ETFs Enjoy Healthy October after Robust September

Exchange-traded funds saw net inflows of $13.1 billion in October, on the heels of September's inflows of $25.5 billion, according to the latest Morningstar data.

A Morningstar news release said the healthy inflows along with general market appreciation helped push total net assets in the industry to nearly $945 billion, representing year-over-year growth of 34%. Since the beginning of the year, investors have poured $80.6 billion into U.S.-listed ETFs.

Morningstar said the most popular asset class continues to be international stock, which has seen massive inflows driven by investor demand for emerging markets exposure. U.S. Stock ETFs were also popular in October, as investors looked to bulk up their exposure to “risky assets.” ETFs in the U.S. stock asset class saw net inflows of $3.5 billion, despite the fact that some of the largest and most heavily traded funds in the group (such as SPDR S&P 500 SPY, iShares S&P 500 Index IVV, and PowerShares QQQ QQQQ saw net outflows in the month.

2010 a Big Year for Vanguard?  

Also, according to Morningstar, 2010 has been Vanguard’s year. In fact, Vanguard has collected roughly 39 cents out of every dollar in net inflows that U.S.-listed ETFs have seen so far this year. Assets parked in BlackRock’s iShares business have grown 24% over the past year, but its market share has fallen by 3.7% to about 45.6% of industry assets. The number two player, State Street Global Advisors, has grown its asset base by more than 34% over the past year, which helped keep its market share relatively constant at just below 24% of industry assets.

Vanguard’s ETF assets, on the other hand, exploded higher by more than 72% over the past year, boosting the firm’s market share by 3.2% to 14.5% of industry assets. By examining the data, it would appear that Vanguard’s gain has been iShares’ loss. It doesn’t look as though Vanguard will be letting off the throttle anytime soon either. Vanguard has already introduced 16 new ETFs to the market this year–including an ETF share class of its Vanguard 500 Index Fund–and has many more sitting on the registration shelf.

Aside from iShares, the largest market share loss over the past year belonged to ProShares. The leveraged ETF provider was the only major ETF provider to post negative asset growth (negative3.6%) over the past year. Competition for traders’ dollars has heated up considerably with the presence of Direxion Funds, which grew its asset base by 36.5% during the same period. As such, ProShares’ market share fell by more than 1% and currently stands at 2.6%.

The past year has also been a good year for Van Eck’s ETF business. The firm, known for its Market Vectors products, has grown from around $10 billion in total net assets last year to more than $17 billion at October month-end. Some of the firm’s newer products have been a resounding success with investors, including its Junior Gold Miners ETF GDXJ and Brazilian small-Cap ETF BRF.

For some perspective on just how popular emerging markets have become, Morningstar noted that the more than $25 billion that has flowed into Diversified Emerging Markets ETFs since the beginning of the year represents 32% of all ETF inflows and nearly 76% of total net inflows into ETFs in the international-stock asset class.

U.S. Equity ETFs 

Morningstar said U.S. Stock ETFs reined in nearly $3.5 billion in October, despite some of the largest ETFs seeing sizable outflows for the month. Dividends were the predominant theme within U.S. Stock ETFs in October. Last month, SPDR S&P Dividend SDY and iShares Dow Jones Select Dividend DVY attracted net inflows of $773.6 million and $458.9 million, respectively. Moreover, high yielding plays including Vanguard REIT Index VNQ, JPMorgan Alerian MLP Index ETN AMJ, and iShares S&P U.S. Preferred Stock PFF were popular, with monthly inflows of $453.3 million, $266.2 million, and $212.5 million, respectively.

Last month, investors were also allocating capital to two cyclical sectors that could potentially benefit from the effects of the Federal Reserve's Quantitative Easing (QE2)--technology and financials. Technology Select Sector SPDR XLK attracted $990 million last month, while Financial Select Sector SPDR XLF attracted $711 million.