Investing January 14, 2010

ETF Assets Grow by 50% in 2009

January 14, 2010 (PLANSPONSOR.com) - The U.S. ETF industry closed out 2009 with $785 billion in assets under management, according to Morningstar Direct's latest Fund Flows Update.
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This is up from $744 billion at the end of November (see Taxable Bond ETFs Still King of the Hill) and $533 billion at the end of 2008, and represents year-over-year total ETF asset growth of nearly 50%. The report said 40% of this asset growth is attributable to net inflows over the past year while the remaining 60% was due to strong market performance.

Despite being the only broad asset class to show net outflows in 2009, U.S. stock ETFs closed out the year with nearly $20 billion in net inflows in December, according to the Morningstar data. Helping bolster the category’s flows was the SPDRs SPY, which attracted more than $11.2 billion in net new assets last month. However, Morningstar noted that excluding SPY, the U.S. stock category would have actually shown net inflows of roughly $6.2 billion for the 2009 calendar year.

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Taxable bond ETFs closed 2009 as the most popular asset class of the year. The report said Treasury Inflation-Protected Securities and short-duration ETFs continued to be the top asset gatherers. Morningstar attributed the stampede into TIPS funds to investors’ concerns over future inflation. This fear of potential inflation led investors to steer $8.4 billion of net new assets into iShares Barclays TIPS Bond TIP.

Investors continued to pile into emerging markets last month, as the Vanguard Emerging Markets Stock ETF VWO and iShares MSCI Emerging Markets Index EEM saw net inflows of about $1 billion and $420.1 million in December, respectively. For the 2009 calendar year, VWO took in $9 billion in net new assets, while EEM brought in approximately $4.4 billion.

Demand for gold and other inflationary hedges bode well for commodity ETFs, Morningstar said. SPDR Gold Shares GLD, which saw roughly $11 billion in total net inflows in 2009 and currently has more than $40.2 billion in assets under management, was the most popular ETF last year, in terms of total asset flows. Along the same lines of the rush into TIPS, GLD was a major beneficiary of investors seeking to hedge out the risk of inflation stemming from monetary easing by central banks around the world, according to the report.

The Morningstar report is at http://www.global.morningstar.com/decflows09.

Investing January 14, 2010

2009 a Comeback Year for Mutual Funds

January 14, 2010 (PLANSPONSOR.com) - The year 2009 proved to be a recovery year for the fund industry after a brutal 2008 that saw shareholders dump their funds en masse, according to Morningstar Direct's latest Fund Flows Update.
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Inflows predominated in 2009, with bond funds capturing the majority of new assets. Morningstar data shows net inflows amounted to $377 billion for 2009, and bond funds accounted for $357 billion of that total (see Bond Fund Rush Could be Slowing).

Meanwhile, U.S. stock funds bled assets, with an additional $8 billion in outflows in December taking the full-year total outflow to $26 billion.

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International-stock funds fared better during the year, taking in $25.5 billion in flows, according to the report. However, this doesn’t make up for the $70.4 billion in outflows they experienced in 2008.

Morningstar said flows into international funds have been helped by the performance of emerging-markets stocks. Three of the top five international categories – diversified emerging markets, Pacific/Asia ex-Japan stock, and Latin America stock – are dominated by stocks from developing markets.

Vanguard funds led in the mutual fund recovery, taking in $94 billion in assets for the year. PIMCO followed with $83 billion in inflows.

However, several well-known fund families didn’t fare well in 2009. American Funds lost assets throughout much of 2009, with total outflows of $25.5 billion. Six American Funds offerings topped the list of the funds with the biggest outflows: Capital Income Builder, Washington Mutual, Investment Company of America, Income Fund of America, Capital World Growth & Income, and American Balanced.

Oppenheimer also experienced net outflows in 2009 to the tune of $2.5 billion. The firm’s taxable bond funds continued to lose ground, even as bond funds elsewhere were flooded with new assets. Morningstar speculated that with the blowup of the now defunct Oppenheimer Champion Income and big losses from its once popular Oppenheimer Core Bond grabbing headlines in 2008, it casts a cloud over the firm’s bond lineup. Oppenheimer’s equity funds also saw outflows.

Putnam, Van Kampen, Morgan Stanley, and Legg Mason/Western Asset fund families also ended 2009 in negative territory.

According to Morningstar, investors largely preferred active strategies in 2009. Active funds gathered $304.2 billion in assets for the year, while passive long-term funds took in $69.7 billion. However, investors pulled $52.9 billion out of active U.S. stock funds, while passive domestic-equity funds saw inflows of $26.2 billion.

Vanguard Total Stock Market Index and Vanguard Institutional Index accounted for $10.7 billion and $5.4 billion of those inflows, respectively.

The Morningstar report is at http://www.global.morningstar.com/decflows09.

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