Global ETF Economic News

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ETF Landscape: Annual Review of Institutional Users of ETFs in 2008

November 24, 2009--We are pleased to announce that we have just published our Annual Review of Institutional Users of ETFs which looks at the use of ETFs by institutional investors globally who have reported holding one or more ETFs in their mutual fund holding disclosures, or in different filing sources including 13F, 13D and 13G, proxy or other declarable stakes during any of the four quarters of 2008 based on data compiled by Thomson Reuters.

In the four quarters of 2008 a total of 2,926 institutional investors worldwide have reported using one or more ETFs. Over the past 11 years, the number of institutional users has increased 1,673%. This represents a CAGR of 29.9%.

Institutional investors in 42 countries have reported using at least one ETF in 2008. The United States, the United Kingdom, Canada, Spain and Switzerland have the largest number of institutional users and account for 83%.

Over half of the largest institutional investors (those with assets over US$10 Bn) report using one or more ETFs, while less than a quarter of institutions with assets under US$250 Mn report using ETFs. The overall penetration rate is still very low at 6.7% of reporting institutions.

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Source: Source:ETF Research and Implementation Strategy, BGI

U.S. Treasury and India's Ministry of Finance Announce Historic Partnership to Guide Economic Cooperation

Secretary Geithner to Visit India in Early 2010
November 24, 2009-- U.S. Secretary of the Treasury Tim Geithner and Finance Minister Pranab Mukherjee announced the establishment today of a new U.S.-India Economic and Financial Partnership to strengthen bilateral engagement and understanding on macroeconomic, financial sector, and infrastructure-related issues. Secretary Geithner will visit India in early 2010 for the Partnership's launch with Finance Minister Mukherjee.

Both countries recognize the importance of expanding bilateral economic engagement, noting the rapid growth of U.S.-India economic ties and the increasing range of global macroeconomic and financial issues on which the United States and India cooperate. The Economic and Financial Partnership is a significant elevation of existing bilateral and multilateral economic dialogue between the United States and India, and will serve as a platform for greater cooperation on economic issues of importance to both nations.

The Partnership will focus on three broad areas for discussion – macroeconomic policy, the financial sector, and infrastructure development – and will meet at the Cabinet level once a year, alternately in the United States and India, led by Secretary Geithner and Minister Mukherjee. Working group and sub-cabinet level meetings will be held throughout the year to advance discussions on specific economic policy areas.

Additional details on the Partnership and its launch in 2010 will be announced in the months to come.

Source: U.S. Department of the Treasury.

INSTITUTIONAL USERS OF ETFs CONTINUES TO GROW

Latest data from the ETF Research and Implementation Strategy team at Barclays Global Investors reveals the number of institutions reported holding ETFs has grown by 12% in 2008, according to the latest report “Annual Review of Institutional Users of ETFs in 2008” released today.
November 23, 2009-- In the four quarters of 2008 a total of 2,926 institutional investors worldwide have reported using one or more ETFs. Over the past 11 years, the number of institutional users has increased 1,673%. This represents a CAGR of 29.9%.

Investment Advisors2 are the largest category of users accounting for 74% of institutional users. The CAGR for this category over the past 11 years is 31.1%.

Use by hedge funds has increased and currently hedge funds are the second largest category representing 15%. Over the past 11 years the CAGR of hedge funds has been 42.4%.

The SPDR S&P 500 (SPY US), iShares MSCI EAFE (EFA US), iShares MSCI Emerging Markets (EEM US) and iShares Russell 2000 (IWM US) are the most widely held ETFs.

Deborah Fuhr, Global Head of ETF Research & Implementation Strategy at BGI said, “During the market turmoil of 2008 investors became even more concerned about counterparty risk, transparency, liquidity and the use of derivatives and structured products. As a result, the use of ETFs to implement exposure to cash, fixed income, commodities and equity indices became more popular.”

Market volatility increased significantly since Lehman Brother’s bankruptcy on 15 September 2008. During 2008, the S&P 500 Index moved by more than 5% on 18 days. There were only 17 days with moves greater than 5% in the previous 53 years according to S&P. Equity volatility as measured by the VIX index soared to record levels – nearly double the prior spikes in 2002 and 1998. The VIX started the year at 23 and ended the year at 40 with a spike of 80 and a low of 15.8.

In addition, over the five year market cycle from 2004 to 2008, S&P 500 outperformed 71.9% of actively managed large cap funds, S&P MidCap 400 outperformed 79.1% of mid cap funds and S&P SmallCap 600 outperformed 85.5% of small cap funds. These results are similar to that of the previous five year cycle from 1999 to 2003. The script was similar for non-US equity funds, with indices outperforming a majority of actively managed non-US equity funds over the past five years3.

On a global basis ETF net sales were positive US$270.4 Bn while net sales of mutual funds (excluding ETFs) were minus US$117.1 Bn during 2008 according to Strategic Insight.

The Thomson Reuters shareholding database covered 37,441 institutions reporting on holdings of US$16,474,589 Mn at the end of December 2008.

Many institutions and retail investors are not required to report their ownership of securities through these sources which Thomson Reuters collects.

The use of ETFs by self directed and retail channels continues to grow. The United States currently has one of the highest usage rates.

The Retail Distribution Review (RDR) in the United Kingdom is and will continue to drive the use of ETFs by financial advisors in the UK. The EU is also looking at sales practices.

The reported ETF holdings of US$274,167 Mn at the end of December 2008 account for only 38.6% of the total ETF AUM of US$710,902 Mn at the end of 2008.

Many regulators around the world are reviewing the sales practices, charges, fees and the transparency to retail clients around the world. These changes will increase the use of ETFs in the retail channels.

1 The ETF Landscape Annual Review of Institutional Users of ETFs in 2008 looks at the use of ETFs by institutional investors globally who have reported holding one or more ETFs in their mutual fund holding disclosures, or in different filing sources including 13F, 13D and 13G, proxy or other declarable stakes during any of the four quarters of 2008 based on data compiled by Thomson Reuters.
2 Investment advisors are institutions who manage assets for private clients and institutions.
3 Standard & Poor's Indices Versus Active Funds Scorecard, Year End 2008

Source: Barclays Global Investor

State of World Population 2009.-UNFPA Report

November 20, 2009--How do population dynamics affect greenhouse gases and climate change? Will urbanization and an ageing population help or hinder efforts to adapt to a warming world?

Family planning, reproductive health care and gender relations could influence the future course of climate change and affect how humanity adapts to rising seas, worsening storms and severe droughts, according to The State of World Population 2009, published today by UNFPA, the United Nations Population Fund.

International climate-change agreements and national policies are more likely to succeed in the long run if they take into account population dynamics, the relations between the sexes, and women’s well-being and access to services and opportunities, the report concludes. Slower population growth, for example, would help build social resilience to climate change’s impacts and would contribute to a reduction of greenhouse-gas emissions in the future, The State of World Population 2009 found.

Most of the debate about climate change today has revolved around countries' relative responsibilities for limiting the growth of greenhousegas emissions and for funding efforts to shift to low-carbon energy and other technologies. What’s the best approach for reducing carbon emissions? Who should shoulder the financial responsibility for addressing current and future climate change?

View State of World Population 2009

Source: UNFPA

November 2009 “Market’s Measure” - Preliminary Report - A Monthly Report From Dow Jones Indexes And STOXX Ltd. On The Performance Of U.S., European, Asia And Other Global Stock Market Indexes

Dow Jones Industrial Average Posts 6.38% Gain in NOVEMBER, European Stocks Gain 3.29%, Asia Rises 0.83% and World Equities Rise by 4.78%
Basic Resources Sector Posts Biggest Gain for November in Europe & Worldwide
Consumer Goods Sector Takes the Hardest Hit for November in Asia
November 20, 2009-- As of November 19 the Dow Jones Industrial Average rose 6.38% in November, closing at 10332.44. Stock market indexes in Europe, Asia and globally were up in November, according to preliminary monthly figures from global index providers, Dow Jones Indexes and STOXX Ltd.

The Dow Jones Industrial Average rose 6.38% in November, closing at 10332.44. Year-to-date, the index is up 17.73%.
Measuring Europe, the Dow Jones STOXX 50 Index is up 3.29% for November, closing at 2488.71 Year-to-date, the index is up 19.43%.
Measuring Eastern Europe, the Dow Jones STOXX EU Enlarged Total Market Index is up 3.37% for November, closing at 207.15. Year-to-date, the index is up 36.75%.
The performance of the Dow Jones STOXX EU Enlarged 15 blue-chip index is up 3.68% for November, closing at 2239.75. The index is up 36.25% so far this year.
The Dow Jones Asian Titans 50 Index rose 0.83% in November to 132.02. So far this year, the index is up 28.70%
The Dow Jones Global Titans 50 Index rose 4.78% in November, closing at 172.81. Year-to-date, the index is up 20.01%.

NOVEMBER 2009 Sector Winners and Losers
In the U.S., the Dow Jones U.S. Basic Materials Index was the biggest winner in November, posting a 11.50% gain. The Dow Jones U.S. Utilities Index posted the narrowest gain, up 2.03%.

In Europe, the Dow Jones STOXX 600 Basic Resources Index posted the biggest gain, climbing 13.50%. The Dow Jones STOXX 600 Health Care Index had the narrowest gain, up 0.77%.

In Asia, the Dow Jones Asia/Pacific Basic Materials Index posted the biggest gain, rising 4.56%. The Dow Jones Asia/Pacific Consumer Goods Index posted the biggest loss, down -1.62%.

Globally, the Dow Jones World Basic Resources Titans Index had the best performance, climbing 12.10%. The Dow Jones World Automobiles & Parts Titans Index posted the narrowest gain, up 1.61%.

The number of respondents suggesting companies use cash for capital spending has risen to 32 percent this month from 25 percent in September. The proportion asking companies to put the balance sheet first has fallen to 36 percent this month from 50 percent in September. Demands for higher dividends are muted with 22 percent asking companies to prioritise returning cash to shareholders. This was down slightly from 23 percent in October. "The last time we saw a shift towards prioritising capex ahead of balance sheet repair was in 2003, and it served as a clear buy signal for equities. It could signal the transfer of risk from equity to credit," said Gary Baker, head of European equity strategy at BofA Merrill Lynch Global Research.

This shift reflects how risk appetite among investors is tip-toeing upward. The proportion of panelists taking lower than normal risk has shrunk to a net 1 percent, down from a net 16 percent in September.

Higher risk appetite is also evident in emerging markets. "We are seeing a vivid and extreme bent towards high-beta markets, such as Russia, and movement away from lower beta markets, such as Chile and Malaysia," said Michael Hartnett.

Europeans swing out of cyclicals back to defensive stocks

While a net 22 percent of global asset allocators view Europe as the most undervalued global market, investors within Europe are wary of their region's equities. European survey respondents made substantial moves out of cyclical stocks and into defensive sectors over the past month.

More than a quarter of Europeans surveyed increased their positions in Healthcare/Pharma. A net 16 percent are overweight the sector in November, compared to a net 10 percent underweight in October. Over the same period Europeans swung to a net 5 percent underweight Technology from a net 23 overweight in October. These changes came despite more panelists predicting stronger economic growth in Europe over the coming year.

One notable factor weighing against European equities, however, is currency. A net 49 percent of the global panel view the euro as overvalued and a net 36 percent view the dollar as undervalued.

Survey of Fund Managers

A total of 218 fund managers, managing a total of US$534 billion, participated in the global survey from 6 November to 12 November. A total of 177 managers, managing US$361 billion, participated in the regional surveys. The survey was conducted by BofA Merrill Lynch Global Research with the help of market research company TNS. Through its international network in more than 50 countries, TNS provides market information services in over 80 countries to national and multi-national organizations. It is ranked as the fourth-largest market information group in the world.

SOURCE BofA Merrill Lynch Global Research