ETF assets up 21.4% for year; top 3 providers hold their rank

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Joel Dickson says a booming U.S. stock market gave a real push to Vanguard's ETF assets, which rose 32.9% for the year to $276.6 billion.

Worldwide internally managed ETF assets grew significantly in the 12-month period ended June 30, up 21.4% to $1.52 trillion, according to Pensions & Investments' annual survey of managers of indexed and ETF assets.

The three major ETF providers continued to dominate the survey: BlackRock (BLK) Inc. (BLK)'s iShares division reported $774.3 billion in assets as of June 30, a 20.1% increase in assets from the previous 12 months; State Street Global Advisors, reported $336.8 billion, a 10.9% increase; and The Vanguard Group Inc. reported $276.6 billion, a 32.9% increase.

Combined, these three control more than 90% of the index ETF marketplace, the survey shows.

There is a significant drop to the next-largest ETF provider in the survey, fourth-ranked Invesco (IVZ) PowerShares Capital Management LLC, which reported $85.1 billion, an 18.5% increase in the firm's assets for the 12-month period.

There is another big gap after Invesco. Fifth-ranked BNY Mellon Investment Management, which subadvises ETFs for WisdomTree Asset Management and other providers, had ETF assets of $26.2 billion. The company had a strong 105.8% increase in indexed ETF assets in the year ended June 30.

The biggest increase among ETF indexed assets in the P&I survey for the year ended June 30 was a smaller provider, Northern Trust Corp.'s FlexShares Exchange Traded Funds, which saw a 383.8% increase to $5.3 billion.

Northern Trust only re-entered the ETF marketplace in late September 2011 after abandoning an effort to get a foothold three years earlier.

Of the top three providers, Vanguard's growth rate of 32.9% for indexed ETF assets, was the most spectacular.

Two factors — strong equity markets and strong inflows into Vanguard ETF products — contributed to the increase, said Joel Dickson, a Valley Forge, Pa.-based principal and senior ETF strategist at Vanguard.

“One, not under our control is that you had a pretty good equity market return, both U.S. and non-U.S., for the last 12 months,” Mr. Dickson said.

“Given that a lot of our ETFs are concentrated in equity products, that certainly helped,” he added.

Data from Vanguard show the company had $50 billion in net ETF inflows in the year ended June 30.

BlackRock's iShares division also experienced strong gains from positive equity markets as well as strong inflows, said Daniel Gamba, head of the iShares Americas institutional business, New York.

Good year for global

“It has been a good year for the global ETF industry and for the iShares business,” he said.

Mr. Gamba said 12-month net inflows as for indexed ETFs of June 30 were a total of $85 billion, consisting of $58 billion from U.S. ETFs, $21 billion from European ETFs, and $6 billion from the combined ETF market of Asia, Canada and Latin America.

Mr. Gamba said the launch of iShares core ETF series in October 2012 for buy-and-hold investors in both the institutional and retail markets has been a major success, accounting for $14.5 billion in net inflows for the 12 months ended June 30.

The core series, consisting of six rebranded iShares offerings, offered lower fees as a way for the company to compete with low-cost providers like Vanguard. iShares also added four ETFs to its core series lineup.

iShares also experienced new investor interest from insurance companies in ETFs in the past year, which also has contributed to the increase in net inflows, Mr. Gamba said. He said he could not release ETF net inflows for the insurance segment.

State Street Global Advisors saw significant inflows toward the shorter end of the fixed-income curve, both in short-term high-yield fixed-income ETFs and short-term corporate high-yield ETFs, which were $1 billion and $1.8 billion, respectively, said Jim Ross, a Boston-based senior managing director and global head of ETF business at SSgA.

At the same time, he said, intermediate- and longer-duration bond funds have seen outflows because investors are concerned about duration risk and the rising interest rate environment.

And as investor sentiment turned against gold, Mr. Ross said SSgA's $38 billion SPDR Gold Shares ETF saw a $14 billion decline in the 12-month period ended June 30.

SSgA's $133 billion SPDR S&P 500 ETF Trust, the world's biggest ETF, saw $7 billion in net inflows in the 12-month period ended June 30, he said.

Invesco (IVZ) PowerShares also saw greater investor interest in lower-duration fixed-income products, said Bobby Brooks, Wheaton, Ill.-based senior vice president and director of sales.

Mr. Brooks said asset growth for PowerShares' $5.3 billion Senior Loan Portfolio has been particularly strong, $3.1 billion in AUM in the first six months of 2013.

Key driver

A key driver of BNY Mellon's ETF asset growth in the 12 months ended June 30 was the WisdomTree Japan Hedged Equity Fund, said Karen Q. Wong, San Francisco-based managing director, equity portfolio management for Mellon Capital Management Corp, an investment subsidiary of BNY Mellon Investment Management.

The fund's AUM grew to $9.9 billion as of June 30, from $639 million a year earlier, according to BNY Mellon data, an increase of more than 15 times.

Ms. Wong said the attraction of the fund has been the hedging effect that helps preserve the more than 55% return of the Japanese equity markets while limiting the yen's depreciation against the dollar.

Northern Trust's FlexShares ETFs have seen increases in AUM partly because the number of ETFs has increased to 13 from four in the 12-month period, said Shundrawn Thomas, managing director of FlexShares, Northern Trust's ETF group.

Mr. Thomas said investors also are becoming more familiar with FlexShares. “You get some experience under your belt and the people in the marketplace are becoming familiar with your brand,” he said.

This article originally appeared in the September 16, 2013 print issue as, "ETF assets up 21.4% for year; top 3 providers hold their rank".