From the March 01, 2011 issue of Futures Magazine • Subscribe!

ETF Guide: A rising tide

2010 Trends

The ETF terrain continued to shift in 2010, reflecting the changes in the industry.

One ETF sector that continues to evolve is commodities. Commodity-linked ETFs saw some significant shifts. The last quarter of 2010, the most popular commodity-linked ETF was the iShares Silver Trust (SLV), which had an average daily volume of 28.98 million units a day. The leader the previous year, the United States Natural Gas (UNG), slipped to second on the list with an average daily volume of 25.92 million units.

Energy and metal ETFs dominated the top of the charts in the commodity sector. Of the top 15 commodity-linked ETFs in the last quarter of 2010, only two were not energy or metals related. The Materials Select Sector (XLB), which also includes chemical, packaging and construction companies in addition to some mining firms, came in at number six, while the PowerShares DB Agriculture (DBA) broke through at number 14.

While the top ETF in international and emerging markets remained the iShares MSCI Emerging Markets Index (EEM), it slipped in volume, recording 57 million units a day to close out 2010 vs. about 71 million in 2009. The iShares products led this sector with authority, once again claiming nine of the top 10 spots in this category. As in 2009, only the Vanguard Emerging Markets Stock (VWO) was able to make inroads, coming in fifth on the strength of its 16 million units a day.

With the stock market recovering strongly in 2010, bear market ETFs expectedly fell in volume. In the last quarter of 2009, the Direxion Daily Financial Bear 3X Shares (FAZ) was trading 65 million units a day. As 2010 wrapped up, FAZ was turning over just 33.14 million units a day. The slowdown in the top bear market ETF volumes didn’t translate to less-popular funds, however. In the current ETF Guide, 44 bear market ETFs made the 100,000 unit-per-day cutoff. Last year, the ETF Guide included 36 of these products.

As it was in 2009 — and 2008 — the most active ETF in 2010 was the Standard & Poor’s Depository Receipts (SPY), which tracks the S&P 500. The ETF traded a hair less in 2010 compared to what it did in 2009, 158.98 million units vs. 160 million the year before. There was a new number two on the list, however, with the Financial Select Sector SPDR (XLF) and its 79 million unit volume taking the spot from the PowerShares QQQ (QQQQ), which slipped to third with volume of 61.99 million units a day.

Following the U.S. dollar, the top currency ETF was the PowerShares DB U.S. Dollar Index Bullish (UUP), trading 5.1 million units a day. The CurrencyShares Euro Trust (FXE) was the second most popular forex fund, while the WisdomTree Dreyfus Chinese Yuan (CYB) came in third.

The CYB is a notable success story in actively managed ETFs. It was launched in May 2008 and helped kick off a trend that gained some momentum in 2009. It’s joined in the ETF Guide by the actively managed WisdomTree Dreyfus Emerging Currency (CEW) and WisdomTree Dreyfus Brazilian Real (BZF).

Another leading company in actively managed ETFs, AdvisorShares, also continued to add to its listings, filing at the end of 2010 for three more funds, the Madrona Forward Domestic (FWDD), which will analyze earnings expectations; the Madrona Forward International (FWDI), which will attempt to outperform the MSCI EAFE index; and the Madrona Forward Global Bond (FWDB), which will adjust its holdings in 12 distinct bond classes using yield-curve analysis.

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