Thanks to their non-complex structure, transparency and low costs, exchange-traded funds (ETFs) have managed to weather the financial crisis and see their assets consistently grow year after year.

Adriano Pace, head of the ETF marketplace at Tradeweb.

As at end of November 2013, global ETF assets reached $2,211 billion, $457 billion up from end of December 2012, according to data from ETFGI, a London-based consultancy. The US was the driving force behind this increase with $365 billion, while the European ETF market grew by a more modest $57 billion (ETFGI data).

Fragmentation in on-exchange liquidity is the biggest challenge Europe needs to overcome before it can achieve its full potential. As at end of November 2013, there were 1,370 European ETFs spread across 5,005 listings and traded on 24 exchanges in multiple currencies (ETFGI data). Accordingly, around two-thirds of the trading volume has been carried out over-the-counter, while electronic multi-dealer trading venues have allowed investors to trade in size in a way that is recorded. This has helped to improve perceptions of liquidity and to boost confidence in the depth of the European ETF market.

Data derived from trading activity on the Tradeweb European-listed ETF platform shows some interesting trends for 2013, such as the impact of Ben Bernanke’s comments on May 22 about the potential tapering of the Fed’s stimulus efforts. “Sells” in fixed income went up to 22 percent (as a proportion of the overall traded volume) in the second quarter, compared to 15 percent in the first and 12 percent in the third quarter. In addition, the proportion of volume in commodity ETFs decreased from 10 percent in the first quarter to just 4 percent in the last quarter of the year.

“More recently, emerging markets pressure and Fed tapering concerns have coincided with renewed equity market volatility and more aggressive yield curve movements”, says Adriano Pace, head of the ETF marketplace at Tradeweb. “This was true particularly during the last week of January, which also saw trading of fixed income ETFs on Tradeweb – as a proportion of our volume – increase to 33 percent from an average 25 percent”.