ETF Landscape: United Kingdom Industry Review - BlackRock ...

More documents

Recommendations

Info

ETF Landscape Year End 2010United Kingdom Industry Review from BlackRockETFs afford investors two forms of liquidity. The first is throughtrading the shares on a secondary basis on the exchange. Thesecond is on a primary basis via the unique ‘creation’ process,whereby an AP purchases the underlying basket of securities in thelocal market and deposits the basket ‘in kind’ into the ETF, creatingmore shares in that ETF. The unique creation/redemption processmeans that the liquidity in the ETF is driven by the liquidity in theunderlying securities.Divergence in the performance of an ETF, relative to the index ittracks, is possible. Differences tend to be caused by fund fees andexpenses, tracking error when optimisation strategies are used totrack the index, rebalancing due to corporate actions and indexchanges, or the dividend reinvestment policy of the fund.ETFs tend to trade at, or close to, their underlying NAVs. This isbecause there are usually arbitrageurs waiting to take advantage ofa significant premium or discount relative to the underlying index.An arbitrageur will buy/sell the ETF and place an offsetting buy/selltransaction in the underlying basket of component securities.Figure 26: Typical ETF trading processPrimary marketSecondary marketETF managerSecuritiesETFETF marketmakers/brokerCash (OTC)ETFInvestorCashETF¹Exchange1. ETF or Creation Basket.23 This document is not an offer to buy or sell any security or to participate in any trading strategy. Please refer to important information and qualifications at the end of this material.
ETF Landscape Year End 2010United Kingdom Industry Review from BlackRockToday the ETF toolbox is well stocked with a wide array of products:Figure 27: The ETF toolboxEquity Fixed income Cash Currency Global Government EONIA, SONIA Developed currencies Capitalisation (large,mid, small…) Sectors Broad markets Emerging markets Countries Inverse/leveraged Styles Active Dividend Fundamental Infrastructure Real estate Shariah Thematic Private equity Corporate Credit Inflation High yield Mortgage backed Emerging markets Fed fundsAlternatives Hedge funds Carbon Volatility2,459 ETFs with 5,554 ETF listings1,044 ETPs 1 with 1,757 listingsTotal: 3,503 productswith 7,311 listings Emerging market currencies Inverse/leveraged Strategy (carry, momentum...)Commodities Broad (S&P GSCI, DJ-UBS,RICI, CRB…) Sub-indices (energy, livestock,precious metals, industrialmetals, agriculture...) Individual commodities Based on physically held assets(gold, silver, platinum,palladium…) Based on futures Based on forwards Inverse/leveraged Value/growth1. ETPs include HOLDRs, Exchange Traded Commodities (ETCs), Exchange Traded Currency Products, and ETNs, as at year end 2010.Source: Global ETF Research and Implementation Strategy Team, BlackRock, Bloomberg.ETFs cover many well known blue-chip indices such as S&P 500,CAC, DAX, FTSE 100, Hang Seng, Nikkei etc. Recently there hasbeen a proliferation of new indices from index providers which theyhope will form the basis of new ETFs. Many of the new indices usediverse weighting methodologies, including market capitalisation,equal weight, price, dividend and other fundamental factors. As anexample the new FTSE RAFI Index Series is weighted using fourfundamental factors; total cash dividends, free cash flow, total salesand book equity value rather than traditional market capitalisation.WisdomTree has created dividend-weighted indices where thestock’s weight is based on either the amount of cash dividend or thedividend yield of the companies in each index.Infrastructure ETFs: the first infrastructure ETF was launched inJanuary 2007. Infrastructure indices provide diversified exposure tothree infrastructure clusters: energy (oil and gas, storage andtransportation), transportation (airport services, highways andrailroads, marine ports and services) and utilities (electric, gas,water, multi-utilities).Fixed income ETFs: the first fixed income ETF was launched inCanada in November 2000. A broad array of government, corporate,credit, high yield, emerging market, inflation protected and moneymarket fixed income products are available to investors within theflexibility of an ETF wrapper, allowing investors to implement incomegenerating strategies, fund future liabilities, hedge inflation andenhance portfolio risk-adjusted returns. There are global, regionaland single country fixed income ETFs with TERs ranging from 0.05%to 1.35%.Commodity ETFs: the first commodity ETF was launched inCanada in March 2001. Commodities as an asset class typicallyexhibit low correlation to equity indices, and the advent ofcommodity ETFs allows investors to satisfy asset allocation anddiversification requirements, hedge inflation or speculate oncommodity indices such as the S&P GSCI. Trading commodityindices as a single exchange traded product avoids the need tomanage futures rolls, provides investors with deep underlyingliquidity pools, and allows investors who are restricted from usingderivatives or other commodity vehicles to gain exposure in anequity vehicle.This document is not an offer to buy or sell any security or to participate in any trading strategy. Please refer to important information and qualifications at the end of this material. 24
Page 1 and 2: FOR PROFESSIONAL INVESTORS. NOT FOR
Page 3 and 4: ETF Landscape Year End 2010United K
Page 23: ETF Landscape Year End 2010United K
Page 66: Regulatory InformationBlackRock Adv

ETF Landscape: United Kingdom Industry Review - BlackRock ...

Create successful ePaper yourself

Delete template?

Save as template?