The Biggest European ETFs

Are the biggest the best when it comes to ETFs?

Here's a list of the biggest European exchange traded funds (ETFs), as ranked by assets under management.

The dominance of equity ETFs

The prominence of funds tracking the Euro Stoxx 50 index is not a new phenomenon. It's the most tracked index in terms of numbers of ETFs; there are now 12 separate ETFs following it. 

The perennial popularity of these funds and those tracking other major indices like the DAX, the S&P 500, the FTSE 100 and the CAC 40 is chiefly down to institutional investors. These ETFs seem to be attracting short-term funds from the banks. For example, the iShares DAX ETF has a daily trading volume averaging €80 million -- that's the largest of all European-domiciled ETFs and equivalent to over 3% of its market capitalisation. 

A proportion of the investment will also come from active investment funds and asset managers, which can park funds in a suitable equity ETF and still keep to their mandate. Success breeds success for these giant ETFs. Institutional investors can be confident that they will always have the liquidity to cope with their large share trades.

Private investors shouldn't ignore liquidity issues entirely, but they can afford to look at ETFs with much smaller assets under management. Personally, I'd prefer Powershares FTSE RAFI Europe (LSE: PSRE) or db X-trackers DJ SToxx 600 (LSE: XSX6), as they track indices with many more constituents than the DJ Euro Stoxx 50.

Can giants go out of fashion?

The real losers in 2009 in terms of size are ETFs tracking the euro money markets. db X-trackers ll EONIA was the second largest European ETF at the start of 2009 and in top spot as recently as March with assets under management of €6.7bn. It's now fallen right back to €1.7bn. 

Clearly, money market ETFs have suffered as investors' confidence has been restored. Interest in corporate bond ETFs has been growing rapidly though. The assets of the iShares € Corporate Bond ETF are up by 60% since March. The sterling version, iShares £ Corporate Bond ETF (LSE: SLXX) has seen growth of 150% and now has assets of over €1.1bn.

Where are the government bonds?

Given the popularity of corporate bonds, one seeming mystery is the absence of any government bond ETFs. This is partly explained by the breakdown of government bond indices into different maturity spans. 

That said, individual ETFs in this category seem to have become smaller in terms of assets since March, despite modest increases in share price. Their trading volumes also seem to be much lower than equity or corporate bond ETFs.

A second surprise about our list is the ranking of the only two emerging market funds. The MSCI Emerging Markets Index has risen rapidly this year and there has been enormous growth in the number of ETFs following emerging markets. Perhaps investors been put off by the fact that the index is priced in dollars? If so, I think they should look at the (non-dollar) currency exposure of the underlying assets. Or is that investors prefer investing in individual emerging markets, especially the individual BRIC countries? 

Finally, the size of ZKB Gold ETF may surprise the gold bugs. ETFS Physical Gold (LSE: PHAU) and Gold Bullion Securities (LSE:GBS) are in fact both larger and have markedly higher trading volumes. However they are classified as exchange traded commodities rather than ETFs, so don't appear in this table.

In conclusion

The European ETF market is still dominated by institutional investors and so this table reflects their preferences. The institutions have their reasons but, with the exception of corporate bond ETFs, I don't think private investors should think they need to follow their lead.

More on ETFs:

• ETFs For A Downturn
• Tracking Fundamentals With ETFs
• Targeting Regions With ETFs

Francis holds PSRE, GBS & IBCX.