More ETF Types Spring up as Demand Increases

As demand for exchange-traded funds (ETFs) has grown, ETF sponsors have offered more funds with a greater variety of investment objectives, according to the 2010 Investment Company Fact Book released by the Investment Company Institute (ICI).

In the mid-1990s, ETF sponsors introduced funds that invested in foreign stock markets. Investor demand for these ETFs increased significantly beginning in 2004, and net issuance reached a record $49 billion in 2007.  

While net issuance of global/international ETFs slowed in 2008, investor interest—particularly in emerging market ETFs—picked up in 2009, with total net issuance amounting to $40 billion. Emerging markets ETFs had $29 billion in net issuance and total net assets grew to $109 billion, or 14%, of all ETF assets, making this the second largest category of ETFs. 

More recently, sponsors have introduced ETFs that invest in particular market sectors, industries, or commodities. At year-end 2009, there were 228 sector and commodity ETFs with $157 billion in assets. While commodity ETFs made up 21% of the number of sector and commodity ETFs, they accounted for 48% of total net assets. Since their introduction in 2004, these nonregistered ETFs have grown from just over $1 billion to $75 billion by the end of 2009, with total net assets more than doubling in the last year. 

In 2009, ETF sponsors continued building on recent innovations by launching actively managed ETFs and ETFs that are structured as funds of funds, both of which were first introduced in 2008, according to ICI. Nine actively managed ETFs—including one nonregistered, commodity-based ETF—were launched, bringing the total number of actively managed ETFs to 22 with about $1 billion in assets. ETF funds of funds, ETFs that hold and invest primarily in shares of other ETFs, at year-end 2009, had grown to 23 ETF funds of funds with $824 million in assets. 

In the past decade, demand for ETFs has accelerated as institutional investors have found ETFs a convenient vehicle for participating in, or hedging against, broad movements in the stock market, the report noted. Retail investors and their financial advisers also have become increasingly aware of these investment vehicles. Assets in ETFs accounted for 6% of total net assets managed by investment companies at year-end 2009. Net issuance of ETF shares remained strong in 2009 at $116 billion, though down from the record $177 billion in 2008. 

An estimated three million U.S. households held ETFs in 2009. Of households that owned mutual funds, an estimated 5% also owned ETFs. ETF-owning households tended to include affluent, experienced investors who owned a range of equity and fixed-income investments. In 2009, 94% of ETF-owning households also owned stocks, either directly or through stock mutual funds or variable annuities. Sixty-six percent of households that owned ETFs also held bonds, bond mutual funds, or fixed annuities. In addition, 48% of ETF-owning households owned investment real estate. 

The 2010 Investment Company Fact Book is here.