ETFs and ETPs on the march post-RDR
In the US, fee-based financial advisers and end retail investors are a significant portion of the users of ETFs.
Many providers of exchange-traded funds hope and believe that the retail distribution review will lead to increased use of ETFs by financial advisers and retail investors in the UK. In the US, fee-based financial advisers and end retail investors are a significant portion of the users of ETFs.
With the RDR less than a month away, we can see that there has been a significant increase in the number of new ETFs and exchange-traded products listed on the London Stock Exchange in 2012 through the end of October 2012 as well as new ETF providers entering the market this year.
Vanguard and UBS Global Asset Management were new ETF providers to enter the UK market in 2012. In May this year, Vanguard launched five ETFs on the LSE which were their first ETFs in Europe. In July, UBS Global Asset Management completed the largest one-time ETF listing in the history of the LSE, cross-listing 66 ETF share classes which replicate 40 indices in equity, fixed income and alternatives to UK investors.
Year-to-date through the end of October 2012, 73 new exchange-traded funds and exchange-traded products, and 135 cross-listings – making a total of 208 new listings – were introduced to the LSE in 2012 according to a recent analysis by ETFGI.
At the end of October 2012, the UK ETF industry had 300 ETFs with 955 listings, assets of $90bn (£55.8bn) counting just the assets in ETFs with their primary listing on the London Stock Exchange, from 15 providers on the LSE. Including other exchange-traded products, at the end of October 2012, the UK ETF/ETP industry had 653 ETFs/ETPs, with 1,362 listings, assets of $123bn (£76.2bn), from 19 providers on the LSE.
Year-to-date through end of October 2012, 12 ETFs/ETPs (20 total listings) have delisted and 1 ETF/ETP has merged. Marshall Wace closed its products in January and February 2012 and exited the industry; hence the overall number of providers has only increased by one.
Comparing the above to the end of December 2011, we see the UK exchange-traded fund industry has grown on many measures including the number of providers, products and assets. At the end of December last year we had 258 ETFs, with 786 listings, assets of $68bn (£42bn), from 14 providers on the LSE. Including other exchange-traded products, at the end of December 2011, the UK ETF/ETP industry had 593 ETFs/ETPs, with 1,175 listings, assets of $95bn (£58.9bn), from 18 providers on the LSE.
The challenging market conditions currently and over the past few years, combined with the difficulty in picking stocks and bonds or finding active managers that consistently deliver alpha, have caused fee-based financial advisers and retail investors to embrace the use of exchange-traded funds and exchange-traded products. ETFs provide greater transparency in relation to costs, portfolio holdings, price, liquidity, product structure, risk and return compared to many other investment products and mutual funds.