The Markets March 8, 2012

ETF Assets Up $44B in February

Exchange-traded fund (ETF) assets increased by more than $44 billion in the month of February, up 3.9%.
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According to the State Street Global Advisors (SSgA) ETF Snapshot report, ETF flows nearly topped $12 billion in February. The International-Emerging category had the most significant inflows at $4.6 billion. The Size-Large Cap category posted $4.8 billion in outflows, zeroing out the inflows it had in January.  

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The top three managers in the U.S. ETF marketplace as of February 29 were BlackRock, State Street and Vanguard. Collectively, they account for approximately 83% of the U.S.-listed ETF market.  

The top three ETFs in terms of dollar volume traded for the month were the SPDR S&P 500 [SPY], iShares Russell 2000 [IWM] and PowerShares QQQ [QQQ].  

By asset class, International – Developed and Emerging Markets gained 5.7% and 6.0%, respectively. Domestic Large Cap, Mid Cap and Small Cap markets gained 4.3%, 4.5% and 2.1%, respectively. The U.S. Aggregate was flat and the U.S. Treasury was slightly negative, while the U.S. Corporate Bond was market was slightly positive in February. Commodities rose 6.1%.  

More information is available at http://www.spdrs.com.

 

The Markets March 8, 2012

Participants Look to Plan Sponsors for Inflation Guidance

Inflation is a major concern for plan sponsors and their participants when planning retirement investment portfolios. 
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During a webcast, Fredrik Axsater, managing director of global defined contribution at State Street Global Advisors (SSgA), and Brent Bell, vice president of the SSgA Multi Asset Class Solutions, discussed how inflation can diminish retirement savings and what plan sponsors can do to help their participants understand the importance of this.

According to Axsater, 70% of plan participants are worried about inflation; however, 44% of participants have no idea what the current inflation rate is.

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Inflation rates are also a big concern to plan sponsors. Axsater provides recommendations for plan sponsors to gain exposure to their participants on the topic of inflation. He suggests plan sponsors include real assets in target-date funds. He said that real assets have been used for a long time in portfolios. They provide a 10% to 15% allocation on average, which is a significant allocation.

Another suggestion is to use single asset class strategies, rather than confusing participants with multi-asset class strategies.

Axsater also recommends plan sponsors use a single fund that holds exposure to multiple asset classes. By combining these and other asset classes you have a core holding. It also can be well-diversified and have a meaningful impact.

In order for plan sponsors to take action on the topic of inflation with participants, both Axsater and Bell recommend the following:

  1. Define plan objectives in mitigating inflation risk;
  2. Assess how current investment menus addresses inflation risk;
  3. Consider the specific inflation protection needs of participants;
  4. Compare off the shelf vs. custom real assets solutions;
  5. Develop ways to communicate with participants to raise awareness around inflation; and
  6. Review real assets regularly.

 

Both Bell and Axsater add that communication with participants is critical. The majority of them are concerned about inflation and how they should take it into account when preparing their portfolios for retirement.

One of the best ways to communicate the importance of preparing retirement portfolios for inflation is to provide participants with examples they can relate to. One example Bell provides is the inflation cost for ice cream.  In 1980, the average cost for a one gallon container of ice cream was $1.78. The cost rose to $4.48 in 2010. With the current inflation, the cost for one gallon of ice cream will be $10.88 in 2040. This example helps participants see what their purchasing power will be when they reach retirement age.

Bell adds that participants are looking to plan sponsors to provide them with guidance on inflation, and they want help through small steps that are easy for them to accomplish.

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