November 2010 Update – State of the ETF Industry

By: ispeculatornew
Date posted: 11.05.2010 (4:15 am) | Write a Comment  (3 Comments)

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I’ve done this a few times, looking at the top ETF’s on US markets in terms of assets, to see what investors are buying. This time though, I did more comparisons with the past both in terms of each of the ETF’s ranks  as well as the assets for each of them. Here are my main thoughts when looking at the charts:

VWO catching up on EEM: I’ve discussed this quite a few times, it puzzled me how EEM was able to keep the lead. Yes, it’s the bigger name, but it charges almost 3 times as much fees to manage an ETF that tracks the same index. Both have more than enough assets, and liquidity to be a good bet. Emerging Markets are making big inroads as both ETF’s progressed but VWO is now within one position or $7 billion of jumping past EEM. It’s interesting because there have been rumors of reduced fees on EEM for some time but it has not happened yet. How long until Ishares reacts? It might be too late if they wait for much longer.

Gold is king: 3 Gold ETF’s are among the top 50 including GLD, the #2 which continues to impress. Its market cap has increased by over 40% since the end of March thanks in part to Gold’s phenomenal rise, expectations that gold’s run is far from over and mainstream interest in the yellow metal. Like EEM, there is a cheaper alternative, IAU, which is cheaper but the difference is not as big which explains why IAU is gaining but nowhere near as fast as VWO. The miners ETF, GDX has also jumped in the top 25.

Bond ETF’s continue gain steam: It’s not a secret, I’m a fan of bond etf’s, because they’ve improved life for “regular investors” such as you and I. It’s a much cheaper way to get exposure to the bond market. Although I do see the inflation possibilities, I’m surprised to see TIP as the top bond ETF. Others such as LQD & AGG  both from Ishares have small management fees and decent exposure. They have performed well but there is starting to be real concern that bonds could be the next bubble to burst.

ETF’s as a whole continue to gain size quickly: Just take a look at the changes in market cap and you will  see exactly what I mean. Almost all of the top ETF’s are gaining size. Why? There are 3 main factors:

  • Stock market/asset price increases: Obviously, when the market increases, it translates into bigger assets. That has been part of the story
  • Investors getting back into the market: After the major financial crisis, many investors moved their assets towards cash and out of the market. That tendency is slowly reversing which has brought more assets into ETF’s as well as other asset types
  • ETF’s gaining market share. Mutual funds, and other types of investments have higher fees, less transparency and that has given major incentives to small and big investors to use ETF’s. They still represent a much smaller asset type than mutual funds for example but i would bet that the tendency will continue in that regard, ETF’s are king.

Brazil sits at the top of single country ETF’s: Brazil (EWZ) has been getting a lot of press in recent months and has certainly stepped out of China’s picture as a force to be reckoned with among emerging countries. The return so far this year has been fairly small though and the country has been discussing taxing foreign investments which is never a good sign. Single Country ETF’s to watch out for? Actually only China (FXI) sits close with Japan (EWJ) the last one on the list of the top 50 and probably heading lowwer. EWJ has actually been shrinking very fast because of the many problems in the Japanese economy.

Dividend ETF’s: We have discussed these and they are certainly gaining market share very quickly. The S&P Dividend ETF Spider (SDY) was #95 in march and has jumped to #46 as assets increased 151.63%!! Many investors have been looking for higher dividends that are expected to do well in this difficult economic context.

Any other comments? Take a look at the chart below and let us know what your thoughts are. This data is as of the end of October!

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3 Comments

  1. Comment by Zavi — November 5, 2010 @ 6:47 am

    just to make sure how your criteria ranking method is… only by market cap??

    surprising that silver 41% return YTD and REIT 27% return YTD are ranking first !! Gold ETFs are following!

  2. Comment by IS — November 6, 2010 @ 6:46 am

    Yes, it was by market cap only:)

    Wow, Silver 41%, very impressive indeed, thanks for pointing that out!

  3. […] Speculator presents State of the ETF Industry posted at Intelligent Speculator, saying, “A look at recent news in the ETF […]

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