USD 22 billion and Asia Pacific equity with USD 7 billion.
Commodity flows at USD 10.5 billion are slightly lower than this time last year. Precious metals have gathered the largest net inflows with USD 9.5 billion, followed by broad commodity with USD 1.3 billion and energy with USD 901 million. Agriculture experienced the largest net outflows at USD 1.2 billion.
Some history
The first stock market index was created in 1896 by Charles Dow, which became the Dow Jones Industrial Average. In 1975 Charles Ellis highlighted the shortfall of active managers in his often referenced article ‘The Loser’s Game’ published in the Financial Analysts Journal, July/August 1975. He reported that over the prior decade 85% of all institutional investors who tried to beat the stock market underperformed the S&P 500 Index. The first indexed mutual fund was launched in the United States in 1975.
The challenge of finding professional managers who consistently beat their benchmark – as measured by the S&P 500 index - and delivered alpha by picking individual stocks has not changed much in the past nearly forty years. An index fund may not offer the potential to outperform a benchmark, but you do know you will get the benchmark minus fees and any tracking error, which should be very small.
In 2011, 81% of active large-cap managers underperformed the S&P 500, according to the S&P Indices Versus Active Funds report. Even changing the look-back period of the asset class makes little difference to the results. For the five years ending March 2012, only 5.23% of large-cap funds, 5.46% of mid-cap funds and 5.14% of small-cap funds maintained a top-half ranking over five consecutive 12-month periods.
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