Fixed Income ETFs Continue Growth

Exchange traded fund (ETF) industry assets in the U.S. decreased 0.4% during the first half of 2010, as investors held $772 billion in 897 ETFs as of June 30, 2010, according to State Street Global Advisors (SSgA).
By None

The growth of fixed income ETF assets, which increased 78% in 2009, remained a key trend during the first half of the year. A press release said fixed-income ETF assets increased by $21.2 billion or 21% in the six months to June 30, 2010, as the number of bond ETFs available to investors reached 105. State Street said in 2006, just six fixed income ETFs existed, representing approximately $20 billion in assets. In the first half of 2010, six of the 10 ETFs with the highest net cash flows were bond ETFs.   

The growth in bond ETFs was broad based — every category, from corporate bonds to municipal bonds to Treasury Inflation Protected Securities (TIPs) and U.S. Treasuries, saw positive cash flows year to date. The most popular fixed-income asset classes included short-term bond and U.S. Treasury ETFs, which attracted more than $7 billion and $5 billion in net cash flows, respectively.  

Amid concerns about the European debt crisis and the pace of economic recovery in the U.S., investors continued their search for non-correlated returns, as assets in gold ETFs increased by 30.2% during the first half of the year. SPDR Gold Shares (GLD) currently leads all exchange traded funds in net cash flows, attracting more than $7.6 billion during the first half of the year, as GLD’s total assets surpassed $50 billion in the second quarter, according to the press release.  

Flash Crash  

With ETFs accounting for more than 60% of all cancelled trades during a market disruption that occurred between 2:40 p.m. and 3:00 p.m. on May 6, 2010, several third parties questioned their role in the market turmoil, State Street said. Preliminary findings, which are consistent with internal reviews, indicate that the events of May 6 were the result of market structural issues, including the lack of published, uniform standards on erroneous trades, market circuit breakers and speed bumps, and were not caused or exacerbated by ETFs or ETF trading.   

Investor confidence in ETFs in the weeks that followed the “flash crash” remained strong, as net new inflows into ETFs totaled $20.2 billion in May and June.