Individual Investors Seem to Gravitate to ETFs

The stock rating system on the Motley Fool is slowly seeing exchange traded funds (ETFs) making up the top ten. And now, six of the top ten stocks are actually ETFs.

Before we proceed, CAPS is the Motley Fool's rating system where investors work together and pool all their information to help you identify which stocks are the best to buy and when, along with which stocks to avoid.

Players rate stocks and predict which will under perform or outperform all the while The Fool keeps score and rates them. In turn, players receive ratings and based on the performance of their picks. The system is updated every five minutes, so the news is all current.

Todd Wenning for The Motley Fool gives us the top six ETFs as of May 13th, and reminds us that these are not formal recommendations, just start-ups to further your own research. In respective order:

• iShares MSCI Canada Index (EWC), up 6.7% year-to-date
• iShares MSCI Taiwan Index (EWT), up 10% year-to-date
• iShares MSCI South Africa Index (EWA), up 6.7% year-to-date
• SPDR S&P Emerging Middle East & Africa (GAF), up 1.5% year-to-date
• iShares MSCI Sweden Index (EWD), up 5.5% year-to-date
• PowerShares Global Water (PIO), down 6% year-to-date

It only underscores the popularity that ETFs have acquired with individual investors.

Wenning points out that some of the individual stocks in the ETF will outperform the ETF, but that's the trouble: how do you choose which stock to go after? Hindsight is 20/20. By investing in ETFs, you remove picking and choosing from the equation.

For the month of April, we had ETF industry growth. Will it keep up?

Israel Emerges As A Strong ETF Industry Leader

Tucked away in the heart of the Jewish country is Tali 25, an exchange traded fund (ETF) that is already 8 years old. It was Israel's first fund to market.

Since then, the Israel ETF industry has grown considerably, with a ratio of ETFs to mutual funds of 25%. The ratio in the U.S. is 15%, reports Sarit Menaham for Haaretz.

The most notable aspect of  the Israeli ETF market is the number of ETFs in various indexes.  In the United States and other countries, or or a few ETF providers may have exclusivity over an index. This abundance is great for local investors as it creates competition, and has providers striving to be the best.

American investors seeking to invest in this market can do so with the iShaers MSCI Israel Cap Invest Mkt Index (EIS). This ETF launched on March 28, and is up 10.1% since.

The economy is growing at 5% for the fifth consecutive year, with high-tech companies leading the way. Voice mail technology and other innovations actually have their roots in Israel, who has more listings on NASDAQ than any country aside from the United States and Canada, reports Abraham Rabinovich for The Australian News.

Socialism is a thing of the past, however, the gap between the rich and the poor is one of the deepest among developed nations. Investment in the land of one of the oldest civilizations could prove fruitful for American investors today.

April ETF Inflows Shower Industry With Growth

U.S.-listed exchange traded fund (ETF) and exchange traded note (ETN) assets climbed upward for the month of April, according to the National Stock Exchange.

Total assets reached $609 billion at the end of April, a 27% increase from April 2007.

When it rains, it pours: net cash inflows for ETFs during April totaled $36 million.

U.S.-listed ETFs total 740, a 49% jump from April 2007. There are more ETF and ETN issuers than ever, too: 33 now, up from just 18 last year.

Can these April showers bring a market flourish for ETF investors during the month of May?

ETF Industry Experts Feeling Positive About the Future

The exchange traded fund (ETF) industry appears to be fully on board for continued growth in the marketplace.

A recent article in Index Universe posed the same questions to six industry experts. Although some of the answers differ, most of them appear to feel secure about the industry as it stands. Most of them foresee continued growth despite the slowdown in ETF launches so far in 2008. Asset growth will continue as well, they feel.

If you're interested on an industry perspective of ETFs, be sure to check out the interviews.

April ETF Performance Report

The markets were a little sunnier this month, improving on the gains they had made in March, and most exchange traded funds (ETFs) finished in brighter territory. That's despite bad news about consumer confidence, plummeting housing prices and slower existing home sales. The Federal Reserve capped off April by making its seventh rate cut, then indicated that would be all for the time being.

The Dow Jones industrial average finished up 4.5% higher. The S&P 500 gained 4.8% for April and the Nasdaq rose 5.9%.

The big story in April was China, which experienced a rally. The country finished up this month up by about 16%. Asia was strong overall, up about 11%. The energy sector finished higher this month, with the oil, oil equipment and services and nuclear energy funds closing about 10.5% higher.

The strengthening dollar sparked a selloff in gold, which lost 4.3% this month.

Click here for the full ETF report.

ETF Providers Growing Strong Around the World

It's no shock to hear that exchange traded funds (ETFs) are growing in number, but the number of providers is exploding, too.

According to Morgan Stanley, 14 companies launched their first ETFs in 2007, bringing the worldwide total to 75 providers. That includes Deutsche Bank, XShares and Spa. This year, the newest entrant to the market is Northern Trust.

Twenty more are going to jump on the bandwagon globally, reports Steve Johnson for the Financial Times. They include Merrill Lynch, Alpha Bank of Greece and Tata, the Indian Conglomerate.

One member of the industry fears that not all of these companies will be successful, since many of them are smaller companies backed by venture capital.

In an era with more providers than ever and more competition, this is probably true. Investors are going to look at products with a more discerning eye as more options become available to them. Naturally, not everything is going to be a success.

But companies that give investors access to areas in which they haven't been able to get into might be among the more successful ones. Being first to market can be key, as well: the first ETF to launch often gobbles up most of the assets.

Investor Surveys Find ETF Users Are Wealthier, Smarter and Trust ETFs More Than Conventional Mutual Funds

Exchange traded fund (ETF) provider iShares recently conducted a survey of affluent investors and found that, overall, they're none too pleased with the fund industry. That's lead to low levels of trust.

But ETFs come out of the survey smelling like a rose. iShares reports that ETF users have significantly higher confidence scores than non-ETF users when it comes to understanding the impact of fees and the tax implications of funds they own.

The survey targeted individuals who had at least $500K in assets (excluding employer-sponsored retirement plans and real estate), have mutual funds in their portfolios and are at least 22 years of age.

Some of the findings:

• 81% believe that the fund industry should put investors' needs first
• 32% are satisfied that the industry is actually doing that
• 88% feel that the fees are unclear; 77% feel the tax implications are unclear

Among the 16% of survey respondents who use ETFs:

• 81% understand how the financial markets work
• 68% love managing their investments
• 87% understand how fees impact their returns
• 89% pay attention to diversification

Could it be that the strong numbers here are a result of the many benefits ETFs have over the old school mutual funds? Namely, instant diversification, transparency, lower fees and ease of use.

Among the 84% of respondents who don't use ETFs, there was a lower level of understanding how the financial markets work, less love for managing investments, less understanding of fees and less attention paid to diversification.

The survey affirms what we discovered when we conducted our own survey: smart people like ETFs. 42.4% of our readers have graduate degrees, and 38% possess bachelor's degrees.

ETF Trends' readers love ETFs, too: 55.1% have at least 25% of their portfolios dedicated to ETFs. 83.8% plan to use ETFs even more in 2008 than they currently do.

ETF Awards Honor Industry's Top Players Around the World

The 4th Annual Global ETF Awards took place in New York on April 17, where the best, brightest and most innovative in the exchange traded fund marketplace were honored.

The winners were chosen from more than 400 voting forms sent to ETF industry entities worldwide. Awards were given in 18 categories, such as "Most Innovative ETF" and "Best Service Provider."

A complete list of all the award winners can be found here.

London Calling To Be The Biggest ETF Market

London is calling for the reign of the exchange traded fund (ETF) industry, but the struggle will be long and uphill, say analysts.

The London Stock Exchange (LSE) is aiming at becoming the number one ETF market, but they've got some formidable challengers, including the United States and other European rivals.

The total value of the ETFs traded  on the LSE last year was $20.8 billion, an 82% increase from 2006. Tara Loader Wilkenson for Financial News reports that the London exchange gained ground after the U.K. government did away with a stamp duty levied on non-resident ETFs at the end of 2006, which had deterred the funds from listing before.

As the popularity of ETFs grows, they'll begin appearing on more and more exchanges the world over. The Middle East wants ETFs, Japan has made it easier to list them and the Tokyo Stock Exchange says it wants to quintuple its ETF listings before the end of next year.

As for the United States, at the end of last month, there were 703 exchange traded products available, with a whole lot more in the pipeline.

Survey Says! Financial Advisors Love ETFs

A survey by Charles Schwab Institutional confirmed it: financial advisors are digging exchange traded funds (ETFs).

The survey asked 1,006 independent investment advisors, "Which types of investments do you plan to put more of your clients' money into during the next six months?"

The top choices were:

• ETFs: 36%
• Mutual funds with hedging strategies: 14%
• Real estate investment trusts: 12%
• Separately managed accounts: 11%

After two months of lost assets in ETFs, March saw them slowly making a turnaround. Will it continue? It just might, if those advisors keep sending out the good vibes.

It's Not Doomsday for ETFs

After a few months of lost assets, some are asking if exchange traded funds (ETFs) have become victims of their own success.

A landmark year in 2007 has led to a weaker success in 2008, amplified by rocky market conditions. During the first quarter of 2008, the number of ETFs coming to market fell 70% to 27 new funds. In the first quarter of 2007, 94 funds were launched, reports Shefali Anand for the Wall Street Journal.

When things get rocky, it doesn't take long for blame to be passed around: gimmicky indexes, lack of seed capital, the number of investment alternatives available, and so on.

But the fact is, ETFs are just like any other market product. Last year, the markets were moving and shaking - can you fault the providers for wanting to jump in and capitalize? Now that things have become more volatile, there's nothing wrong with investors and providers wanting to throttle back until the situation is resolved.

While ETFs are down about 10% assets-wise, consider that the markets are off by as much or more than that.

Everything operates in cycles, and ETFs are no exception to the ebbs and flows. When the market begins performing again, more investors will once again look to ETFs to put their money to work. Perhaps a turnaround has already begun: last month, ETFs assets rose by $20.1 billion.

March Was Mad for ETFs and ETNs; Total Numbers Top 700

As far as exchange traded funds (ETFs) and exchange traded notes (ETNs) go, how lucrative was March madness? National Stock Exchange (NSX) announced that U.S.-listed ETF and ETN assets totaled $583 billion at the end of March 2008, a 28% increase from the end of March 2007, according to Mondovision.

Net cash inflow was $20.1 billion for the month of March. This finally reverses the trend of outflows seen in January and February, which lost $37.5 billion and $12.9 billion, respectively.

The number of ETFs in the United States has also grown by 48% in the last year. The current total is 703, up from 475 one year ago. And more ETF providers are entering the game: there are 30 now, up from 18 at this time in 2007.

These statistics include shares of open-ended ETF products, including listed shares of investment companies, grantor trusts, ETNs and commodity pools.

More ETF Data for You to Geek Out On

Last month, Jim Wiandt at Index Universe put together a table for exchange traded fund (ETF) data nerds. It was such a hit, he's got more for you.

He put all 664 ETFs on a spreadsheet, multiplied the assets for each ETF by its expense ratio, then divided that number by the total assets under management for all ETFs, getting the average dollar-weighted expense ratio for the entire U.S.-listed ETF universe: 0.354995%.

From there, he calculated that the total revenues in the ETF business are $1.994 billion (calculated using 603 funds, after he eliminated the HOLDRs and funds that didn't have their expense ratios).

Broken down by revenue per fund, the top five are:

• iShares MSCI Emerging Markets (EEM), $192.6 million
• iShares MSCI EAFE (EFA), $164 million
• streetTRACKS Gold Shares (GLD), $79.9 million
• SPDRs (SPY), $66.5 million
• iShares MSCI Brazil (EWZ), $55.7 million

March ETF Performance Report

The adage that March comes in like a lion and goes out like a lamb certainly held true for the markets this month. Several days this month saw wild movement in the markets, sometimes by hundreds of points in either direction. On the last day of the month, though, the markets stayed calm and the Dow rose by 0.4%.

The agriculture and commodities sector saw some selloff activity this month. Silver fell the most, down 13.1% for the month, followed by agriculture, which was down 12.7%. The strongest sector was homebuilders, up about 7.5%.

Both gold and oil stepped back from their record levels, but still remained pricey: oil closed the month at $101.61 a barrel, while gold ended at $921.80.

Most global markets were down, but both Spain and Mexico turned up 6.8% for the month. China fared poorly, losing 9% in March.

Click here to view the full ETF performance report.

February Was Rough for ETFs - Maybe March Will Be Better

U.S.-listed exchange traded funds (ETFs) had an inflow of about $25 billion last week. It's a turnaround from the week before, during which there were outflows totaling about $3.7 billion.

Equity mutual funds had $13.3 billion in outflows last week and $10.7 billion in outflows the week before, reports Zacks.

It's a slight turnaround from last month, which saw $12.9 billion in ETF outflows. Will March be better?

February Was a Strong Month for Natural Resource ETFs

February turned out to be the month of energy and natural resources exchange traded funds (ETFs), beating out the juggernaut that is precious metals.

Richard Widows for The Street says funds that included an international focus took five of the next nine spots, while global income and emerging market equities took second and third place respectively.

Global equity managed a slightly negative total return for the month, but was still better than the average performance of -0.61% for all 652 ETFs tracked.

The best-performing fund for February was ProShares Ultra-Short Financials (SKF) up 22.64% taking an inverse position and leveraging the worst-performing financial services category. The sector continued to take a hit on recession fears.

iPath Dow Jones AIG Natural Gas Total Return (GAZ), iShares Silver Trust (SLV), iShares MSCI Taiwan (EWT) and Market Vectors Steel (SLX) all achieved returns in the double digits and led their respective categories.

Three-Fourths of Affluent Investors Like "Alternative" Products - Including ETFs

A recent study found that affluent investors like their mutual funds, but they're also fond of alternative investments, too.

Research conducted by The Phoenix Company reported that 81% of affluent respondents said they owned at least one mutual fund outside of a retirement plan. And 74% said they hold an alternative investment, reports Rebecca Moore for Plan Adviser.

Real estate was the most popular alternative investment at 45%. ETFs came in at 30%, hedge funds around 25% and private equity funds at 20%.

The study also found that regardless of their investment category, affluent investors are almost evenly split about their plans: 49% of mutual fund owners and 52% of alternative investment owners indicated that they'll invest at least the same amount in the coming year. The other half said they'd invest less.

After All Is Said And Done, the Industry Lost One ETF in February

So far, the markets and exchange traded funds (ETFs) have gotten off to a slow start in 2008. Ten new ETFs were added to the market in February. However, 11 were liquidated, bringing the total number of funds to 633.

The assets are down, too. U.S. ETF industry assets fell last month to $557 billion - a drop of $12.9 billion. The drop is largely because of continuing weakness in global equity markets.

Chart courtesy of ETF Snapshot.

Fixed-Income ETFs Forecast to Have a Growth Spurt

The fixed-income exchange traded fund (ETF) market still has plenty of room to grow.

In fact, iShares predicts that the area is primed to grow by 200% over the next three years. Globally, fixed-income ETFs have $60 billion in assets, about 7.5% of the total ETF market, according to Anil Dawar for FT Adviser.

Growth in these types of funds will owe much to the fact that they're increasingly traded by capital market banks.

ETF assets of all classes are expected to grow from $800 billion, currently, to $2 trillion by 2011.

A Belated Valentine's Day Present for ETF Data Geeks

Are you a nerd for exchange traded fund (ETF) data?

So far this year, the ETF industry's assets are down, dropping from a peak of $625 billion to around $560 billion. The fall is mostly because of cold feet and people dropping out of the market while they ride out the storm.

The exception to this is ProShares, which is continuing its strong performance. Nonetheless, this industry is taking off fast as a whole and has not cooled off, it's simply taking a breather.

Matt Hougan for Index Universe compiled the table below for data lovers and Jim Wiandt for Index Universe shares it with us. It's a nice snapshot of all the industry players and where they stand.

U.S. ETF FAMILY ASSETS

Family	Creation Value	Change in Net Assets	Total Net Assets
ProShares	4,143,721,500	4,966,116,830	14,596,089,350
Vanguard	3,699,370,587	258,640,737	42,317,875,751
Van Eck	1,525,951,000	1,540,411,750	4,940,670,325
HOLDRS	831,302,808	251,473,688	7,403,359,563
Claymore	118,296,000	(35,854,032)	1,859,906,620
First Trust	29,793,500	(79,854,914)	926,159,375
GreenHaven	17,030,000	17,030,000	17,030,000
Revenueshares	15,066,734	15,066,734	15,066,734
MACRO	10,020,000	10,125,000	70,140,000
Fidelity	9,030,000	(6,953,000)	108,360,000
SPA	8,316,000	6,934,820	20,851,758
Xshares	7,783,000	(10,278,108)	245,259,088
Ameristock	-	297,360	13,160,448
FocusShares	-	(446,656)	23,069,757
Ziegler	(2,365,000)	(3,219,240)	4,824,600
WisdomTree	(44,530,000)	(417,014,500)	4,136,208,500
PowerShares	(85,588,600)	(4,830,309,766)	36,112,472,726
Rydex	(251,326,774)	(368,406,865)	5,172,285,250
Victoria Bay	(386,371,000)	(245,771,000)	837,632,000
BGI	(3,211,866,750)	(26,945,603,350)	305,400,058,000
SSgA	(24,299,985,496)	(35,561,723,268)	137,510,804,937
INDUSTRY-WIDE	(17,866,352,491)	(61,439,337,780)	561,731,284,782

 

ETFs and Index Funds Are Growing Like Weeds

Exchange traded fund (ETF) usage was recently explored by the Advisor Perspectives Universe.

The data, gathered on Feb. 28, was interesting:

• ETFs now hold twice the assets of index funds (70.3% vs. 29.7%).  ETF assets increased from 65.0% to 70.3% over the prior five months.            
  

• ETFs and Index Funds now represent 32.9% of total mutual fund assets, up from 29% on Sept. 30, 2007 and 27% on June 30, 2007.

• ETFs and Index Funds now represent 6.4% of total marketable securities in the AP Universe, up from 4.6% on Sept. 30, 2007 and 3.9% on June 30, 2007.

• Holdings tied to broad-based indexes increased, but still represent a relatively small portion of overall assets in the AP Universe. Holdings tied to the S&P 500 increased from 17.3% to 24.5% of total mutual fund assets from Sept. 30, 2007 to Feb. 28. Holdings tied to the EFA increased from 17.5% to 20.4% over the same time period. Holdings tied to the total market decreased slightly, from 4.5% to 4.3%.

• Holdings in sector-based ETFs decreased consistently from Sept. 30, 2007 to Feb. 28 (as a percentage of mutual fund assets) and continue to remain a small percentage of ETF holdings.

For more interesting numbers and insight, check out the tables on the site.

Get In The Commodities Super Cycle With ETFs

The commodity super-cycle is in full force, and exchange traded funds (ETFs) can help you enter the market smoothly.

In 2007, gold prices were up 36.6%, crude oil prices surged 70.8%, and agriculture commodities such as corn, wheat and soybeans posted their own records.

Sean Brodrick for Money and Markets reports that so far this year, those commodities not only continue to hit new highs, they're poised to go even higher.

According to Morgan Stanley, global ETF assets at the end of 2007 was at $796.60 billion, a 41% increase from the previous year. Growth in commodities ETFs increased 87%, to $6.32 billion.

Consider these ETFs to join the ride with commodities:

• Market Vectors Global Agribusiness (MOO)
• PowerShares DB Agriculture (DBA)
• streetTracks Gold Shares (GLD)
• United States Oil (USO)

For full disclosure, some of Tom Lydon's clients own shares of DBA.

February ETF Performance Report

February was another volatile month for the markets and exchange traded funds (ETFs). The Dow Jones industrial average lost 1.4%, while the S&P 500 was down 1.9% and the Nasdaq dropped 3.3%.

The metals and agriculture ETFs bucked the general market trends to rise an average of 15%.  As oil topped $100 per barrel this month, it was no surprise that the oil-related ETFs were some of the top performers. These ETFs gained about 11.5%. 

Global markets on average fared better than our domestic markets, with many of the single-country ETFs ending the month on a positive note.

Click here to view the full ETF performance report.

Managed ETF Accounts Capture The Market

Assets in managed accounts surged forward in 2007, with exchange traded funds (ETFs) fueling much of the growth.

Around 291 exchange traded funds (ETFs) were launched last year in the United States, and captured $146 billion in net inflows. That's up 126% from 2006.

Managed account assets hit the $1.49 trillion mark, says the Money Management Institute. ETFs made up $10.1 billion of those dollars, up from $6.8 billion in 2006, reports Darla Mercado for Investment News.

Customer demand has gone through the roof, as this was the fastest-growing managed account area. Variable product asset growth fell behind mutual funds and ETFs alike.

NSX Reports Record U.S. ETF Trading Volume For January

National Stock Exchange (NSX), an exchange traded fund (ETF) and market statistic compiling company, announced that notional trading volume in U.S.-listed funds reached a record monthly total in January 2008.

The record monthly total of $2.23 trillion is an increase of 236% over January 2007 when trading volume was at $664.5 billion, reports Chicago Business News.

ETF assets reached $587.1 billion at the end of January 2008, a 34% increase. The NSX's full report provides ETF data on assets under management, net cash flow and national volume. Statistics cover shares of open-end ETF products including listed shares of investment companies, grantor trusts, ETNs and commodity pools.

Ouch - ETF Assets Decline In January

Weakness in the U.S. economy and the international equity markets has begun to affect exchange traded funds (ETFs).

State Street Global Advisors report that while five new ETFs were added in the first month of the year, $37.5 billion in assets were lost. This all brings the total number of ETFs in the United States to 634 managed by 21 managers.

Total assets stand at $570 billion.

 

ETFs Are Circling the Globe

From a global standpoint, exchange traded funds (ETFs) are truly a prime investment tool. Morgan Stanley's Institutional Equity group presented the numbers to back that up on Jan. 31. Heather Bell for Index Universe summarizes the report.

• ETF assets worldwide are at $796.60 billion, almost a 41% increase from 2007.
• The total number of ETFs in the world is at 1,171 primary listings, a jump of 64% over 2006.
• The United States represents the largest market, with 601 ETFs and $580.71 billion assets.
• Europe has 423 primary listings.
• The United States has 400 ETFs still awaiting approval and Europe has 90 in the pipeline.

As you can see, established markets have the majority of growth in ETFs, but a number of smaller markets will be adding listings in 2008. The global ETF market is just beginning.

January ETF Performance Report

Exchange traded funds (ETFs) and the markets got off to a rocky start in 2008. Already this year, oil has managed to top $100 a barrel, gold set new records and the Federal Reserve cut rates twice. What awaits us the rest of the year?

The major indexes took a beating this month. The Dow Jones industrial average finished down 4.6%. The Nasdaq ended down 9.9%, and the S&P 500 ended down 6.1%. Precious metals were one of the strongest performers this month. Gold was up 11%, while silver was up 14.6%. Agriculture made a strong showing, too, up 12.3%.

Click here to view the full ETF performance report.

Chile ETF Warms Up This Week

One of the top-performing exchange traded funds (ETFs) over the last week might come as a surprise after all the talk about short ETFs amid market turmoil.

It's the iShares MSCI Chile (ECH), launched in November 2007, which is up 13.8% this week. It's a single-country fund that's diversified over several sectors, reports Gary Gordon for ETF Expert. Half of the fund resides in utilities and industrial stocks, while 17% is in materials and 13% is consumer-related.

It also gives exposure to copper, a valuable metal in times when emerging markets are thriving. Chile accounts for one-third of the world's metal production. The country also benefits from literacy levels that reside near 100%, a high level of domestic investment and savings rates, and nearly 45% of its GDP is linked to foreign trade.

ETFs Are On Track to Overtake CEFs

Exchange traded funds (ETFs) are closing in on closed-end funds' (CEFs) territory.

The size of the ETF industry has or will soon surpass the CEF market share. Richard Widows for TheStreet reports that in December, there were 646 ETFs to track, only 14 shy of CEF's total of 660. On average, 20 ETFs debuted per month, versus 4 CEFs per month, and so it goes.

Given the fact that CEFs have been around since 1927, while the first ETF launched in February 1993, this is milestone growth. The reasons ETFs have gained on CEFs are many: tax advantages, lower expense ratios, close proximity to net asset value (NAV) and the ability to create and redeem new shares.

Market value for ETFs is at $540 billion and for CEFs, $318 billion.

PowerShares Hands Out Zero Capital Gains for ETF Portfolios in 2007

Exchange traded fund (ETF) provider PowerShares announced that no capital gains distributions were made for any of its equity and fixed-income based ETF portfolios for 2007.

According to Market Wire, since inception the company has not made a capital gain distribution to holders of those portfolios.

Shareholders of an ETF generally only trigger a taxable event when the shares are sold. Asset managers often use the "in kind" method of share transferring, which allow portfolios to avoid year-end capital gains payouts.

ETFs Reach New Heights in Both Numbers and Assets

The final exchange traded fund (ETF) tally for 2007 is out, and the news is good. Between the number of funds added to the roster and the assets brought in, ETFs crossed two thresholds.

Kevin Burke for Ignites reports that in the last month of the year, $32 billion in assets were brought in, lifting the total assets in ETFs to $608 billion. Meanwhile, 17 ETFs were added to the fold, meaning the total number of U.S. listed ETFs is now at 629.

Despite the growing ranks and assets, some analysts say that many ETFs aren't profitable, which could lead to a possible culling of the herd. This will be a year to wait and see what happens.

Could ETF Assets Top Two...Trillion...Dollars?

No doubt the U.S. leads the pack when it comes to exchange traded funds (ETFs) in terms of assets under management and the number available. But as the rest of the world picks up on the advantages they offer, the availability of ETFs and assets flowing into them will continue to grow by leaps and bounds.

The most exciting part of a report issued by Morgan Stanley is their forecast that by 2011, assets in ETFs worldwide could top $2 trillion, thanks to their growing popularity.

The report also said, according to HedgeWeek, that the number of ETFs available worldwide stood at 1,137, assets in them totaled $773.2 billion and they were listed on 42 exchanges.

The U.S. had 583 ETFs at the end of the month, with assets totaling $550.2 billion. Europe has the second most: 412 ETFs with $134.8 billion in assets.

Small Step Back for ETFs, But Forward Momentum Continues

This could hurt a little: assets in exchange traded funds (ETFs) fell in November, down by $16.05 billion to $572.12 billion.

According to ETF Guide, that's a 2.7% drop from October. Chin up: the year-over-year numbers are still showing big jumps. Since November 2006, assets have risen by 39.2%, or $161.05 billion.

December and Year-End ETF Performance Report

It was an eventful year for the markets and exchange traded funds (ETFs) as we saw the Dow break new records, closing above 14,000, only to have the sub-prime mortgage debacle take a toll on the markets.

The domestic challenges kept returns low for the major market indexes, but global markets continued to benefit from growth and expansion.  While the Dow was up 6.4%, the S&P 500 gained 3.5% and the Nasdaq 9.8%, the BRIC (Brazil, Russia, India, China) country ETFs soared 60-86%.  Steel also benefited from global expansion and was up over 80%.

Click here to view the December, year-end ETF Performance Report.

Our 2008 ETF Predictions

It was a busy, exciting year in the world of exchange traded funds (ETFs) in 2007. But it's not time to rest on our laurels just yet, because all indications are that 2008 is going to be even bigger and better. Hundreds of new ETFs are in registration, the assets continue to flow and the word of mouth is spreading.

Here are the top ten trends we see taking place next year.

Bargain Basement ETFs

Exchange traded funds (ETFs) are popular because they offer diversification, tax efficiency, lower costs and lower expense ratios than most investment tools. ETFs trade on an exchange like a single stock, but beware that too many trades can cut away returns, reports Rich Duprey for The Motley Fool. ETF assets totaled $588 billion as of October 2007.

Duprey lists some of the most cost-effective ETFs around, and all of them have at least a three-year performance track record.:

• Vanguard Total Stock Market (VTI), expense ratio 0.07%; three-year return of 13.98%
• Vanguard Large-Cap (VV), expense ratio 0.07%; three-year return of 13.94%
• SPDRs (SPY), expense ratio 0.08%; three-year return 13.04%
• Vanguard Extended Market Index (VXF), expense ratio 0.08%; three-year return 16.25%
• iShares S&P 500 (IVV), expense ratio 0.09%; three-year return 13.10%
• Vanguard Small-Cap (VB), expense ratio 0.10%; three-year return 14.84%
• Vanguard Value (VTV), expense ratio 0.11%; three-year return 15.49%

Our 2007 ETF Predictions: How Did We Do?

Early this year, we boldly stepped forward and made our predictions for what we foresaw as the top exchange traded fund (ETF) trends of 2007.

So, how did we do?

Domestic and International ETFs Take in Money; Domestic Stock Funds Lose It

Exchange traded funds (ETFs) that invest in U.S. stocks raked in a net $13.3 billion in the week ending December 12, reports Rob Lenihan at TheStreet.com. The week before, ETFs had $1.5 billion in redemptions, so the turnaround makes up for it.

ETFs that invest primarily in non-U.S. stocks brought in $2.78 billion whereas the previous week, they took in $4.39 billion.

For funds that invest in stocks, the story is a little different: Lenihan says investors continued to take money out of domestic funds and invest overseas instead. Stock funds lost $4.86 billion the week ending December 12. The funds that invest in international stocks took in a net $141 million. Although that's down from the $1.7 billion from the week before, international funds are still bringing in money.

Vincent Deluard, Global Equity Strategist at TrimTabs, says the situation might be attributed to a weak dollar. "People want to hold anything but dollars."

ETFs Are Growing Like Weeds

Sure, mutual funds might hold most of the investment assets, but exchange traded funds (ETFs) are surpassing them in growth. Mutual funds shouldn't wave the white flag yet, though: Sue Asci for Investment News reports that the industry is hardly in jeopardy.

As of Oct. 31, mutual fund assets had grown to $8.2 trillion. That's more than double the $3.6 trillion in assets they held in 2002. Net inflows through Oct. 31 were $233.2 billion. Those numbers are from the Financial Research Corp. of Boston.

While that sounds great, check this out: ETF assets have grown nearly fivefold in that same period, to about $590 billion. Year-to-date inflows are $94 billion, which is a 73.8% increase from Oct. 31, 2006.

Analysts say that it's easier for ETFs to have so much growth, because they're coming off a smaller base. Mutual funds are so big and have been around for so long that maintaining that kind of growth would be difficult.

Volatile Markets Lower ETF Assets in November

State Street Global Advisors reported on exchange traded fund (ETF) assets for November's month end.  November was a volatile month for the markets and ETF assets seemed to reflect this.  David Hoffman of InvestmentNews reports they found that assets dropped $8 billion to $576 billion.  Barclays still leads the providers with $326 billion in assets and 149 ETFs.  SSgA follows with $132 billion in 64 ETFs.

Although there was a drop in assets, there was an increase in offerings, as 26 new ETFs were launched.  There are now 612 ETFs available to investors.  New listings include timber, global dividends, global small-caps and fixed income.

ETF Cash Flow Keeps On Rising

The November exchange traded fund (ETFs) performance reviews are in, and it's two thumbs up all around. The National Stock Exchange reports that the net cash flow into U.S. listed ETFs at the end of last month totaled $108.1 billion year-to-date. That's up a whopping 74% from the same period in 2006.

Assets also rose by 39% from the same period last year, to $586.2 billion. Trading volume totaled $2 trillion, which represents about 30% of the total U.S. cash equity. The monthly statistics include shares of open-end exchange-traded products, including exchange traded notes (ETNs), grantor trusts and commodity pools.

The full report can be viewed here.

October ETF Assets Take A Leap

Investors are still feeling the love for exchange traded funds (ETFs), as assets continue to pour into them. ETFGuide reports that the combined assets of U.S. ETFs grew by $37.08 billion to $588.18 billion in October, according to the Investment Company Institute (ICI).

That's a 6.7% jump from September, and a staggering 48.8% jump compared to October 2006! Back then, assets in the ETF industry stood at $395.3 billion.

With hundreds of new ETFs in the pipeline, don't be surprised if assets in them continue to grow.

November ETF Performance

November has been a volatile month, to say the least, for the markets and exchange traded funds (ETFs).  Major market indexes and ETFs ended the month down.  Thus it isn't too surprising that the UltraShort ETFs had monthly returns ranging from 5% to 19%.

The Dow Jones industrial average lost 4% in November, while the S&P 500 was down 4.4% and the Nasdaq was lower by 7%.  Global ETFs were down as well, with Europe down about 3% and Latin America lost about 6%.  Asian ETFs fell between 2% for Japan and 14% for China.  The India ETN gained 5.7%.

Agricultural ETFs gained almost 6% for November, followed by fixed income ETFs gaining about 3%.  Real estate related ETFs were the worst performers for the month.  Click here to view the November ETF performance report.

Bond ETFs Making Up a Piece of the Pie

Remember last year when there were only six fixed income exchange traded fund (ETF) options?  ETF providers have certainly been working to increase the offering in this area, as there are now 30 bond-focused funds to choose from and 40 more in the pipeline, according to Murray Coleman of Dow Jones Newswires.

Fixed-income products represent about 5% of the ETF market, leaving room for growth; especially as baby boomers age and look to a larger bond allocation in their portfolios.  The Investment Company Institute reports net inflow for the first nine months into bond ETFs was $8.4 billion.  In the past 12 months inflows have risen 127%.

Fixed-income ETFs range from short-term treasury to high yield to municipal to international bonds.  The best selling bond ETF this year is the iShares Lehman 1-3 Year Treasury Bond Fund (SHY), which is up 3.2% year-to-date.

For full disclosure, some of Tom Lydon's clients own SHY.

Mutual Fund Growth Steady; ETFs Still Growing

There are about 51 million households in the U.S. that own mutual funds as of 2007. And remember, exchange traded funds (ETFs) are included in that number.

The 51 million households represent about 44% of all American households, translating into 88.2 million individual shareholders. Mutual Fund Wire reports mutual fund ownership has remained steady from 2006, when 49.9 million households owned mutual funds. On average, most mutual fund shareholders have moderate incomes, from $25,000-$99,000, and are in their peak earning and saving years. Around twice as many U.S. households own mutual funds through tax-deferred-accounts-employer-sponsored retirement plans.

Although ETFs are fairly new investment tools, they are growing and making their mark in the investment world.  ETF assets have grown about 38.2% so far in 2007 and the number of ETFs available has gone from 359 to 586 in 10 months. Once ETFs are widely available in retirement plans, it will be interesting to see what shifts are made in the above reported numbers.