etfs: growth, innovation, competition march 18, 2009 presenter & co-author: loren fox...

ETFs: Growth, Innovation, Competition

March 18, 2009

Presenter & Co-author: Loren Fox 212-944-4460 [email protected]


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Strategic Insight: 23 Years of Business Intelligence SI: Data, Research, Consulting Clients Manage 90%+ of U.S. Mutual Fund Industry Assets Globally, 80+ Leading Managers & Distributors Simfund, the leading databases for Mutual Fund

Competitive Intelligence: tracking flows, assets, performance, etc. on 60,000+ portfolios globally

SIonline.comStrategicInsightGlobal.com

AnnuityInsight.comSimfundFiling.com


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Agenda: Preview Our New Report, On Sale Now ETFs: Growth, Innovation,

Competition 200 pages, 70+ tables & charts

Which ETFs are growing the fastest?

The Increasing Diversity of ETFs

Industry Trends Favoring ETF Expansion

ETFs vs Traditional Mutual Funds

The Future of ETFs

More information:www.sionline.com/published/ETF2009/

main.aspx


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ETFs’ Tremendous Growth 2008: $176B US Inflows, $268B Global

US Exchange-Traded Products Growth2000 through 2008

0

20

40

60

80

100

120

140

160

180

200

2000 2001 2002 2003 2004 2005 2006 2007 2008

0

100

200

300

400

500

600

700

Net Flows (left axis)

Assets (right axis)

Source: Strategic Insight Simfund MF

$B $B


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US Exchange Traded Products: More Than Just US Equity

International Equity Bond Commodity Currency Leveraged/Inverse


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Which US ETPs Saw Net Inflows in 2008

US Equity-Focused ETFs Leveraged Long ETFs Int’l/Global Equity ETFs Fixed Income ETFs Commodity/Currency ETFs In The Report: Flow/asset data by sub-

category and ETF manager, top-selling products, etc.


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Growing Diversity of US ETFs

Starting in ‘06, ETF/ETN launches exploded: 634 new funds started since 01/2006 account

for roughly 3/4 of all ETFs Exposure now available to shorting, frontier

markets, commodities, ‘fundamental’ indexes, quant, etc.

Diversified all-ETF portfolios now much easier Next hot spot: Actively managed ETFs In The Report: Much more on active ETFs,

ETNs, leveraged/inverse ETFs, other growth areas; considerations for launching ETFs


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Long-Term Trends: Asset Allocation “Creed”

Asset Allocation an even bigger theme in coming years

Shift in emphasis to asset allocation helps ETFs: most ETFs enable straight asset allocation

Rise in Funds-of-Funds, Fund wrap programs, Target-Date Funds, etc.

Strategic Asset Allocation: % exposure to international (stocks and bonds), currency, bonds/TIPs, ‘alternatives’ – ETFs enable simpler access to asset classes


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Long-Term Trends Support ETF Growth: The Shift To Holistic Advice

Investing has evolved:Stocks Mutual Funds

Portfolios

Financial advisors have evolved:Storytellers Chemists Doctors (Telling stories/info (Adding value by (Diagnose client’s to sell stocks) mixing assets) goals & prescribe

solution)

FA comp shifting from transaction-based to fees for advice


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Long-Term Trends: Shift to Fee-Based Pricing (among advisor-oriented fund firms)

Source: Strategic Insight survey

Sales by Share Class as a Percentage of 2007 Total Sales

Level-Load Shares

B Shares

A Shares at 4% or greater Load

No Load Shares

A Shares at 2-4% Load

A Shares at below 2% Load


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Fee-Based Distribution Channels Growing Faster

Sales by Distribution Channel: Dollar and % Growth

2007 vs 2006

0

5

10

15

20

25

30

35

40

PureInst'l/Other

IODC* Nat'l BD Reg'l/IndBD

Wrap* Bank BD RIA InsuranceAgent

Sal

es G

row

th (

$ B

illi

ons)

0%

5%

10%

15%

20%

25%

30%

35%

40%

Sales G

rowth

(%)

*IODC and fund “Wrap” sales which may have spanned multiple channels are noted aboveSource: Strategic Insight Survey

Dollar Sales Growth(Left Axis)

% Sales Growth(Right


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Fund Distribution: Fastest growing channels

Intermediary-sold funds far outpacing direct

Fastest growth in sales through: Investment-Only DC (+33% in 2007) Fund wraps (+28% in 2007) RIAs (5% of sales, but +32% in 2007)

2009 more of the same, relatively


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SI Proprietary Survey of RIAs Half of RIAs: ETF use up by 25%+; see further

increase

In The Report: More from the survey – Most popular asset classes for ETF use, favorite ETF brands and why, most important characteristics of ETFs, etc.

Over the next two years, you plan to use ETFs:

Response Percent Response Count Much more 24.1% 20 A little more 49.4% 41 The same amount 21.7% 18 A little less 2.4% 2 A lot less 2.4% 2

Total responses 83


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ETFs vs. Traditional Mutual Funds

FinancialCrisis

Investors rethinkalpha vs. beta

Increased focus on investor costs

Non-correlation/alternatives?


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ETFs vs. Traditional Mutual Funds

@70% of ETF use by individuals = substitution of stocks/separately managed accounts, and not of actively-managed mutual funds

ETFs: Some competition with certain funds

Potential competition from ETFs looms:

• Mutual fund firms – pressure to provide/highlight distinctive advantage of funds

• Even firms not in ETF space must understand it


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US Equity Funds Anchored By Retirement Investing; Little ETF

Share For Now

U.S. Equity Fund Flows 1997 -2007 ($1.7T)

72%

28%

Taxable Accounts

Retirement Accounts

U.S. Equity Fund Assets12/07 ($7.2T)

38%

62%

Rertirement Accounts

Taxable Accounts

Retirement Accounts

Source: Strategic Insight / ICI


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The Future of ETFs: Outside US

Fast growth in Europe, slower in Asia

Non-US ETF Net Flows 2006-08

-15

-10

-5

0

5

10

15

20

25

30

Q1'06 Q2'06 Q3'06 Q4'06 Q1'07 Q2'07 Q3'07 Q4'07 Q1'08 Q2'08 Q3'08 Q4'08

Source: Strategic Insight Simfund GL

US

$B

illio

ns

Asia Europe/Offshore


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The Future of ETFs

Additional ETF entrants coming (PIMCO, Schwab, etc.)

New ETPs being launched: More precise slicing of market; new asset classes – enabling more diversification

Global ETFs/ETNs to Hit $1 Trillion in Assets by 2011 (up from $730B at end-2008)

In The Report: Evolution of Active ETFs; More on ETFs in DC Plans; More on What Everyone Can Learn From the Best ETF Marketing


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The Future of ETFs

Context: Deepening, broadening ETF audience

Action: How to position within ETFs (Active ETFs?)

Action: How to position against ETFs

In The Report: Whole chapter on competitive issues; other sections include case studies of successful ETF businesses, sections on who uses ETFs & how & why


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New ETF Report On Sale Now

200 pages

70+ charts/tables

Report based on research using proprietary surveys, extensive discussions with industry players, SI’s Simfund databases, SEC filings.

Buyers get select quarterly data updates, consultation

Questions? Contact [email protected]

etfs: growth, innovation, competition march 18, 2009 presenter & co-author: loren fox...

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