For banks and brokers servicing the global exchange-traded product market, the first half of 2010 was either a disappointment or a cause for optimism, depending on how you look at it.

On the one hand, the sharp fall in equity markets in May and June dragged down assets under management worldwide, causing a slight dip from year-end levels. Strategists Christos Costandinides of Deutsche Bank and Deborah Fuhr of Blackrock calculate that global ETP assets under management fell by just under one percent in the first half of the year in dollar terms, although they still total over US$1 trillion.

On the other hand, healthy and continuing cash flows into exchange-traded products signal a market that is still in a strong growth phase. Deutsche Bank calculates that net global cash flows into exchange-traded products have totalled over US$200 billion in the last six quarters.

According to Deutsche Bank’s Costandinides, global ETP market growth of 15% for 2010 is still possible, but is dependent on a recovery in equity markets during the second half of the year and the maintenance of cash flows into exchange-traded products at the same rate as during previous quarters. Fuhr’s target, given in 2008, of US$2 trillion in global ETFs by 2012 is looking a stretch, however.

Americans Prefer Bonds, Europeans Gold

Costandinides points out in his Quarterly ETP Market Update that US and European ETP investors had very different reactions to the market volatility of May and June. In the US, inflows to bond funds were strong in both the first and second quarters.

In Europe, where the market dip could be traced to rising concerns about sovereign solvency, investors understandably shied away somewhat from certain government bond ETFs, while showing continued appetite for the ultimate safe haven, gold trackers.

Gold demand wasn’t lagging by much in the US, though. According to Deutsche Bank, 96% of all US commodity ETP inflows during the second quarter, and over a quarter of all ETP inflows, were to the precious metal.

Source’s Half, Or The Second Tier Rises

Amongst Europe’s exchange-traded product providers, the first half of 2010 was a period when the second tier of issuers staged a strong performance at the expense of the big three (iShares, Lyxor and db x-trackers).

While the largest three all saw increases in their assets under management during the first six months, the rate of increase was lower than that of the European market as a whole (13.4% in euro terms).

Amongst Europe’s smaller, second-tier ETP issuers, however, eight of the top fifteen, when ranked by assets under management at end-June, achieved growth of over double the market rate.

Top 15 European ETP Providers AUM Table

^{Source: Deutsche Bank, Bloomberg, Reuters}

These gainers were ETF Securities, Credit Suisse, ZKB, Source, Amundi, UBS, Julius Baer and Deutsche Boerse Commodities (issuer of Xetra Gold), who all saw assets rise by more than 30% during the first half of the year.

For ETF Securities, ZKB, Julius Baer and Deutsche Boerse, the increase was primarily the result of investor demand for gold, while the other four big gainers saw buying interest from outside the commodities sector.

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