Indices and Benchmarking - July 19, 2010

EDHEC European ETF Survey 2010

This survey has been taken as part of the second year of the Amundi ETF "Core-Satellite and ETF Investment" research chair. In the past decade, ETFs have stood out for their fast growth. Last year’s survey results suggested that ETFs were one of the few financial product innovations to weather the 2008 financial crisis without undue pain, probably because, at the time, investors valued liquidity and transparency above all.

This year’s results of our pan-European survey suggest that, as a consequence of strong growth, the industry has entered a phase of increased maturity: ETFs are now very widely used, and investors are embracing innovative ETF products and more advanced ways of trading them.

As the ETF market grows, so does the relevance of the impact of ETFs on the market as a whole. Both academic studies and comments from survey respondents suggest improvements in liquidity and efficiency of markets in the underlying securities as well as in related instruments.

Despite the increasing maturity of the ETF business, the survey suggests that there is still room for development. In particular, survey respondents see a need for new products on, say, emerging markets and alternative asset classes. Likewise, ETFs are still used mostly in static strategies and on broad market indices; their potential contribution to dynamic asset allocation and to allocation strategies in precisely defined market segments or styles is not yet fully exploited.

As part of this document, we also provide a background section with examples that show how dynamic risk-budgeting strategies can be used with ETFs. This section provides risk-controlled exposure to the outperformance of specific asset classes by implementing dynamic core-satellite investments with ETFs. We thus hope to provide food for thought on how the liquidity of ETFs can be brought to its full benefit.

This survey was produced as part of the "Core-Satellite and ETF Investment" research chair, sponsored by Amundi ETF.

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