iShares confirmed that its FTSE 100 ETF saw the number of its shares increase by 33.78 per cent in November, the biggest increase since October 2001.
Between September and November 2008, iShares data also showed that assets under management in its FTSE 100 ETF leapt from £1.7bn to £2.5bn and has remained at about that level throughout December. The level of interest has made it one of the biggest creators of shares on the London Stock Exchange during the period.
The iShares FTSE 250 ETF has seen the number of shares issued increase by 8.79 per cent in November. The largest increase since December 2006.
However investors have been ditching some ETFs. The iShares MSCI Emerging Markets ETF has seen redemptions with the number of outstanding shares in issue decreasing by 3.81 per cent during November.
Debbie Fuhr, Global Head of ETF Research & Implementation Strategy at Barclays Global Investors, says that the newly created shares represented new money flowing into these funds. She says that the interest is likely to be related to fears about other products, as much as confidence in the FTSE 100. She said that ETFs that buy shares to track an index are now more trusted than those which use financial instruments to do the same job.
While swaps and note-based ETFs may achieve greater accuracy in tracking an index, investors in these products are exposed to greater counterparty risk as notes and swaps usually rely on the survival of the institution providing it. Since the collapse of Lehman Brothers and the scares about the survival of AIG, investors have become wary of counterparty risk. Fuhr also believes that investors feel that they understand the index.
Since hitting a 3,781 points trough on 21 November, the FTSE 100 has risen by 17.28 per cent to 4,434 points on 31 December. However the index is still down 18 per cent since 12 September.
Earlier this month Barclays Stockbrokers said that the iShares FTSE 100 ETF was the ETF/ETC product most traded by its clients, making up 44 per cent of all ETF trades. While it said that some of this activitiy was due to new money coming in, some clients had made hundreds of trades in the last three months. The recent figures for the creation of shares and assets under management demonstrate that significant levels of new money have been pouring into these funds.
Fuhr says that a number of institutions have been pushing new ETF-weighted investment strategies through compliance processes and that this may have contributed to a burst in activity. She added that the FSA's Retail Distribution Review is also likely to boost the ETF sales as transparency rules on commission could encourage UK independent financial advisers to consider this product type.
One question for investors is whether the increased interest in FTSE 100-based ETF products is a bet on the FTSE recovering, and if so, which other funds may be better placed for bigger gains if the call is right.
For example, according to Financial Express data, the funds listed below are amongst the top performers in their sectors. The Trojan Income is a leader in UK Equity Income and Newton UK Equity is in the top five performers in the UK All Companies sector. The SVM fund is an exmaple of an actively managed fund that specifically aims to beat passive trackers specialising in the FTSE 100.
However, Fuhr's comments suggest that investors are moving to the FTSE 100 because they understand it better than other markets and they are choosing ETFs because they can move quickly into other assets.
| Name of fund | 1yr | 3yr |
| Shares FTSE 100 | -29.3 | -14.2 |
| Trojan Income |
-12.1 | 7.7 |
| Newton |
-17.7 | 6.6 |
| -28.2 | -5.2 | |
| FTSE 100 index | -32.1 | -15.9 |
Source: Trustnet to 29 December 2008