INDEX MANAGERS: Steady stewardship

Total worldwide assets under internal indexed management continued their steady growth in the first half of 2006, reaching $4.55 trillion as of June 30, according to Pensions & Investments' latest survey of the leading index managers.

That figure is a 5.3% increase from the $4.32 trillion as of Dec. 31. When adjusted for market changes, worldwide indexed assets rose 1.4%.

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During the six months, the Russell 3000 index returned 3.2%; the Lehman Brothers U.S. Government/Credit index returned -1.2%; the Morgan Stanley Capital International Europe Australasia Far East index returned 10.5%; and the Citigroup Non-dollar World Government Bond index returned 3.8%.

The top five index managers held their positions during the six months.

Barclays Global Investors, San Francisco, reported $1.52 trillion in worldwide indexed assets as of June 30, a market-adjusted increase of 1.3% from $1.43 trillion as of Dec. 31. Fixed income — both domestic and international — saw the greatest increase in worldwide indexed assets at BGI, with market-adjusted increases of 11.6% and 12.5%, respectively.

Those increases are primarily because of new business in liability-driven strategies and securities lending, according to Jonathan Cohen, fixed-income strategist at BGI.

"The real growth has been in the U.K. and Europe," added Mr. Cohen.

State Street Global Advisors, Boston, reported $1.31 trillion in worldwide indexed assets as of June 30, a market-adjusted increase of 3% from $1.24 trillion as of Dec. 31. SSgA's domestic fixed-income assets saw the greatest gain, with a market-adjusted increase of 12.2%.

"Because of a large commingled fund structure, … (we can) offer a lot of flexible solutions to clients," said Michael Wands, director of fixed income in North America for SSgA.

New business as a result of the firm's flexible offerings was a main reason for the significant rise in domestic fixed-income assets, according to Mr. Wands. Additionally, SSgA won a large Midwestern state mandate earlier this year, "around $15 billion," he said. He wouldn't provide further details.

Vanguard Group, Malvern, Pa., saw the largest increase of the top five, with $474.5 billion in worldwide indexed assets as of June 30, a market-adjusted increase of 8.2% from its $424.4 billion as of Dec. 31. Every asset class saw strong growth, particularly international fixed income, which saw a market-adjusted increase of 45.2%.

Northern Trust Global Investments, Chicago, reported an increase of 0.8% in total worldwide indexed assets, with $213.6 billion as of June 30 up from $211.9 billion on Dec. 31. When adjusted for the market, NTGI had a 2.8% decrease.

"As investors seek creative investment solutions to meet their risk-return goals, we are seeing a continuing trend of funds moving from passive mandates to robust alpha-generating products in the aggressive active and alternative space," said Robert S. Gray, director of sales at NTGI.

Mellon Financial Corp., Pittsburgh, reported $140.4 billion in total worldwide indexed assets as of June 30, an increase of 2.9% from $136.5 billion as of Dec. 31. When adjusted for the market, Mellon had a decrease of 0.1%.

BGI continued to be the leader in institutional tax-exempt indexed assets, with $688.5 billion in institutional tax-exempt indexed assets, an overall increase of 3.6% and a market-adjusted increase of 0.3% from the year-end figures. But second-place SSgA narrowed the gap, reporting an overall increase of 9.6% to $674.2 billion as of June 30, and a market-adjusted increase of 7.4% from Dec. 31.

Total U.S. institutional tax-exempt assets under internal indexed management reached $2.35 trillion as of June 30, an increase of 7.2% since the $2.19 trillion as of Dec. 31. When adjusted for the markets, assets rose 4.4%.

Enhanced assets also continued to rise. Total U.S. institutional tax-exempt enhanced indexed assets under internal management reached $391.5 billion as of June 30, a 7% increase from $365.9 billion as of Dec. 31.

BGI, also the largest manager of enhanced indexed assets, reported $127.2 billion as of June 30, a 7% increase from year-end 2005.

Goldman Sachs Asset Management LP, New York, is now the second-ranked manager of enhanced indexed assets, reporting $29.7 billion in U.S. institutional tax-exempt enhanced indexed assets as of June 30, a 7.6% increase from $27.6 billion as of Dec. 31, when it ranked fourth.

Pacific Investment Management Co. LLC, Newport Beach, Calif., reported $26.2 billion as of June 30, down 13.3% from the $30.3 billion it had reported to rank third in the year-end report. The drop was due to a change in methodology in the classification of assets and no assets were lost, according to Steve Jones, vice president.

Dimensional Fund Advisors Inc., Santa Monica, Calif., which had previously ranked as the second-largest manager of institutional tax exempt enhanced indexed assets, restated its assets in Pensions & Investments' directory of the largest money managers (May 29), reporting $170 million in enhanced indexed assets as of Dec. 31. DFA did not participate in this survey. Darryl Avery, vice president at DFA, did not return several calls for comment.

Total worldwide exchange-traded funds managed by the surveyed firms reached $379.7 billion as of June 30, an increase of 16.5% from Dec. 31. BGI's ETF assets rose 19.1% in the first six months of 2006, to $233.3 billion. Of that total, $1.7 billion represented U.S. institutional tax-exempt assets. SSgA's ETF assets rose 20.3%, to $86.4 billion as of June 30, from $71.9 billion as of Dec. 31.

Credit Suisse Group, which had reported $25.8 billion in total worldwide indexed assets as of Dec. 31, declined to participate in the survey. The Zurich-based company recently announced it would phase out most of its traditional asset management business in the U.S. by the end of the year (Pensions & Investments, Aug. 7).