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vehicles and a vast array of more complicated products from the FTSE All-Share and overseas markets, to ETFs tracking bond, currency and commodity markets. Figures from BlackRock show that ETF assets under management at the end of the first quarter of 2011 in the European space hit $307.5bn – an increase of $73bn from the same period in 2010.


Too much choice? Increased choice is one thing, but is there danger in niche ETFs looking to cash in on the latest trends? We have seen some exotic products come to market, such as the Global X Fishing Industry ETF or the Global X Farming ETF. A recent slogan from iShares asserts: “We’ll stop making ETFs


when you stop having ideas.” While there is nothing wrong with this principle, is it important to ask why some providers are coming up with such narrowly cast funds. A new ETF that tracks a narrow theme or industry can often


struggle to survive, with many failing to attract enough assets to be profitable (typically about $50 million). Anyone remember the StockCar Stocks index fund, which bet on NASCAR-related businesses? The StockCar fund may have sounded intriguing when it was launched amid a national NASCAR craze. But with only


ETFs often sit well alongside managed funds rather than being viewed as the alternative option


around $6 million in assets at its peak, the fund ran out of gas and was soon liquidated. Thompson welcomes innovation in ETF offerings, but concedes


that in some instances concerns over the suitability of products are well founded. “The question is how far should you stretch the ETF envelope? If the underlying is very illiquid, as in the case of real estate, then you have to ask whether an ETF is the ideal structure to invest in this sector. “But the broader question is this: do you want providers to


innovate or not? In essence, I think choice is a good thing and the emphasis should be on the IFA to consider the widest range of options and then decide what is suitable for an individual client and what is not.”


ETF flexibility We know ETFs are easy to trade on the stock market and they have lower fees than most funds, but it is also true that some ETFs allow you to go short, and thereby make money in a falling market – and many unit trust funds do not have this capability. Indeed, many claim ETFs are ideal for the volatile markets


we’re in. But can these funds really allow some investors to reduce volatility while others exploit swings in the market? David Bower, Head of Marketing for iShares, EMEA, believes


so. “Investors have been turning to ETFs as an efficient means to express their views during these uncertain times. ETFs have


➔ October/November 2011 businesslife.co 21


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