From the March 01, 2012 issue of Futures Magazine • Subscribe!

ETF Guide: Trending in turmoil

2011 trends

The ETF terrain continued to evolve in 2011, reflecting not only changes in investor goals but significant shocks and milestones in the financial landscape.

The most active ETF in 2011 (as it was in 2008-10) was the Standard & Poor’s Depository Receipts (SPY), which tracks the S&P 500. The ETF soared in volume for 2011, trading an average of 234 million units a day at year end vs. 158.98 million units 12 months prior. The second most traded ETF continued to be the Financial Select Sector SPDR (XLF) with 106 million units a day, which traded about 79 million units daily in 2010. The third most popular was the iShares Russell 2000 Index (IWM), which traded about 69 million units a day.

Last year’s third most-active ETF in Futures’ ETF Guide, the PowerShares QQQ (QQQQ), dropped to fifth this year with 63 million units a day, still an increase over its 2010 average of about 62 million units.

The top ETF in international and emerging markets remained the iShares MSCI Emerging Markets Index (EEM). It also rose in volume, trading roughly 68 million units a day as 2011 came to a close vs. 57 million units a day for the same period in 2010; however, that was still below its average of 71 million in 2009. The iShares continued to dominate the international sector, with eight of the top 10 ETFs. The only competing products to breach iShares’ hold on this sector were the Vanguard MSCI Emerging Markets (VWO) with 24 million units a day and the Market Vectors Russia (RSX) with 5 million units.

As the stock market steadied in 2011, particularly after August, interest in bear market ETFs continued to wane. The most popular bear market ETF was the ProShares UltraShort S&P 500 (SDS), which traded 35 million units a day. The Direxion Daily Small Cap Bear 3X Shares (TZA) was second, with about 30 million units per day. The most popular bear market ETF from last year, the Direxion Daily Financial Bear 3X Shares (FAZ), was third with 23 million units a day, well off its peak two years ago of 65 million. The popularity of this category remained steady with 43 bear market ETFs making the cut for the
ETF Guide vs. 44 last year.

Commodity ETFs were relatively stable in terms of investor interest in 2011 with metals- and energy-based products dominating the rankings. The most popular commodity-based ETF continued to be the iShares Silver Trust (SLV) with 20 million units a day, yet still off its 2010 average of 29 million units. Second was the SPDR Gold Shares (GLD) with 13 million units a day. The highest energy-based ETF was United States Oil (USO) at 12 million units.

Gold and energy didn’t have an exclusive hold on the highest rankings, however. The Materials Select Sector (XLB), which includes chemical, packaging and construction companies in addition to some mining firms, came in third with 13 million units a day. The PowerShares DB Commodity Index Tracking (DBC) also broke the metals and energy hold on the top 10. DBC logged about 2 million trades a day.

Despite the extreme volatility that rocked the forex markets, particularly euro-based crosses, the ETF markets showed little concurrent growth in 2011. This perhaps was a reflection of investor and trader attitudes that ETFs provide a poor substitute for cash forex.

The top currency ETF in 2011 was the PowerShares DB U.S. Dollar Index Bullish (UUP), trading 5.3 million units a day, on average. This was just a hair over its 2010 average for the same period of 5.1 million units. The ProShares UltraShort Euro (EUO) was the second most popular currency ETF with 4.4 million units a day. The third most-active ETF was another euro-based product, the CurrencyShares Euro Trust, with 1.9 million units.

Keeping its spot in Futures’ ETF Guide is one of the few actively managed ETFs, the WisdomTree Dreyfus Chinese Yuan (CYB). Launched in May 2008, the CYB was one of the first actively managed ETFs. It traded about 257,000 units a day. Another actively managed ETF among currency-based products is the WisdomTree Dreyfus Emerging Currency (CEW), with 155,000 units.

The PIMCO Enhanced Short Maturity Strategy (MINT), with 194,000 units a day, and the WisdomTree Emerging Markets Local Debt (ELD), with 218,000 units, are two other actively managed ETFs that made the cut.

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