EUROPE - Exotic and more sophisticated exchange-traded funds have suffered from a serious lack of interest this year, according to Axel Lomholt, head of product development for iShares Europe.

"In the equity space, there is evidence to suggest that currently interest is limited in speciality funds and in the more advanced ETFs such as inverse and leverage ETFs," he sid. "It is a cyclical phenomenon and we have instead seen more demand for traditionally-driven ETFs and have also seen a great pick-up in the fixed income space."

This comes as Lomholt noted it is a challenge to create ETFs - which tend to be seen as equity instruments - in the fixed income space.

"We have had to support equity traders in the context of how to create, redeem and trade in these instruments as well as on the system side," he explained. "And there is still some work to do in this area."

The financial crisis appears to have contributed to this trend, as investors look for simple and transparent products.

"As an industry we have a duty to explain to investors what is in an ETF, as some investors were surprised by the financial crisis last year," added Lomholt. "We also need to wrap them in good governance and while we have a clean-energy ETF, a carbon ETF, for example, has not been realised as of today as - because of the under-developed market - it would not yet satisfy such requirements."

The last year brought an influx of competitors into the ETF arena such as investment banks, according to Lomholt. But prices have only slightly dipped since then.

"We have for some time been witnessing some price compression," he said. "We would expect some more to take place as within any other industry. However, prices can only drop to a certain level because any ETF requires substantial operational support and there are also a number of third-party suppliers, which have requirements in terms of price ranges."