The variety of exchange-traded funds is exploding. Turns out, so are their trading volumes.
According to research compiled by Globe Investor, the average daily volume for ETFs trading on the Toronto Stock Exchange has risen to 12.3 million shares in the first quarter of 2008, up from 3.5 million shares in the same period last year. That's a 250-per-cent increase that speaks volumes about the popularity of ETFs and what investors are using them for.
"You've seen a significant increase in demand for ETFs," said Som Seif, chief executive officer of Claymore Investments, noting that his firm's assets grew 50 per cent in the first quarter alone.
For sure, part of the reason is that more investors have grown disenchanted with mutual funds, most of which fail to keep pace with the underlying index. This underperformance may rankle when the stock market is booming, but it is really bothersome when the market turns rocky and losses mount.
However, the spike in ETF trading volumes is also related to how ETFs are being used. Since they track a basket of equities, but are bought and sold like stocks, they give investors an ideal way to move in and out of the market with lightning speed without worrying about liquidity issues.
According to Howard Atkinson, president of BetaPro Management, 60 per cent of ETF assets are controlled by institutional investors, which include hedge funds. When it comes to Horizons BetaPro funds, many of which are highly specialized ETFs, the average holding period is as low as four days - and the lower the holding period, the greater the trading volume.
The iShares S&P/TSX 60 ETF remains at the top of the list in trading volume. In the first quarter of 2008, average daily volume surpassed 3.6 million shares, up more than 150 per cent over the first quarter of 2007.
But more impressive, trading volume for the Horizons BetaPro S&P/TSX 60 Bear Plus ETF surged to 2.4 million shares a day in the first quarter, from just 178,000 last year - a 13-fold increase. The rising interest here is obvious: The Bear Plus fund rises in value if the market falls, which means that more investors are betting on a downturn in 2008.
Their growing interest in trading the Horizons BetaPro Gold Bear Plus fund, which rises in value when the price of gold falls, suggests investors are also becoming increasingly interested in timing gold's downfall.
Will trading volumes for ETFs level off soon? "I don't think we've seen the high side of volume yet," Mr. Atkinson said. "You're going to have additional products and new and creative ways of using them."
ETFs trading takes off in Canada
The number of Canadian ETFs has doubled over the past year while trading volume has more than tripled.
|Top 10 traded ETFs (first quarter, 2008)||Top 10 traded ETFs (first quarter, 2007)|
|Name||daily volume||Name||daily volume|
|iShares S&P/TSX 60 E.T.F.||3,653,092||iShares S&P/TSX 60 E.T.F.||1,416,526|
|HBP 60 Bear+ E.T.F.||2,397,574||iShares S&P/TSX Energy E.T.F.||381,147|
|HBP Glb Gold Bear+ E.T.F.||975,226||iShares S&P/TSX Gl Gold E.T.F.||237,040|
|HBP 60 Bull+ E.T.F.||870,168||HBP 60 Bear+ E.T.F.||178,042|
|HBP Glb Gold Bull+ E.T.F.||482,862||iShares S&P 500 $Cdn E.T.F.||137,343|
|iShares S&P/TSX Energy E.T.F.||467,513||iShares S&P/TSX Incm Tr E.T.F.||134,307|
|iShares S&P/TSX Gl Gold E.T.F.||458,536||iShares S&P/TSX Fincial E.T.F.||129,852|
|iShares S&P/TSX Fincial E.T.F.||396,521||iShares MSCI EAFE $Cdn E.T.F.||121,934|
|HBP Financials Bull+ E.T.F.||261,338||iShares S&P/TSX Matrl. E.T.F.||110,422|
|HBP NYMEX Oil Bear+ E.T.F.||192,823||iShares Cdn Univrs Bond E.T.F.||110,223|
|Total Canadian ETFs|
|March 31, 2008||Dec. 31, 2007||March 31, 2007|
|Average daily Volume||12,316,569||5,918,598||3,538,005|
|DOUGLAS COULL/THE GLOBE AND MAIL; SOURCE: GLOBEINVESTOR.COM|
See David Berman's Market Blog on ReportonBusiness.com
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