Ten European ETF Forecasts For 2009

  1. The top three remain the top three – forecasting that iShares, Lyxor, and db x-trackers will have the majority of European ETF assets by end-2009 is not a particularly bold claim, since they currently have 76% of the market by AUM (BGI figures, as at end Q3 2008). But I suspect they may not see their combined market share fall by much, if at all. It’s increasingly tough out there for financial institutions, the ETF business is a size game, with huge economies of scale for the bigger players, and the asset landscape is getting increasingly well-covered. At the same time there are more players intent on gaining a share of the business – note the recent launch of ComStage, CASAM’s aim to gather €10 billion by 2011, and of course the recently-announced Morgan Stanley/Goldman joint venture, so I could well be wrong! It will be interesting to watch.
  2. Fixed income assets will fall – with rates heading towards zero, cash funds are losing their attractiveness, and bond yields are dropping too. So I expect fixed income ETF assets to drop from their current 27.3% of the European market.
  3. But we’ll see more credit funds – I think this is an area of the market that has boomed during 2008, as more and more people are following the credit derivatives market. There seems ample space for further product development. So far, db x-trackers and EasyETF are the only operators in this sector. Will others join?
  4. And inflation-linked assets will grow – I wrote about this ETF sector earlier this week, and the recent rise in real yields should attract more assets next year.
  5. Sector equity ETFs will grow – again, we’ve reported on this recently, but it seems like a natural progression that sector ETFs will increase their market share in 2009, following the US’s lead.
  6. More inverse and leveraged funds will appear – with Direxion’s recent 3* leveraged fund launches, and FTSE’s announcement yesterday that they are now recording 1, 2, 3 and 4 times positive and inverse leveraged versions of the FTSE 100 and FTSE 250 indices, this seems an inevitable (if, in my view, not always healthy in regards to high leverage) development. Is everyone aware of the constant leverage trap?
  7. Commodities will rebound – this year has been a roller-coaster ride for investors in commodities, but I suspect that natural resources will do better again in 2009 after the recent sell-offs. This is another area that is ripe for further product development – there’s still a confusing array of broad commodity ETFs.
  8. And so will emerging markets – incidentally, we’ll be publishing an interview later this week with a fund manager who sees big value in China and India at current valuations.
  9. Sterling will be higher against the Euro at end-2009 than the current 1.09 – maybe this is wishful thinking, and we Brits will never be able to afford to travel across the Channel again … Jim, I will reply to your blog on Gordon Brown in my next one!
  10. And, taking a wild stab – after the record volatility we’ve seen this year, stock markets will actually quieten down next year as governments’ and central banks’ fiscal packages and money injections succeed in stabilising nominal asset prices, at least for a while. But neither will there be a rapid rebound. So how about the FTSE 100 and S&P; 500 ending 2009 within 10% (in either direction) of their current levels (4309, 913)?

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