The 2008 Winners

A number of firms deserve mention.

The stand-out performer for the year was db x-trackers, which gained almost €10 billion in funds, and has moved closer to Lyxor, the second-largest European firm, in terms of assets. The firm was well-positioned for the equity bear market by having a range of inverse funds in place—it has the largest European range of inverse equity ETFs—and its EONIA cash fund was the biggest gainer of all investment funds in Germany last year.

ETF Securities and ZKB, both commodity-focussed issuers, advanced further up the league table, despite the roller-coaster ride in commodity prices during the year, with asset increases of 166% and 232%, respectively. ETF Securities of course boosted its assets significantly during the year by the acquisition of Lyxor Gold Bullion Securities, which added around €2.3 billion to the asset total. The firms are following very different paths in terms of strategy, ETF Securities diversifying into equity ETFs and recently announcing plans to add other asset classes, ZKB sticking to its bullion-backed funds in the four precious metals, which have achieved a dominant position in Switzerland.

XMTCH, the Credit Suisse subsidiary, achieved a creditable 25% growth in assets and remains fifth in the table by size, helped by investor demand for its Swiss SMI index ETF and its Swiss bond ETFs.

ETFLab and Comstage have both gathered over a billion and a half euros in assets from launch during 2008, and have ambitious expansion plans.

BBVA continues to grow its business in Spain at a healthy rate, and SGAM, the smaller sister company to Lyxor under the Société Générale umbrella, has nearly doubled its asset base during the year by pursuing a niche strategy of offering leveraged, inverse and inverse leveraged ETFs, types of fund that have proved massively popular in the US.

The 2008 Losers

From the table, EasyETF, UBS, XACT, CASAM, StreetTRACKS and Invesco PowerShares have all seen their ETF assets shrink by more than 10% during 2008. As stated earlier, declines of less than 40% may disguise cash inflows for an equity-oriented ETF issuer but, all the same, these product providers have slipped in the tables.

For EasyETF, the decline in assets seems predominantly a reflection of its product range and the associated market movements, with its sectoral equity ETFs, property and commodity ETFs shrinking in size by more than half over the year, whereas its fixed income and credit ETFs have largely retained their size. The firm, meanwhile, has committed to further expansion by continuing with an active programme of ETF launches, showing the fourth-largest percentage increase in the number of funds in the table during 2008.

CASAM, while seeing its three "legacy" ETFs shrink in size, has also embarked on an ambitious programme of fund launches, and has stated its ambition to reach €10 billion in assets by 2011.

StreetTRACKS and Invesco PowerShares have so far failed to gain the type of position in the European market that their parent companies command in the US ETF arena, where they rank second and fourth respectively. StreetTRACKS' product range remains based on the MSCI Europe sectoral equity indices and the Dutch AEX index ETF. PowerShares' assets are still heavily dominated by the EQQQ, the European version of the NASDAQ 100 tracker, while its FTSE RAFI and Dynamic ETFs have so far gained little traction amongst European investors.

XACT, the Handelsbanken subsidiary, has suffered this year from the poor performance of the Nordic equity markets. However it retains a near-monopoly position in the region.

iShares And Lyxor

iShares' European business, which showed little change in assets during the year, has performed a lot better in 2008 than its US counterpart, which had shrunk by over $100 billion, almost a third, in the year to end-November. Despite its slight loss of market share in Europe, iShares still operates from a position of strength, and will be hard to dislodge from the number one spot. The firm has made a virtue of its practice of physical index replication within most of its ETFs, a safety-first stance in view of the counterparty risk concerns that took hold last year. On the product development front iShares remains less active and more conservative than its close competitors, launching fewer new products and so far steering clear of inverse and leveraged structures, for example.

Lyxor had a successful 2008, growing its business by 7%, so seeing substantial cash flows. It had some big asset gainers (notably its money market fund), and has added the second-largest number of funds amongst ETF-only issuers during the year. Lyxor manages the largest European ETF—the dj Euro Stoxx 50 fund, and its CAC 40 ETF is also in the European top five funds by assets managed. The firm's highly diversified product range means that it has a solid position for most market conditions.

In Summary

The fundamental trends that have led to the major growth in the European ETF market—a shift from active to passive management, a move away from commission-based advisory services and high-fee funds, and a general desire for transparency and liquidity—should remain in place for the coming year, implying further investor cash inflows. Yet with a number of new entrants to the European ETF market, competition for assets is hotting up, and product development is likely to continue at a rapid pace. So there is no scope for firms to rest on their 2008 laurels—the fight for the top places in the 2009 league table starts now!

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