ETFs based on equity and bond indices prove more popular for the european investor
Several of the primary promoters of exchange traded funds (ETFs) are closing products which track sector indices, due to a lack of interest from European investors.
This month Barclays Global Investors is closing nine iShares FTSE Europe Sectors.
Merrill Lynch International is closing 13 FTSE Global Sector LDRS in September and UBS Global Asset Management has closed four Fresco Dow Jones Stoxx Europe Sector ETFs.
Earlier this year, Unico closed its family of i-tracker MSCI sector ETFs, of which there were five. There have also been some closures of sector ETFs in the US and Canada.
'Sector funds, generally, are just not a priority for European buyers of ETFs ' there is a much bigger appetite for ETFs based on the core equity and bond indices and these ETFs continue to see phenomenal growth,' said Lee Kranefuss, director of iShares, which has over 100 ETFs listed around the world with assets under management of over $40bn.
'We have taken the decision to close the sector funds because we firmly believe it is in shareholders' best interests. The ETF market in Europe has seen exponential growth in a relatively short period of time, and as investors' demands change, we will realign our product line accordingly.'
However, despite these closures, Debbie Fuhr, a director at Morgan Stanley known for her extensive research of the ETF market, believes sector funds still retain a lot of scope for investors.
In her latest research report, she indicates sector allocation has in fact increased in importance for global investors.
Fuhr said a recent analysis by Morgan Stanley's quantitative strategy team found that from a diversification point of view, funds organised by global sectors continue to provide greater opportunity, particularly for global investors in Europe and the US.
Yet she noted although average correlations between both countries and sectors have been rising over the past two years, sector correlations remain lower globally and in all major regions except emerging markets.
iShares now intends to develop a FTSE 250 fund and additional fixed income funds, including an iBoxx Sterling product, subject to regulatory approval.
Earlier this year, the firm launched ETFs in Italy and Germany as well as its first bond ETF in Europe.
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