Investors are increasingly using exchange-traded funds (ETFs) to capitalise on FTSE 100 movements, according to new analysis from Barclays Stockbrokers. The execution only retail broker reports that across May and June 2012, investments made in FTSE-related ETFs accounted for 40 per cent of the total ETFs trades for each month.
Investor appetite for ETFs as an investment tool has increased exponentially since the onslaught of the credit crunch, with Barclays Stockbrokers reporting a 159 per cent increase in client accounts holding ETFs since September 2008.
Over the same period, the value of ETF assets held by the stockbroker's clients has nearly trebled (+188 per cent) while the average client trade size increased by 24 per cent between April 2010 and April 2012.
Across May and June, Barclays Stockbroker clients capitalised on the full range of FTSE ETFs available with the iShares FTSE 100 ETF representing 14 per cent of all trades in May 2012, while the ETFX Super Short and ETFX Leveraged x2 ETFs, when combined, accounted for 26 per cent of trades in the same month. This trend continued into July, and in the week commencing 2 July seven out of the top 10 ETFs traded were all FTSE related (see table below).
Paul Inkster, head of product at Barclays Stockbrokers, commented: "In May we saw significant volatility in the FTSE, so it is no surprise our clients have been making the most of investment opportunities through a range of FTSE ETFs." He added that investors were increasingly using ETFs as effective and accessible investment vehicles to capture short-term market movements, as well as in longer-term portfolio construction.
For UK exposure, Investors Chronicle suggests the db X-trackers FTSE 100 which has a 0.3 per cent total expense ratio (TER). Deutsche Bank ETFs use synthetic replication so do not buy the physical assets they invest in but rather a swap, relying on the swap counterparty to deliver the returns the assets make, which of course introduces new risks. If you prefer physical replication where the fund buys the shares it tracks, we like iShares FTSE 100 ETF with a 0.4 per cent TER. The cheapest FTSE 100 tracker option, however, is not an ETF but the HSBC FTSE 100 Index Fund with a TER of 0.27 per cent and no initial charge, and a good tracking record. For more on ETFs see ETFs for your Isa.
