Insight - Catch of the day.

(From Financial Director)

Byline: Jules Stewart.

Exchange traded funds (ETF) made their debut in Britain three years ago, auspiciously coinciding with the start of the stock market's decline into the abyss. Unlike individual shares that have taken a terrific beating in the downturn - scaring off institutional and retail investors alike - ETFs have bucked the downward trend, multiplying in number and assets.

Like index mutual funds, each share of an ETF represents the whole basket of stocks in a broad index or a narrow sector (the FTSE-100, for example, or oils). But unlike index funds - shares of which can only be purchased once a day at a price determined at the market's close - ETFs can be traded all day.

Because each ETF share represents an entire index or sector, investors can gain broad exposure without the risk of buying or selling individual companies. This feature has made them attractive in a bear market, an environment that makes investors wary of picking individual stocks.

"The relevance of these funds is that they are a product that can be used across a broad spectrum, from large pension funds to retail investors," says Mark Roberts, head of i-shares product strategy at Barclays Global Investors (BGI), one of the largest providers of ETFs worldwide. "Anybody with access to a broker can trade ETFs, and it's not just about being long or short.

Investors can use the funds whether they're bullish or bearish on the market, for short-term gain, as a sector bet or to hedge their exposure." Corporates have shown particular interest in the ETF market as a tool for balancing or diversifying a portfolio, and for hedging and reducing risk.