db x-trackers predicts continued popularity of ETFs
8 August 2008

Written by Sophie Baker

The European fixed income market has seen a rise of 67.8 per cent in assets under management since the beginning of the year.

At the beginning of August the value stood at €23.6bn, an increase of €9.6bn in the past eight months.

db Research said that following the findings in their monthly Fixed Income ETF trends research, they expect fixed income ETFs to continue their recent strong growth, especially in terms of asset gathering.

European turnover has averaged around €188 million, and db Research predicts that an equivalent amount trades off exchange. However, the European fixed income turnover is dominated by money market ETFs, accounting for 58 per cent of total on exchange turnover. These ETFs now account for almost 30 per cent of total assets.

Thorsten Michalik, head of db x-trackers, told Pensions Age that he sees Money Market ETFs as ideal cash management and long term investment tolls for pension funds. He believes that Fixed Income ETFs will see much higher growth in the next few years than that of ETFs based on equity indices. “If pension funds, which manage over 90 per cent of their asset actively and have most of their money invested into fixed income products would rearrange their portfolio by putting four per cent into ETFs, that would equal a doubling of the worldwide asset under management hold in ETFs.”

Michalik sees the low management fee of 15 basis points for Money Market ETFs as just one of the reasons why pension funds should be attracted to this option, as well as the fact that they can be simply and continuously traded during the day.

“The big success of the money market ETFs shows that investors are aware of the advantages of money market ETFs in terms of tradability, transparency, no investment limitations, and daily adjustments of the interest rate.” Michalik sees these reasons as clear indicators that we will see pension funds using the product in the future.