The Markets March 1, 2010

ETFs Continue Growth in 2009

U.S. exchange-traded funds (ETFs) closed out 2009 with $785 billion in assets, up from roughly $533 billion at the end of 2008, according to Morningstar Fund Flows and Investment Trends.
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In 2009, investors poured $104.1 billion in net new assets into ETFs, following a banner year in 2008 that saw ETFs draw some $156.6 billion in net inflows. Of the industry’s 47% increase in year-over-year total net assets, roughly 40% was attributable to net inflows over the past year, while the remaining 60% was due to strong market performance, the report said.

Fixed-income ETFs took in the most new assets of all the broad asset classes in 2009, while International equity ETFs posted a strong year, both in terms of performance and asset flows. Morningstar said investors’ cost-consciousness was on display in the showdown between iShares MSCI Emerging Markets Index EEM and Vanguard Emerging Markets Stock ETF VWO. In 2009, VWO took in $9 billion in net new assets and ended the year with $19.5 billion in total assets, while EEM brought in approximately $4.4 billion and ended the year with $39.2 billion in assets.

Several single-country ETFs were quietly amassing assets over the past year. Investors flocked toward resource-rich countries such as iShares MSCI Brazil Index EWZ ($1.7 billion in total net inflows in 2009), iShares MSCI Australia Index EWA ($1.2 billion), iShares MSCI Canada Index EWC ($1.1 billion), and iShares MSCI Taiwan Index EWT ($1.1 billion).

In addition, commodity ETFs saw healthy inflows in 2009, led by SPDR Gold Shares GLD, which took in more than $11 billion in total net inflows in 2009 (the most for any individual ETF). The flows into GLD (which has $40 billion in assets) last year represented more than 42% of total flows into the commodity asset class.

According to the report, a total of 134 new ETFs were launched in 2009, with U.S. equity (37 ETF launches last year), leveraged and inverse (33), fixed-income (30), and international equity (24) being the most popular categories, in terms of product proliferation. Meanwhile, 54 ETFs were shuttered, 12 of which were exchange-traded notes.

In 2009, Charles Schwab and PIMCO tossed their hats into the ETF ring. Schwab offered commission-free trading on its ETFs for any investor trading on the firm’s platform, and it enjoyed a healthy response from investors, closing out January 2010 with more than $500 million in assets in the new funds which didn’t begin trading until November 2009.

Other major fund companies that applied for exemptive relief in 2009 to launch ETFs include T. Rowe Price, Russell Investments, John Hancock, and Goldman Sachs, according to the report.

Only nine of the new fund launches in 2009 were ETNs. Morningstar said the rapid growth of ETNs came to a screeching halt in the fourth quarter of 2008 as the financial crises led investors to adopt a strong aversion to credit risk.

Northern Trust threw in the towel on its ETF business in 2009, shuttering all 17 of its internationally focused ETFs. SPA-ETFs also folded in 2009 and closed its six ETNs in March 2009. PowerShares trimmed its fund lineup by closing 19 of its funds in May 2009.

The full report is here.

Data & Research March 1, 2010

Advised Investors Feel More Confident about Equities

A survey by AXA Equitable found that Americans who work with financial professionals are more confident about their ability to invest in equities.
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Most surveyed investors who work with financial professionals reported that investing in equities is important (67% versus 54% who don’t work with a financial professional). Furthermore, investors working with advisers are more likely to be at least somewhat confident about their ability to invest in equities (56% versus 44%) and to have recouped at least some losses in the market (69% versus 60%).

However, consumers show some reluctance toward the stock market. Just fewer than two in 10 of those polled (19%) are confident in their ability to invest in equities, yet 60% believe equities are necessary to achieve retirement goals, according to AXA.

About 11% of consumers said they have stopped using or switched financial professionals.

“Consumers are not abandoning their adviser relationships,” said Andrew McMahon, senior executive vice president for AXA Equitable and president of its financial protection and wealth management business, in a release of the results. “In fact, advisory relationships are even more important to help bolster consumer confidence in being able to invest in equities wisely.”

Retirement Delayed

Recent market volatility has also forced many Americans to adjust their retirement plans, the survey found. More than four in 10 polled Americans (42%) plan to delay retirement, on average, by six years—to age 68 rather than age 62.

Furthermore, almost three in 10 Americans (27%) plan to go back to work after retiring. Two in 10 retirees (17%) already have gone back to work, up from 9% polled in February 2009.

The study, “Retirement in America: A Survey of Concerns and Expectations,” polled 1,000 Americans between the ages of 25 and 70. The survey was conducted in December, and respondents included financial decisionmakers with household income of at least $75,000 or investable assets between $250,000 and $999,999.

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