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Exchange traded funds are not only weathering the storm of the current financial market crisis, but seem to be thriving. Rainer Riess, Managing Director, Cash Market Development, Deutsche Börse AG, explains how this new asset class is coming into its own.
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| In the midst of the current financial market crisis, a relatively new asset class is rising to unfold its true potential: exchange traded funds (ETFs). Low fees and expenses, high transparency and improved liquidity are the key benefits of exchange-traded index funds. Buying ETF shares gives investors access to entire markets with a single transaction. With well over 300 listed ETFs, the XTF® segment of the Frankfurt Stock Exchange is by far Europe’s leading market for trading in these modern financial instruments.
Low fees and expenses, high transparency and improved liquidity are the key benefits of exchange-traded index funds.
Signs are pointing to further growth in 2008 as well. Trading volume has held steady at the record level seen in 2007 – a monthly average of EUR 9.2 billion for the first six months of this year. This success story has been documented by New York industry research firm exchangetradedfunds.com, which recently named Deutsche Börse European winner in the categories “Most Proactive ETF Exchange”, “Largest Exchange for ETFs” and “Largest Number of Primary ETF Listed Products” for the fourth time in a row.
| But by no means will we be content with past accolades. The ETF market is extremely dynamic and innovative. First-generation ETFs already covered broad equity and bond indices. Generation 2.0 now features index funds with more varied and sophisticated strategies. Considering that in Europe, only 19 percent of all assets under management were in ETFs as of the end of April 2008, as compared to 70 percent for the US according to Morgan Stanley, it is clear that we are only at the beginning of a phase of dramatic growth.
Exchange-traded commodities (ETCs) represent another segment just beginning to catch on. Commodities are probably the hottest topic in investing right now. Prices of many precious and industrial metals, fuel resources, and agricultural commodities are more volatile than they have been in a long time. And institutional investors are only now beginning to discover the key benefit of commodity investing: low correlation with conventional asset classes such as stocks and bonds. ETCs now afford investors easy and low cost access to commodity markets in a manner virtually without precedent. Deutsche Börse is a pioneer in this segment as well, and number one in Europe with over 100 ETCs offered on the fully-electronic Xetra® trading platform.
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