ETF Landscape: Celebrating 10 Years of ETFs in Europe - BlackRock

ETF Landscape April 2010Celebrating 10 Years of ETFs in Europe from BlackRockToday the ETF toolbox is well stocked with a wide array of products:Figure 33: 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 Volatility2,055 ETFs with 3,941 ETF listings620 ETPs 1 with 911 listingsTotal: 2,675 productswith 4,852 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/leveraged1. ETPs include HOLDRs, Exchange Traded Commodities (ETCs), Exchange Traded Currency Products, and ETNs, as at end January 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 0.70%.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.Shari’ah ETFs: the first Shari’ah compliant ETF was launched inJanuary 2007. Shari’ah compliance means compliance with certainShari’ah principles that are derived from the Quaran and othersources of Islamic law, as determined by Shari’ah scholars.Methodologies exclude representation in the index by shares issuedby producers of alcohol and pork-related products, providers ofconventional financial services and providers of entertainmentservices (e.g. hotels, casinos/gambling, cinema etc.). Tobaccomanufacturers, defence and weapons companies, although notstrictly forbidden under Shari’ah law, are also excluded. In additionto excluding companies from certain sectors, Shari’ah compliantindices also exclude companies that employ excessive leverage orgenerate excessive interest income.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. 36