At the close of the third quarter ETP assets amounted to $1.42trn, compared to $1.32trn in the same period of 2010, according to BlackRock’s quarterly ETF landscape report.
But since the start of the year, total assets are down 3.7%, which BlackRock puts down to "unfavourable market and exchange rate movement".
The debate surrounding the rapid growth of the ETF industry and the challenges it presents in terms of regulation and transparency has gathered greater attention since the arrest and charge of the UBS rogue trader back in September.
The fact that Kweku Adoboli worked for the Swiss bank’s ETF arm has given critics of the industry a sturdier platform from which to throw their ammunition.
Charges of opacity and complexity have since been hurtled at ETF providers as a whole, which provoked BlackRock to send out a letter of recommendations to clean up the ETF market.
Michael John Lytle, managing director and founding partner at ETF provider Source, said: "The debate has gotten way out of control and so much of the discussion has been about things that are not important."
By this Lytle meant the focus has been on physical versus swap-based ETFs, rather than on counterparty risk, which he thinks is a bigger issue.
In an earlier response to BlackRock’s letter, which Source actually consulted with BlackRock on, he said: "Source strongly supports BlackRock’s call for codification of the high standards currently being delivered by the ETF community. Source is already standardising high levels of disclosure around the investment process, ensuring that counterparty risk is managed effectively.
"We also agree that European investors deserve coherent and consistent disclosure that allows them to compare and contrast different investment products, not just ETFs."
Asset flows
While recent controversies have put the ETF arena under greater scrutiny, BlackRock’s quarterly report shows a trend of repositioning of ETF portfolios, rather than merely a surge in outflows.
One statistic to be noted is the comparison with mutual funds, which showed that as at the end of August, the global mutual fund industry had year to date outflows of $108bn, compared to global ETP inflows of $106bn.
Kevin Feldman, managing director at BlackRock, said investors moved portfolios towards more defensive asset classes and countries, with European investors favouring German equity ETPs and US investors favouring fixed income ETPs.
"These asset flow trends provide evidence that more and more investors value ETPs for efficient, tactical responses to rapidly evolving market conditions."
The European ETP market as a whole saw net outflows of $688m in September, but German equity ETPs saw inflows of $654m for the month, bringing total inflows for they year to date to $16bn.
In the US, the oldest and most developed ETP market, fixed income ETPs attracted inflows of $5.8bn during September, while equity ETPs experienced outflows for the second consecutive month.
BlackRock said this reflected the ‘risk-off’ trade going on and still amounted to a positive figure of $4.4bn in inflows for the US ETP market in total.
