The options available to prospective investors in the Irish equity market increased last year, with the arrival of an investment vehicle previously unseen on these shores - the exchange traded fund (ETF).

The Iseq 20 ETF is a fund that holds a portfolio of 20 leading Irish shares. It aims to track the performance of the Iseq 20 Index but, unlike other index-tracking products, shares in the ETF can be bought and sold on the Irish stock market throughout the trading day.

The fund's 0.5 per cent annual management charge is significantly lower than the fees normally incurred on other tracker instruments and actively managed funds. Furthermore, stamp duty is not charged on the purchase of ETF shares by investors.

Essentially, the ETF combines the diversity of a fund with the liquidity of a share. It enables investors to gain exposure to the Irish market in one single transaction.

Prior to its launch, promoter NCB expressed confidence that the ETF would be well-received by the Irish audience, predicting that, in time, it would become one of the most actively traded shares on the Irish Stock Exchange.

Nine months down the line, has investor demand lived up to expectations?

Typically ETF take-up starts off slowly before gaining momentum as investor awareness grows, and so far the Iseq 20 ETF has conformed to this pattern. According to the Irish Stock Exchange, €190 million worth of the ETF stock has been traded since its launch, which equates to 14.5 million shares - or an average of €1 million in stock, or 79,000 shares, traded per day.

There has been a discernible increase in trading volume over the last two months. According to Peter Duff, NCB head of development, the number of investors on the fund register has doubled since July 1st, 2005.

While the fund has attracted the attention of some institutions, its following lies predominantly among retail investors. As Duff explains, the ETF provides individuals with a convenient and cost-effective method of achieving a diversified position, without the effort and expense of investing directly in the underlying shares. Generally, private investors have been using the ETF to "bedrock their portfolio", as part of a wider strategy, says Duff.

The fund itself has performed admirably since its debut, and investors have been handsomely rewarded for putting their faith in this unfamiliar financial instrument, which has returned growth of around 26 per cent, including dividends.

Brian Healy, director of trading and regulation at the stock exchange, is optimistic about the ETF's prospects for the year ahead. It is a much a leaner product than its competitors, he says, and retail investors are starting to vote with their feet.

He predicts the fund has the potential to capture 1 per cent, of total market capitalisation - at present €800 million.