There were 272 exchange-traded funds (ETFs) with exposure to emerging market benchmarks as of end-June, including 35 launched this year, according to a recent industry report by Barclays Global Investors. Those ETFs had combined assets of $116 billion. They had 532 listings from 61 providers on 33 exchanges.

Year-to-date, the assets of those ETFs with exposure to emerging market benchmarks rose by 59.1%, while the MSCI Emerging Markets Index was up by 34.3%.

ETFs providing exposure to broad emerging market benchmarks are the most popular with around 40.8% of assets, according to the report, followed by ETFs covering Chinese country indices with 23% of the assets.

iShares is the largest provider of emerging market ETFs in terms of both number of products, 50, and AUM of around $74 billion, reflecting a 63.5% market share. Vanguard is second in terms of market share with 1 product and $9.5 billion in assets and an 8.2% market share. Lyxor Asset Management is third with 23 products and assets of $4.2 billion and a 4% market share.

ETFs are traded on an exchange just like any stock. An ETF holds assets such as stocks or bonds and trades at around the same price as the net asset value of its underlying assets over the course of the trading day. Some ETFs track an index, while others are custom-made to track specific assets. Investors usually like ETFs for their low costs and stock-like features -- cheap, liquid beta -- although in Asia, their uses as sophisticated portfolio construction tools have yet to catch on.

In the last couple of years, ETFs were seen as more of a passive, market access product. But ETFs are now increasingly becoming investment solutions.

Emerging markets outperformed all other markets during the first half of 2009, with the MSCI Emerging Markets Index, a benchmark of equity market performance in 22 emerging economies, up 34.3%. In contrast, the MSCI World benchmark of equity performance in 23 developed market countries was up by only 4.8% in the first half of 2009. Among developed economies, MSCI Hong Kong posted a gain of 32.6%, MSCI Singapore was up 29.5% and MSCI Norway was up 26.1% all in US dollar terms.

Signs of improving economic data encouraged investors to shift their focus to riskier assets. Many investors felt that emerging markets would lead a market rebound. 

In the current market turmoil many investors have become concerned about counterparty risk, transparency, liquidity, product structure, cost, the use of derivatives and structured products. This helped boost demand for emerging market ETFs. According to the report, many investors believe ETFs offer significant advantages due to their fund structure, trading flexibility, diversification, relatively low cost, tax efficiency primarily for US investors, and transparency.