In my last column, I focused on some of the major facts and figures concerning the European ETF market, which included a list of the top 10 product providers. In this, my second feature for IndexUniverse.com, I'd like to explore a little further the product range of the top 10.

In aiming to capitalise on the rapid growth of the ETF market, we will see that the major players have adopted some quite different strategies. Equally, the ETFs on offer are quite diverse - some firms have attempted broad market coverage, while others continue to concentrate on specific asset classes or look to newer methods of offering exposure; for example, via second-generation indexes, leveraged or inverse funds. 2007 also saw a big increase in the number of "themed" ETFs.

Three months into 2008, it is becoming clear that the favourable market conditions that had prevailed for most of the previous five years have come to an end. Although the commodity boom has continued, the sell-off in equities and credit has been severe, and the outlook seems to be darkening. This presents an interesting new challenge to the major ETF houses, and causes us to ask: Which are best positioned for an equity bear market?

Let's look through the top 10 European ETF providers. Figures are as at end-2007.*

1. BGI/IShares

As in the U.S., iShares is the behemoth of the ETF market, with a market share of just under half in Europe. 2007 saw a branching out into new product areas, with the firm launching ETFs in five "alternative" asset class areas: global water, global infrastructure, clean energy, timber and forestry, and private equity.

Elsewhere, the firm has added Shariah-compliant funds and, more recently, emerging market bonds and emerging market infrastructure, in what is the largest product range in the European marketplace.

What's missing? iShares is notably absent from the leveraged, inverse and leveraged inverse sectors, and its fixed-income range is perhaps underdeveloped. According to Frank Henze, iShares' head of product development in Europe, the firm is looking at "more shades" of ETF bond market coverage, so watch this space.

2. Lyxor

Lyxor has been very active in new product launches across a wide range of asset classes over the last year, focussing particularly on country exposure in emerging equity markets (Russia, China, India, Brazil), and on further commodities offerings. Recently, they have made a big commitment to fundamental indexation via the launch of four new ETFs linked to the FTSE RAFI indexes, and have made an interesting bid for hedge fund territory with a quantitatively driven ETF (Lyxor WISE).

Lyxor has a good deal of direct product overlap with iShares in more traditional equity index coverage, with the Lyxor version typically priced a basis point or two cheaper than the iShares offering, in what seems like a fairly comfortable coexistence. With these two firms claiming almost three-quarters of the European ETF market, it is up to new competitors to be innovative when trying to gain market share.

Is Lyxor too equity-dependent? If the recent bear market trend continues, the firm may need to focus on new areas to keep assets up.

3. db xtrackers          

Deutsche Bank's xtracker range has had a highly successful start since launch in early 2007, with nearly 50 ETFs at year-end, and another 30 since then, while claiming close to a 10% market share from a standing start. According to Manooj Mistry, DB's head of structuring, the company deliberately aimed at broad-brush market coverage on launch, but one smart move has been to expand the range of inverse equity ETFs in time for the 2008 bear trend. Another has been innovation in the credit area (both long and short ETFs linked to the iTraxx indexes). Finally, the EONIA money market fund linked to overnight rates has quickly become the biggest European fixed-income ETF. DB seems well-positioned to increase market share further in 2008.

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