Data from the World Federation of Exchanges reveal that, in January alone, the number of sterling-denominated equity ETFs listed on the London Stock Exchange stood at 1899, compared with 1367 on the NYSE Euronext exchange.
While the total number of all ETFs, in all currency denominations, and volume of trades still prove the US has the lion’s share of the market, the UK is already the European leader in terms of the number of listings so far this year.
According to the data, the total sterling-denominated equity ETF turnover for the LSE during January was £23.13bn – small, perhaps, when compared with the NYSE’s total turnover of £263.56bn – but higher than any other European country. Germany’s Deutsche Borse was the second highest in terms of total equity ETFs and volume of sterling-denominated trades.
The rise in ETF activity in the UK over recent years has attracted the gaze of the FSA, which in 2012 issued several warnings about the suitability of certain types of exchange-traded products, such as synthetic ETFs, for the retail market.
The City regulator last year also issued a five-page factsheet for investment advisers, giving strict guidance about how to navigate the “competing views on the risks consumers face if they choose to invest in an ETP”.
Adviser comment
Gavin Haynes, managing director of Bristol-based Whitechurch Securities, said: “The popularity of ETFs stemmed from the US as a major area for retail investors, especially after the credit crunch hit. From the figures, you can see that London has also become a major trading market for ETFs.
“What they offer is a low-cost passive approach to investment and there is no doubt that we are seeing a significant focus on cost across the industry, partly brought on by the effect of the RDR and its unbundling of costs and clear pricing structure.
“We plan our clients’ investment portfolios and the passive option is the basic default. We tend to prefer index-tracking funds to ETFs however, as they do not have all the trading costs and as we are long-term investors we don’t need the intra-day trading of ETFs.
“That said, gold and commodity exposure through ETFs has been a useful tool in some portfolios.”