Exchange-traded funds (ETFs) are fast becoming a viable option for global institutional investors, offering an attractive alternative to the beleaguered mutual fund industry.
In a new report by Morgan Stanley, the number of outstanding ETFs rose to 313 by the end of August, with assets of $240 billion managed by 35 managers on 28 exchanges around the world.
ETF trading volumes are up 19.8% since the beginning of the year based on average daily volumes (in number of shares). Average daily trading volume in ETFs was $ 10.3 billion, or 206 million shares. The largest increase was in the US, followed by Japan and Europe.
The US leads the world in products and assets under management, with 143 ETFs totaling $174.2 billiion, followed by Europe with 108 ETFs comprising $25.3 billion. Japan brings up the rear, with 17 ETFs and $26.1 billion.
ETFs are listed on four exchanges in the US: the American Stock Exchange, the New York Stock Exchange, NASDAQ, and the Chicago Board of Options Exchange. But ETFs do not need to be listed on an exchange for trades to be reported, the report noted. The Cincinnati Stock Exchange ranks number one in terms of reported ETF trades with 31.5% of total trades, followed by the Pacific and NASDAQ, which are tied for second place with 24.8% and 22.6% respectively.
The report pointed out the investment opportunities ETFs pose for investors, including adding to core equity holdings, as well as allowing for sector and style plays. They also offer international diversification and portfolio hedging.
Meanwhile, short interest in US-listed ETFs has decreased recently, the report said. March 2004 represented the highest level of short interest in ETFs listed in the US – 715 million shares or 25.7% of total shares outstanding. However, since March, the level of short interest has decreased. In June the level was 614 million shares, or 20.5% of ETF shares outstanding.
Eight HOLDRS have lost their US short sale uptick rule exemption.
Barclays Global Investors (BGI) is the largest global ETF manager, with assets of $ 94.2 billion or a 39.25% market share, followed by State Street Global Advisors (SSgA) with $ 65.6 billion, or a market share of 27.33%. In terms of number of products, BGI is ranked first with 121 products, more than three times the number of products offered by second ranked SSgA.
Year to date, thirty-five ETFs have been launched and four have been delisted. Two of the seventeen ETFs listed in Japan are in the process of being delisted, according to the report.