2008 was a tumultuous year for the financial services industry, and an interesting one for investors in exchange-traded funds. Which European ETFs and ETCs were the big winners in 2008? Which funds dominate the European market by size, and which have seen the biggest change in assets under management (AUM) during 2008? In this week's feature, we review the key European ETF facts and figures from 2008.

Top And Bottom Performers

The place to start is with an examination of the top 10 and bottom 10 European ETF performers. To make this more interesting, we've included rankings both including and excluding leveraged and inverse funds, which can dominate returns. In addition, all returns have been taken from the IndexUniverse.eu database of NAV returns and restated in euro terms, adjusting for any movements between the ETF's base currency (in which the NAV is typically stated) and the euro. For the sake of completeness, I've also included the base currency returns, so that users operating in other currencies can adjust the returns on their own.

Top 10 European ETF Performers In 2008 (including leveraged/inverse funds)

Top 10 European ETF Performers In 2008 (excluding leveraged/inverse funds)

The table-toppers for the year are dominated by inverse equity ETFs, with SGAM's two leveraged inverse ETFs (tracking the DJ EuroStoxx 50 and CAC 40 indices) heading the list, with returns of 94% and 83%, respectively. Three government bond ETFs and db x-trackers' short iTraxx Crossover credit ETF also make it into the top 10.

Incidentally, the difference between the SGAM ETF Bear DJ EuroStoxx 50 return for the year (47%) and the 59% return on the db x-trackers Short DJ EuroStoxx 50 ETF is due to the fact that SGAM operates a variable leverage policy of between -50% and -100%, rather than a strict daily rebalancing policy to match minus 100% of the underlying index. Both ETFs gave a return higher than -1 times the DJ Euro Stoxx 50 index 2008 return (which was -44.28%), by the way. It is always worth checking prospectuses to be absolutely sure how inverse and leveraged funds operate, as the mathematics of compounding can throw up significant divergences between ETFs' returns and a simple multiple of the index return, particularly when calculated over longer periods.

When leveraged and inverse funds are excluded, the table is completely dominated by government bond ETFs, with two XMTCH funds on the Swiss bond index topping the list (helped by the strength of the Swiss currency). The other ETFs are predominantly invested in medium-to-long-maturity sovereign issues—the best-performing area of the bond markets last year, as reviewed in last week's feature.

The list of ETF decliners is a lot longer than that of the gainers—at my count, only 61 of the 473 funds in existence for the whole of 2008 made it into positive territory.

Here are the bottom 10 performers for 2008, with leveraged funds included:

And here is the list excluding leveraged ETFs:

At the bottom of the 2008 tables, we find the truly astonishing euro return of -96.75% from the ICEQ ETF, an investment which combined the delisting during 2008 of several of the Icelandic OMX-15 Index's component stocks, a 77% fall in price (!) on one day, 14 October, the bankruptcy of the ETF issuer (Kaupthing) and a halving of the Icelandic krona's value against the euro to round things off.

Four Russian-equity-related ETFs make it into the top five worst performers as well, losing close to three-quarters of investors' cash during the year. How times change! Little under a year ago, the February 2008 Merrill Lynch investor survey showed a net 73% of institutional investors overweight in the country, with Russia topping the list of preferred emerging markets at the time.

Other big losers in 2008 included two private equity ETFs, the gasoline ETC and Lyxor's MSCI Greece fund.

Fund Sizes And Fund Flows

The European top 10 ETF table is dominated by country equity funds and different versions of the DJ EuroStoxx 50 large-cap benchmark index, as it has been for some time. Still, three new entrants appeared on the list in 2008: the db x-trackers II Eonia TRI ETF, the Lyxor ETF Euro Cash EONIA ETF and the ZKB Gold Fund. Needless to say, the rise of two cash funds and a gold bullion ETF into the list of the 10 largest European ETFs says something about the state of the market in 2008.

Top 10 European ETFs By Size

Full-year data is not yet in on fund flows in the European space, but the biggest net gainers/losers by assets under management through 30 November 2008 include cash ETFs, country ETFs and the ZKB Gold fund (figures are taken from BGI's December 2008 ETF Landscape publication).

European ETFs With Largest AUM Change In 2008

Interestingly, while the DAX and EuroStoxx 50 ETFs are amongst the biggest decliners by assets under management (likely due to market movements), the two funds in the table tracking US equities showed significant growth, suggesting large cash inflows to overwhelm the negative market returns.

Another standout in the net gainers/losers table is the ETFlab DAX ETF, which has gone from zero to over €1.3 billion in size during 2008, incidentally almost matching the decline in the AUM of the equivalent iShares fund.

Conclusion

With the recent sharp declines in interest rates, it may well be difficult for the cash ETFs—the biggest gainers in European market share during 2008 - to retain their assets this year. The other big question for the European ETF market is whether fixed-income ETFs—which expanded their overall share from 16% to 27% during the year—can hold their gains, or whether equity funds will make a comeback.

Overall, despite the large losses suffered by many funds, the assets under management figures for European ETFs show a market that is still in a robust growth phase, with significant investor inflows. In our next feature, we will examine the ETF product providers' market shares and net gains and losses during the year, and review individual managers' ETF ranges and profiles.