Growth in ETF trading as investors capitalise on tax efficiency

Investors are capitalising on tax efficient opportunities with half of investors (50 per cent) holding Exchange Traded Funds (ETFs) within Investment ISAs, according to Barclays Stockbrokers. Trading activity in ETFs through Barclays Stockbrokers increased significantly in the fourth quarter of 2008, with October 2008 experiencing the highest volume of trades for the whole year.

Barclays Stockbrokers found investors trading in ETFs increased by 162 per cent from October to December 2008, compared to the third quarter. In addition, the number of accounts holding ETFs increased by nearly a quarter (23 per cent), assets held by investors increased by 31 per cent, and individual holdings were up by two fifths (21 per cent).

Barbara-Ann King, Head of Proposition at Barclays Stockbrokers, comments: "As the end of this tax year looms, it is encouraging to see savvy investors combining simple and transparent investments like ETFs with the tax benefits of investing through their ISA. Barclays Stockbrokers saw a significant increase in ETF trading activity from October to December 2008, with clients utilising them to achieve diversified market exposure at a low cost."

Further analysis of iShares, the ETFs product from Barclays Global Investors found the iShares FTSE 100 was the most traded ETF during October, November and December, by a considerable margin; representing 33 per cent during the period, with iShares S&P 500 taking second spot with seven per cent of trades (see table below). Investors are also revealed to be increasingly using ETFs for income objectives; Corporate Bond, Gilt and FTSE dividend income-based ETFs account for 17 per cent of all purchases during the fourth quarter of 2008. During this period the majority of all trades were investments (69 per cent as opposed to 31 per cent sales).

Investors continue to use ETFs for simple portfolio diversification across a range of markets, and, and the trend for capitalising on stock market conditions continues as exposure to market-tracking iShares remains a priority. Clients remain active in their trading too; some trading nearly 200 times a month with some trading intra-day; mostly in the iShares FTSE 100.

Barbara-Ann King continued: "Our clients are increasingly recognising the benefits of iShares as a simple and transparent route into markets and as a versatile investment solution - both suitable for new traders as well as their more active counterparts. Impressive trading volumes during Q4 2008 reveal how our clients are growing more comfortable with iShares as an investment instrument. Indeed, our previous research into the rise of the ‘Instividual' - confident investors demanding the same techniques, products and services as their Institutional counterparts - found almost a quarter of online investors (23 per cent) said they were already using ETFs, up nine per cent on the previous year.

"We have seen unprecedented upheaval in the stock market recently and our findings show confident investors have retaliated through the growing popularity of iShares. Trends also show we have increasingly seen clients displaying savvy investment strategies through buying iShares and then selling within days to capitalise on short term movements in the markets."