Index assets stay steady for year

1.8% hike pushes total worldwide assets to more than $6 trillion

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Flowing: Amy Schioldager said money continued to move into emerging markets.

Worldwide internally managed index assets remained relatively flat for the year ended June 30, up just 1.8% to $6.17 trillion, according to Pensions & Investments' annual survey of managers of indexed assets.

The slight bump is a stark contrast to the previous year, which saw a 25% surge in worldwide indexed assets, but the total is still well above the previous high of $5.65 trillion at the end of 2007.

“My sense is that interest in market cap indices might not be growing dramatically, but it certainly is not shrinking,” said David Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices, New York. “Indexing is definitely still alive and well.”

The ranking of the largest managers of indexed assets once again was unchanged for the year: New York-based BlackRock (BLK) Inc. (BLK) led the pack with $2.038 trillion, a 0.9% gain from a year earlier, followed by Boston-based State Street Global Advisors with $1.377 trillion, a 7% decrease.

For the year ended June 30, the Russell 3000 index returned 3.84%; the Barclays Capital U.S. Government/Credit index, 8.79%; the Morgan Stanley (MS) Capital International Europe Australasia Far East index, -16.67%; and the Citigroup Non-U.S. World Government Bond index, 0.44%.

Even though worldwide indexed assets were flat, indexing is still attractive over active management, said Lynn Blake, SSgA's chief investment officer of global equity beta solutions.

“The environment has been very difficult in active management,” Ms. Blake said. “Investing in passive or indexed vehicles is cheaper, and I think that's very attractive in this environment where the expectation is a low-return environment, so clients want to minimize cost.”

In addition to cheaper fees, Ms. Blake also pointed to liquidity, predictability and transparency as reasons institutions have been attracted to index strategies in the past several years. Ease of trading is another reason index strategies are appealing, she added.

Among the 60 managers surveyed, $2.749 trillion was managed internally in U.S. equity, up 6.9% from the 63 managers in the previous survey, while $1.737 trillion was managed in international and global equity, down 6% from the international equity assets of the previous year.

“We've seen some increased interest in global markets, but it's starting to fade. European economies are in a mess,” Mr. Blitzer said. “I think the international stuff goes up and down depending on the perception of the markets. My guess is you'll get some flow back into the U.S.”

Domestic equity up

BlackRock (BLK)'s domestic equity indexed assets increased 10.8% to $670.1 billion for the year ended June 30, while international and global equity assets decreased 13.9% to $697.9 billion, according to P&I's survey. Likewise, second-ranked SSgA saw a 4.5% increase in domestic equity, but a 2.5% decrease in international and global equity.

Even though international and global assets slightly decreased for the year ended June 30, Amy Schioldager, BlackRock's global head of beta strategies, said money hasn't stopped going to emerging markets.

“We see a continued interest in emerging markets,” Ms. Schioldager said. “I think it falls under the theme of wanting to go broader and deeper and increasing your exposure.”

As institutions try to achieve broader equity exposure, Ms. Schioldager said clients also have begun to show interest in non-cap-weighted strategies, which provide broad exposure at a low cost. “This trend started in Europe and really picked up this year,” she said.

Assets invested in passive fixed income also were up for the year. As of June 30, $895.7 billion in worldwide indexed assets managed internally, was invested in domestic fixed income (a 4.8% increase) and $552.3 billion was invested in international and global fixed income, an increase of less than 1%.

“In general, flows into equity have declined in the last 18 months relative to fixed income,” Ms. Blake said. “I think it's a function of the current market environment where clients are looking to decrease equity and increase fixed income. They are looking for yield and low volatility.”

Vanguard gains

Vanguard Group Inc. saw the largest gains in domestic fixed income among the top five managers, with a 27.6% increase, but its international fixed income decreased by 8%.

The Malvern, Pa.-based company was ranked third in worldwide internally managed assets with $1.24 trillion, an 11% increase.

While Vanguard had a 12.2% increase in domestic equity, international equity essentially remained flat.

Trailing Vanguard was Chicago-based Northern Trust Global Investments, reporting worldwide indexed assets of $321.2 billion, an 8.6% increase. NTGI's best asset class in terms of growth was international and global fixed income, which increased 19.9% to $16.9 billion.

Rounding out the top five was Bank of New York Mellon (BK), New York, with indexed assets of $223.8 billion, a 7.3% increase.

BNY Mellon saw the greatest increase in international and global equity, which climbed 18.4%.

“It's been a big year for fixed income, but we have had really good flows in equity,” said Ms. Schioldager of BlackRock (BLK).

“Contrary to what you might see or hear, equity is still alive and kicking and clients are absolutely still investing in it.”

Exchange-traded funds continued to climb for the year ended June 30, increasing 7.8% to $1.253 trillion, according to P&I's survey.

Nine of the top 10 managers showed growth in worldwide ETF assets; Mason Street Advisors had the largest increase among the top 10, increasing 127.5% to $1.249 billion, followed by Charles Schwab Investment Management, increasing 50.7% to $6.702 billion.

For total worldwide assets, BlackRock came out on top with $644.8 billion, more than double that of second-place SSgA, which had $303.8 billion in ETF assets.

Rounding out the top five were Vanguard group, with $208.1 billion; Invesco (IVZ), with $71.8 billion; and BNY Mellon, with $12.7 billion.

U.S. institutional tax-exempt indexed assets decreased 1.3%, totaling $2.263 trillion as of June 30. BlackRock led the group with $566.7 billion in tax-exempt assets, a 1% increase, followed by SSgA with $491.3 billion, an 18.6% decrease.

In enhanced index management, U.S. institutional tax-exempt assets declined to $151.5 billion, a 10.99% decrease.

The top enhanced index manager was once again Prudential Financial, increasing 1.8% to $29.4 billion.

This article originally appeared in the September 17, 2012 print issue as, "Index assets stay steady for year".