Assets under management (AUM) in exchange traded funds (ETFs) and exchange traded products (ETPs) with primary listings in the United Kingdom increased by 49 percent in 2010, and totaled US$93.4 billion as of year end, according to a new report on the UK market produced by BlackRock’s Global ETF Research and Implementation Strategy Team.
The BlackRock report, “ETF Landscape -- United Kingdom Industry Review,” which covers all ETFs and ETPs listed in the UK, notes that the AUM increase for 2010 is considerably more than the 5.2 percent increase in the FTSE 100 index in US dollar terms over the same period.
The average daily reported trading volume in US dollars for all UK listed ETFs/ETPs was US$550.4 million at year end 2010, up 24 percent from US$445.3 million at the end of 2009.
“In the UK, as is the trend globally, all types of institutional and retail investors including advisers are increasingly embracing ETFs as a tool that should be considered and used when implementing asset allocation,” said Deborah Fuhr, Global Head of ETF Research and Implementation Strategy at BlackRock.
The report is part of the “ETF Landscape” series of weekly, monthly, and quarterly ETF and ETP market commentaries produced by the Global ETF Research and Implementation Strategy team. The team operates as an independent source of marketplace research within BlackRock.
At year-end 2010, the UK ETF/ETP industry had 764 unique ETFs/ETPs listed in the UK with 1,125 listings from 23 providers across three exchanges/MTFs (London Stock Exchange, Chi-X and Turquoise). There were 520 ETFs/ETPs with their primary listing in the UK, compared with 293 primary listings at the end of 2009, an increase of 77.5%. Nineteen ETFs/ETPs listed in the UK had assets greater than US $1 billion, while 112 ETFs/ETPs had assets greater than US $100 million.
A key factor encouraging more advisers in the UK to embrace ETFs is the Retail Distribution Review (RDR) of the Financial Services Authority (FSA), the report notes.
The RDR outlines changes the FSA plans to make for the retail investment market to establish a new level of consumer trust and confidence. A primary objective is to distinguish between independent advice and sales advice to create better clarity for consumers.
The FSA has cited ETFs as one of the packaged products that advisers considering themselves independent should become educated on, so that they can recommend the products to their clients. The FSA considers ETFs to be an investment tool suitable for retail investors because they can be a cost efficient and transparent way to access the market.
“ETFs are ‘RDR ready’ and fit into the new adviser charging model proposed by the FSA,” Ms. Fuhr said. “As such we have seen an increasing number of requests for information on ETFs that are both listed and registered for sale in the UK as well as having UK tax status, which can make them more efficient for UK domiciled investors.”
The report notes that the use of ETFs within assembled products such as Fund of Funds/Fund of ETFs is growing as product providers see value in using ETFs as low cost beta building blocks to deliver asset allocation.
“ETFs are gaining ground as an essential element of portfolios that are built around an asset allocation framework, without specific active investment decisions regarding security selection and market timing,” Ms. Fuhr said. “With such portfolios becoming increasingly attractive, this particular application of ETFs will likely continue to expand.”