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Tuesday, October 6, 2009

ETF Evolution - A Quick Update

Ever since the introduction of the first exchange traded fund (ETF) in 1993, the ETF market has stayed a highly active and attractive market. The market is evolving so quickly; now the market is so much diversified and liquid. Here is one quick update.
  • More than 50 percent of the market is constituted by two big ETF managers, Barclays (through its iShare ETFs) and State Street Global Advisor (through its SPDRs). Together they have around 200 greatly diversified ETFs. Vanguard is the third big ETF manager; steadily growing its market share and is offering a great diversity in their products.
  • Many new players are emerging. This includes many established banks and asset management firms such as PowerShares Capital Management, ProShares, WisdomTree Asset Management, Rydex Investments, Bank of New York, Victoria Bay Asset Management and First Trust Advisors. Many of these ETF managers follow aggressive ETF management strategies rather than traditional diversified low-cost approach.
  • Active ETFs are becoming popular. Leveraged ETFs, Ultra ETFs, Inverse ETFs, emerging market ETFs, sector specific ETFs, Currency/Geography/Commodity specific ETFs, etc are now common.
  • Market consolidation: as new and new funds are coming up and competition increasing, many ETFs - with few assets - are getting eliminated. Besides, duplicate ETFs offered by small firms are less preferred. The consolidation process will continue as performance histories of new ETFs become available to traders.
The great diversity in ETFs has provided more choices to investors, but the choice is rather simple. When choosing an ETF to include in the portfolio, one should be clear about its management, his portfolio goals and risk tolerance.

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posted by NobleTrading at 9:03 AM

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