Exchange-Traded Fund Volumes Boosted By Hedge Fund Activity

by Carla Johnson, Investors Offshore

21 September 2004

Exchange Traded Funds (ETFs) are currently experiencing a boost in volumes as hedge funds seek to park huge cash balances, particularly in Europe.

"Hedge funds are the big growth driver across Europe. At least 30% to 40% of ETF volume comes from hedge funds and that will continue," observed Warren Touwen, head of equity linked product marketing at Merrill Lynch, at a seminar to mark the listing of the NASDAQ-100 index ETF on the Swiss Stock Exchange on Thursday, reported on by Reuters.

Mr Touwen noted that hedge funds are finding ETFs ideal for offloading large surplus cash balances following months of trendless activity on the major stock markets.

"In the last two or three months the markets have been so thin it's been a real problem putting $30 or $50 million into a sector as the prices move away from you, but you can put this into an ETF without any impact at all," he observed.

Deborah Fuhr, global ETF strategist at Morgan Stanley, noted that average daily global trading volume in the funds had risen 37.8% this year and at the end of July was $11.9 billion or 237 million shares.

Clemens Reuter, head of equity products at Swiss Exchange, told the seminar that a 30% increase in ETF trading volume is expected in 2004 on the bourse, with turnover projected to reach CHF10 billion by year-end, up from 6.8 billion at the end of August.

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