Recent regulatory changes in Spain may help boost the domestic ETF market, according to BlackRock.
The firm's latest ETF Landscape report says the Spanish regulator has recently allowed both investment funds and open-end investment companies to operate ETFs, facilitating growth.
ETFs have also been given greater flexibility and are now able to replicate indices of any asset class specifically authorised by the regulator, paving the way for commodity and currency ETFs.
However, the recent performance of Spain-domiciled ETFs has been muted. The report reveals that assets in the funds have slumped to $1.5bn, marking a decline of 40.5% year-to-date (YTD).
This decline is more than the 17.2% decrease in the MSCI Spain index over the same time period.
It is also worse than the MSCI World benchmark - a measure of equity performance in 24 developed market countries - which has increased 0.9% YTD.
Nonetheless there is some positive movement; the number of listed products has increased 33.3% YTD, from 33 in 2009 to 44 by the end of the third quarter this year.
There are now 10 ETFs in Spain, with 44 listings from two providers on two exchanges.
BlackRock global head of ETF research and implementation strategy Deborah Fuhr says although the market in Spain is still evolving, both understanding and use of ETFs are expected to expand, making the Spanish market a dynamic focal point of ETF growth in future years.
The ETF industry in Spain is a relatively new market for locally listed products, which were only introduced into Spanish legislation in November 2005. Local regulations previously disallowed ETFs that use a corporate structure from listing as ETFs and as a result few ETF providers were able to list in Spain.
Despite this obstruction, Spanish investors have been relatively quick to utilise ETFs, with 76 institutional investors in Spain reporting use of the funds in 2008.
This take-up ranked Spain fifth out of the 42 countries reporting ETF usage in the ETF Landscape Annual Review of Institutional Users of ETFs in 2008.
Fuhr says that Spanish investors are increasingly attuned to an ETF's fundamental and highly attractive attributes, including flexibility, diversification, relatively low cost and transparency.
Since BBVA launched Spain's first locally listed ETF, the BBVA-Accion IBEX 35, on 20 July 2006, it has continued to be the largest provider in terms of both assets and products.
BBVA now has $1,310m in assets across eight products, reflecting 90% market share. Lyxor Asset Management is Spain's only other provider currently, with $143m assets in two ETFs.
The BBVA-AFI Monetario Euro ETF has by far the most assets under management of any single ETF. Worth $549.1m, it makes up over a third of all Spanish ETF assets.
It has also, however, seen the biggest losses this year, almost halving in value from $1,084m at the end of 2009.
Analistas Financieros Internacionales is the largest index provider in terms of assets, with $681.2m ETF assets from two products tied to its benchmarks.
Sociedad de Bolsas, provider of the IBEX indices, meanwhile houses the most products, with four ETFs and $313.5m assets.
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