ETF Assets Reach Record $191 Billion

Vanguard, iShares vie for top spot

Exchange-traded fund flows reached $191 billion in 2012, Morningstar’s Michael Rawson reported on Jan. 4. Last year’s assets surpassed the previous record of $169 billion in 2008.

Much of that growth came in December when inflows were nearly $38 billion, Rawson said.

Rawson noted that in 2008, assets were flowing into U.S. stock ETFs, while last year, investors were putting their money in international, fixed-income and sector stock ETFs. As of December 2012, U.S. stock ETFs were at $478 billion in net assets. International stock ETFs had $292 billion and sector stocks had $184 billion.

Total assets in U.S. ETFs are now $1.35 trillion, and not counting money-market funds, ETFs make up 13% of total ETF and mutual fund assets.

Stong flows into fixed-income ETFs led total assets to double since 2008, Rawson said.

The top fund family was iShares, with $556 billion in assets under management, according to Morningstar. State Street Global Advisors followed with $329 billion in AUM, and Vanguard ranked third at $246 billion. PowerShares and Van Eck filled out the top five with $59 billion and $28 billion, respectively.

Rawson noted that iShares was second to Vanguard in fund flows for two years before taking over with 41% market share in 2012. Vanguard has steadily gained market share over the past five years to more than 18%, he said. While iShares’ market share is considerably higher than Vanguard’s, it has fallen from its 53% share five years ago. “In response, the firm launched a new strategy in October that centers on a "core" series of low-priced, portfolio building-block ETFs,” Rawson said. Although those core products account for less than 4% of the firm’s 280-fund lineup, they represent more than 25% of total net inflows.

As for individual funds, Rawson highlighted the SPDR S&P 500 ETF (SPY) and the PIMCO Total Return ETF (BOND). SPY brought in more new cash than any other fund, he said. “Due its hyperliquidity and the ability to trade SPY at low costs, traders tend to use it to rapidly place market bets, so flows into SPY are a good barometer of market sentiment,” Rawson said.

With $4 billion in flows, BOND was the “most successful new launch of the year.” Launched at the end of February, Rawson said that the fund is “closely watched by the industry” because it is the largest active ETF and has an expense ratio that “undercuts the cheapest retail share class of the PIMCO Total Return (PTTRX) mutual fund.”

Todd Rosenbluth, an ETF analyst for S&P Capital IQ, examined the top four ETF providers in his “Trends and Ideas” article, published Jan. 7, and using more robust criteria, came up with a different ranking. He ranked Vanguard No. 1 overall, as well as the best of the top four based on risk considerations and cost factors. Using research from MarketScope Advisor, as well as proprietary performance analytics, Rosenbluth found that through November, Vanguard lowered its expense ratio to 0.17%. “This, combined with tight bid/ask spreads, has helped it have a disproportionately higher number of ETFs with favorably low cost factors,” he wrote.

Rosenbluth rated BlackRock iShares No. 2 in his overall ranking, in performance analytics and in risk considerations.

iShares leads in overall assets, Rosenbluth wrote, and a “disproportionately high” percentage have favorable performance analytics, risk considerations and cost factors. However, the expense ratio of 0.46% is higher than that of Vanguard and SSgA, the third ranked ETF provider.

SSgA, while third overall, rated No. 1 in performance analytics and No. 2 in cost factors. It has the most mature portfolio of the top four providers, and many of them have a larger-cap focus, which Rosenbluth posited led it to earn above-average S&P STARS for the underlying holdings. Of the top four providers, it also had the greatest improvement in the percentage of ETFs with positive performance analytics in the last six months.

PowerShares ranked No. 3 in performance analytics and No. 4 in cost factors, Rosenbluth wrote. Its “relatively high” expense ratio of 0.80% and low trading volume contributed to its place as the fourth provider overall, and Rosenbluth wrote that many of the underlying holdings are not attractively valued and suffer high volatility.

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