ETFs: Growth, Innovation, Competition March 18, 2009

1. ETFs: Growth, Innovation, Competition March 18, 2009 Presenter & Co-author: Loren Fox 212-944-4460 Loren@sionline.com

2. Strategic Insight: 23 Years of Business Intelligence • SI: Data, Research, Consulting • Clients Manage 90%+ of U.S. Mutual Fund Industry Assets • Globally, 80+ Leading Managers & Distributors • Simfund, the leading databases for Mutual Fund Competitive Intelligence: tracking flows, assets, performance, etc. on 60,000+ portfolios globally SIonline.com StrategicInsightGlobal.com AnnuityInsight.com SimfundFiling.com ETFs: Growth, Innovation, Competition

3. Agenda: Preview Our New Report, On Sale Now • ETFs: Growth, Innovation, Competition 200 pages, 70+ tables & charts • Which ETFs are growing the fastest? • The Increasing Diversity of ETFs • Industry Trends Favoring ETF Expansion • ETFs vs Traditional Mutual Funds • The Future of ETFs More information: www.sionline.com/published/ETF2009/main.aspx ETFs: Growth, Innovation, Competition

4. ETFs’ Tremendous Growth 2008: $176B US Inflows, $268B Global ETFs: Growth, Innovation, Competition

5. US Exchange Traded Products: More Than Just US Equity • International Equity • Bond • Commodity • Currency • Leveraged/Inverse ETFs: Growth, Innovation, Competition

6. Which US ETPs Saw Net Inflows in 2008 • US Equity-Focused ETFs • Leveraged Long ETFs • Int’l/Global Equity ETFs • Fixed Income ETFs • Commodity/Currency ETFs • In The Report: Flow/asset data by sub-category and ETF manager, top-selling products, etc. ETFs: Growth, Innovation, Competition

7. Growing Diversity of US ETFs Starting in ‘06, ETF/ETN launches exploded: • 634 new funds started since 01/2006 account for roughly 3/4 of all ETFs • Exposure now available to shorting, frontier markets, commodities, ‘fundamental’ indexes, quant, etc. • Diversified all-ETF portfolios now much easier • Next hot spot: Actively managed ETFs • In The Report: Much more on active ETFs, ETNs, leveraged/inverse ETFs, other growth areas; considerations for launching ETFs ETFs: Growth, Innovation, Competition

8. Long-Term Trends: Asset Allocation “Creed” • Asset Allocation an even bigger theme in coming years • Shift in emphasis to asset allocation helps ETFs: most ETFs enable straight asset allocation • Rise in Funds-of-Funds, Fund wrap programs, Target-Date Funds, etc. • Strategic Asset Allocation: % exposure to international (stocks and bonds), currency, bonds/TIPs, ‘alternatives’ – ETFs enable simpler access to asset classes ETFs: Growth, Innovation, Competition

9. Long-Term Trends Support ETF Growth: The Shift To Holistic Advice • Investing has evolved: StocksMutual Funds Portfolios • Financial advisors have evolved: Storytellers Chemists Doctors (Telling stories/info (Adding value by (Diagnose client’s to sell stocks) mixing assets) goals & prescribe solution) • FA comp shifting from transaction-based to fees for advice ETFs: Growth, Innovation, Competition

10. Long-Term Trends: Shift to Fee-Based Pricing (among advisor-oriented fund firms) Source: Strategic Insight survey ETFs: Growth, Innovation, Competition

11. Fee-Based Distribution Channels Growing Faster ETFs: Growth, Innovation, Competition

12. Fund Distribution: Fastest growing channels • Intermediary-sold funds far outpacing direct Fastest growth in sales through: • Investment-Only DC (+33% in 2007) • Fund wraps (+28% in 2007) • RIAs (5% of sales, but +32% in 2007) • 2009 more of the same, relatively ETFs: Growth, Innovation, Competition

13. SI Proprietary Survey of RIAs • Half of RIAs: ETF use up by 25%+; see further increase • In The Report: More from the survey – Most popular asset classes for ETF use, favorite ETF brands and why, most important characteristics of ETFs, etc. ETFs: Growth, Innovation, Competition

14. ETFs vs. Traditional Mutual Funds ETFs: Growth, Innovation, Competition

15. ETFs vs. Traditional Mutual Funds • @70% of ETF use by individuals = substitution of stocks/separately managed accounts, and not of actively-managed mutual funds • ETFs: Some competition with certain funds • Potential competition from ETFs looms: • Mutual fund firms – pressure to provide/highlight distinctive advantage of funds • Even firms not in ETF space must understand it ETFs: Growth, Innovation, Competition

16. US Equity Funds Anchored By Retirement Investing; Little ETF Share For Now Source: Strategic Insight / ICI ETFs: Growth, Innovation, Competition

17. The Future of ETFs: Outside US • Fast growth in Europe, slower in Asia ETFs: Growth, Innovation, Competition

18. The Future of ETFs • Additional ETF entrants coming (PIMCO, Schwab, etc.) • New ETPs being launched: More precise slicing of market; new asset classes – enabling more diversification • Global ETFs/ETNs to Hit $1 Trillion in Assets by 2011 (up from $730B at end-2008) • In The Report: Evolution of Active ETFs; More on ETFs in DC Plans; More on What Everyone Can Learn From the Best ETF Marketing ETFs: Growth, Innovation, Competition

19. The Future of ETFs • Context: Deepening, broadening ETF audience • Action: How to position within ETFs (Active ETFs?) • Action: How to position against ETFs • In The Report: Whole chapter on competitive issues; other sections include case studies of successful ETF businesses, sections on who uses ETFs & how & why ETFs: Growth, Innovation, Competition

20. New ETF Report On Sale Now • 200 pages • 70+ charts/tables • Report based on research using proprietary surveys, extensive discussions with industry players, SI’s Simfund databases, SEC filings. • Buyers get select quarterly data updates, consultation • Questions? Contact Loren@sionline.com ETFs: Growth, Innovation, Competition