Friday, April 29th, 2011
US$41.4 Bn net inflows in Q1 double same period last year In Response to Tumultuous First Quarter
Investors Adjust Allocations in Q1 Middle East Unrest Drives Interest in Energy Sector

In the first quarter of 2011, US$41.4 billion of net new assets went into ETFs/ETPs, which is more than double that seen in Q1 2010, indicating that the industry is off to a much faster start this year, especially since Q1 is historically a slow quarter in terms of net new assets. Global assets under management (AUM) in exchange traded funds (ETFs) increased 6.7% in 2011’s first quarter, and now total US$1.399 trillion, according to BlackRock’s Global ETF Research and Implementation Strategy Team.

According to the new ETF Landscape report just published by the BlackRock group, at the end of Q1, the global ETF industry had 2,605 products with 5,905 listings from 142 providers on 48 exchanges around the world. This compares with 2,131 products with 4,133 listings and assets of US$1.082 trillion from 123 providers on 42 exchanges, at the end of 2010’s first quarter. Combining ETFs and exchange traded products (ETPs), there were 3,724 products with 7,740 listings, and assets of US$1.583 trillion from 178 providers on 52 exchanges around the world at the end of Q1 2011. This compares with 2,849 products with 5,158 listings, and assets of US$1.235 trillion from 147 providers on 44 exchanges, at the end of Q1 2010.

ETFs Support Timely Response to Global Events
“In 2011’s first quarter, global investment markets were shaken by a range of extraordinary events – from social and political unrest throughout the Middle East and northern Africa, unpredictable weather and the still unresolved nuclear event in Japan following a catastrophic earthquake and tsunami,” said Deborah Fuhr, Global Head of ETF Research and Implementation Strategy at BlackRock.

“Throughout this period, ETFs saw US$41.4 Bn of net new assets flow into a broad spectrum of products as investors responded to these events and were able to implement appropriate, highly focused investment strategies in a timely fashion. ETFs are index based open-ended funds that can be bought and sold like ordinary shares on a stock exchange. They have become popular and widely used investment vehicles to facilitate many investment and diversification strategies — from short-term tactical applications to longerterm strategic applications. The ETP industry includes other product structures such as grantor trusts, partnerships, commodity pools and notes.

The ETF industry’s 6.7% increase in AUM for the first quarter -- from US$1.311 trillion to US$1.399 trillion – exceeded the 4.3% quarterly increase in the MSCI World Index in US dollar terms, and also topped the industry’s 4.4% increase in AUM over the same period in 2010.

“Industry asset flows in the first quarter illustrate yet again that ETF and ETP product trends have come to represent sound ‘proxies’ for investor views and sentiments across the full range of asset classes and global markets,” Ms. Fuhr said. “ETFs offer immediate exposure to a large array of indices with the flexibility to be traded at any time with multiple brokers when markets are open.

The products offer a menu of cost-effective, transparent products that deliver diversified market exposure – attributes that are highly valued during 2011’s tumultuous first quarter.” Ms. Fuhr said that over the course of Q1 2011 investors were able to easily adjust their allocations to various markets and asset classes by rotating into and out of various exposures, reacting to the events in the Middle East and North Africa, droughts and floods which affected crops, and the earthquake, tsunami and nuclear event in Japan as well as company results and employment news in the US. Products tracking broad emerging markets and China revealed net outflows at the beginning of the quarter and net inflows for March, while at the same time single country products such as those tracking Brazil, Russia, South Korea and Taiwan attracted net inflows over the quarter. The activity in Q1 indicates investors find the ability to adjust exposures easily and quickly an appealing benefit.

Products focused on Japan – in particular, those tracking the MSCI Japan Index – were extremely active during the month, reflecting investor strategies to manage the impact of the March 11 earthquake and tsunami. Such activity also demonstrates the increasing extent to which investors use products based on MSCI indices as benchmarks for non-domestic exposure, Ms. Fuhr said. During the first quarter, concerns about inflation were another factor driving investment in ETFs, Ms. Fuhr said. “Inflation worries were a factor in generating considerable interest in products providing exposure to indices covering broad commodities, high dividend paying stocks, high yield fixed income, gold and real estate,” she said. Net inflows went into products providing exposure to energy commodities, illustrating investors interest in participating in expected price increases sparked by unrest in the Middle East and North Africa, though such interest is expected to moderate as regional turbulence and energy prices move back to a more normal level, Ms. Fuhr said.

In the first quarter of 2011, equity ETFs/ETPs attracted US$25.9 billion in net inflows, while fixed income ETFs/ETPs saw net inflows of US$7.9 billion, of which ETFs/ETPs providing high yield exposure saw US$2.4 billion in net inflows while Government bond ETFs/ETPs experienced net outflows of US$1.0 billion.

ETFs/ETPs with commodity exposure attracted US$6.3 billion in net inflows, of which ETFs/ETPs with exposure to agricultural commodities saw US$3.6 billion in net inflows while ETFs/ETPs providing exposure to precious metals saw net outflows of US$2.0 billion.In Q1 2011, the ETF average daily trading volume in US dollars increased by 55.3%, compared with December 2010, to US$72.0 billion in March 2011. In March 2010, average daily trading volume was US$59.9 billion.

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iShares is the global product leader in exchange traded funds with over 470 funds globally across equities, fixed income and commodities, which trade on 19 exchanges worldwide. In Australia, 23 iShares ETFs are traded on the Australian Securities Exchange (ASX), across both domestic and international indices. The first iShares ETF quotation on ASX occurred in October 2007. The iShares ETFs are bought and sold like common securities on securities exchanges. The iShares ETFs are attractive to many individual and institutional investors and financial intermediaries because of their relative low cost, liquidity and trading flexibility. Investors can purchase and sell shares or units (as the case may be) of an ETF through any brokerage firm, financial adviser, or online broker, and hold the funds in any type of brokerage account. The iShares customer base consists of the institutional segment of superannuation plans and fund managers, as well as the retail segment of financial advisers and individual investors. Visit for further information.
Debbie Pearce
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