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ETFs: 2009 Year in Review

ETF popularity from last year continues into 2010.

John Gabriel, 03/05/2010

The U.S. exchange-traded fund industry continues to evolve and attract assets. U.S. ETFs closed out 2009 with $785 billion in assets, up from roughly $533 billion at the end of 2008. In 2009, investors poured $104.1 billion in net new assets into ETFs, following a banner year in 2008 that saw ETFs draw some $156.6 billion in net inflows. Of the industry's 47% increase in year-over-year total net assets, roughly 40% was attributable to net inflows during the past year, while the remaining 60% was the result of strong market performance.

A total of 134 new ETFs were launched in 2009. There was a relatively broad range of funds introduced during the course of the year, with U.S. equity (37 ETF launches last year), leveraged and inverse (33), fixed-income (30), and international equity (24) being the most popular categories, in terms of product proliferation.

Meanwhile, 54 ETFs were shuttered, 12 of which were exchange-traded notes. For some context, we saw 58 ETFs close in 2008, eight of which were ETNs. Northern Trust threw in the towel on its ETF business in 2009, shuttering all 17 of its internationally focused ETFs. SPA-ETFs also folded in 2009 and closed its six ETNs in March 2009. PowerShares trimmed its fund lineup by closing 19 of its funds in May 2009; the liquidated funds included the firm's FTSE RAFI sector ETFs and dynamic international ETFs.

Fund Industry Giants Jump on ETF Bandwagon
In 2009, industry heavyweights Charles Schwab and PIMCO tossed their hats into the ETF ring. Schwab's debut made waves, as the firm offered commission-free trading on its ETFs for any investor trading on the firm's platform. The firm enjoyed a healthy response from investors and closed out January 2010 with more than $500 million in assets in the new funds, which is impressive considering that the funds didn't begin trading until November 2009.

Early in 2010, Fidelity responded by partnering with BlackRock to offer 25 iShares ETFs with commission-free trading on the Fidelity platform. There's also been talk that Fidelity could launch its own brand of active ETFs, though the firm has made no formal filings.

We expect 2010 will see more firms join the ETF party. Other major fund companies that applied for exemptive relief in 2009 to launch ETFs include T. Rowe Price, Russell Investments, John Hancock, and Goldman Sachs.

ETN Product Proliferation Takes a Breather
Only nine of the new fund launches in 2009 were ETNs. Albeit short-lived, the rapid growth of ETNs came to a screeching halt in the fourth quarter of 2008 as the financial crises led investors to adopt a strong aversion to credit risk. Prior to the credit crisis, ETNs seemed to be the next big thing as they allowed providers to offer exposure to many difficult-to-access asset classes and strategies that would be hard to achieve within the ETF structure.

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