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Education

Exchange Traded Fund Guide

Proven

The popularity of ETFs is a global trend.

North America
Birth of ETFs
The Exchange Traded Fund market has been established in the United States over the last 7 years, when ETFs are listed and traded as securities (primarily on the American Stock Exchange in New York). To date all ETFs have been index tracking funds. The most well known are SPDRs and QQQs which track the S&P 500 and NASDAQ 100 respectively.

Development of user base
ETFs are accessible to all and hold many benefits. Retail investors are attracted by the simplicity of the product, not to mention low fees. Public Funds, Hedge Funds, Passive/Active Asset Managers and users of Futures Contracts have all participated in the benefits of ETFs.

Range of uses
ETFs can be used in a number of advanced investment strategies:
Instant Cash Equitisation ETFs can be used to effect the equivalent of say 500 trades in one deal.
Hedging ETFs can be borrowed and therefore can be used to sell short.
Optimisation Strategies Portfolios may have a company deleted from the index, ETFs can reduce the tracking error.
Relative Value Long/short baskets can offer market neutral opportunities on sectors, countries and asset styles.

Growth in assets
ETFs have grown to have assets of over $55bn* and become some of the most heavily traded instruments on the AMEX. The first such product was the S&P 500 SPDR which now has $21bn* in assets. This fund trades in excess of 30 million* shares a week. The trading history of ETFs in the US proves their broad popularity.

*Source Barclays Global Investors 30/09/2000
Europe
The spiders have landed
In mid April the first Exchange traded funds in Europe were launched on the Deutsche Borse and began trading in Germany. On April 28 2000 the UK's first Exchange Traded fund was launched: iFTSE100 on the London Stock Exchange under its new market segment extraMARK.

Europe is different
Unlike the single US market, ETFs that come to be listed on various European stock exchanges will have to be governed by various regulators. Furthermore creators of ETFs in Europe will confront many issues including differing taxation regimes and currencies. European investors will get products specifically designed for their specific domestic markets with all the tax / currency / trading advantages possible.
The rest of the world
ETFs are going global
Due to the success of ETFs in the US, Canadian and UK markets plans to launch further Exchange Traded Funds throughout the globe are imminent.
The table below shows the current success story of the ETF market:

CountryETFsTotal ETF AUM
USA90$56,147,152,855
Canada1$4,451,097,804
Hong Kong1$3,395,506,502
Germany2$350,225,166
UK2$180,306,634
Japan1$390,370,852
Australia1$41,206,527
Singapore00
Holland00
Switzerland00
Global Total98$64,955,866,340

Figures: source Barclays Global Investors as at 30/09/2000
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