“One of the more interesting trends is really the interest for alternative asset classes,” said Corin Frost, senior index strategist at BGI. “Historically, alternative assets classes such as commodities, REITs, and global equities have been treated as very, very active strategies, while we’ve been able to bring scientific strategies to these heretofore expensive asset classes.”
There has also been a greater interest in the higher returns of emerging markets. “Emerging markets have certainly been offering that lately,” said Mr. Frost.
State Street Global Advisors, Boston, reported $1.517 trillion in worldwide indexed assets as of Dec. 31, a market-adjusted increase of 5.7% from the $1.314 trillion in worldwide indexed assets as of June 30.
SSgA also saw its highest growth in international fixed income, with a market-adjusted increase of 20.2%. Domestic fixed income saw a market-adjusted increase of 12.91%. Domestic equity fell 4.5%, while international equity was up a market-adjusted 12.9%.
Of the rest of the top five, Vanguard Group, Malvern, Pa. reported $553.2 billion in worldwide indexed assets as of Dec. 31, a market-adjusted increase of 4.6% from June 30; Northern Trust Global Investments, Chicago reported $237.6 billion in worldwide indexed assets as of Dec. 31, a market-adjusted increase of 0.2%; and Mellon Financial, Pittsburgh reported $150.7 billion in total worldwide indexed assets, which when adjusted for the market was a drop of 3.4%.
Among all other index managers, BlackRock Inc., New York Inc., New York, reported combined assets from its acquisition of Merrill Lynch Investment Managers for the first time, with $81.5 billion in total worldwide indexed assets as of Dec. 31. BlackRock had managed $14.4 billion as of June 30 and Merrill Lynch Investment Managers had managed $62.6 billion.
The top five index managers all reported market-adjusted drops in U.S. institutional tax-exempt assets under internal indexed management.
Those assets reached $2.47 trillion as of Dec. 31, a 5.2% increase over the $2.35 trillion reported as of June 30. However, when adjusted for the market, it comes to a decrease of 4.6%.
BGI’s U.S. institutional tax-exempt indexed assets —enhanced and passive — reached $735.3 billion as of Dec. 31, a 6.8% increase from $688.5 billion as of June 30. When adjusted for the market, assets dropped 3.5%.
“Generally, our clients entrust multiple strategies with us over the long term, and we see ebb and flow between strategies as normal course of business,” said Mr. Frost. “BGI indexed assets in total were up for the year. However, we continue to see a transformation from index mandates to enhanced and active strategies.”
SSgA’s U.S. institutional tax-exempt indexed assets reached $686.3 billion as of Dec. 31, a 7.1% increase from the $641.1 billion as of June 30. When adjusted for the market, assets dropped 1.6%.
Vanguard, NTGI and Mellon Financial saw market-adjusted decreases of 0.8%, 12.1% and 1.5% respectively.
‘Push for riskier products’
“There has been a push for riskier products in general with more of an appetite for alpha. As a result, we are seeing money flow out of beta products such as pure indexing and into active and fundamental active products,” said Robert S. Gray, director of sales at NTGI.
One possible reason why total worldwide assets are going up but U.S. institutional tax-exempt assets are going down is that investors around the world are reducing their home-country bias and investing more around the world, according to Maggie Ralbovsky, a managing director at Wilshire Associates, a Santa Monica, Calif. consultant.
“I think this comes from a trend that’s actually common across the world, the trend for investors to reduce their home-country bias,” said Ms. Ralbovsky.
Foreign investors will more likely invest in U.S. strategies using indexation, because U.S. assets are efficient, according to Ms. Ralbovsky.
Meanwhile, U.S. investors “hire actively managed managers to (invest overseas) because it has been observed that actively managed funds for overseas strategies beat the benchmark more often than not.”
Enhanced indexed assets again saw a significant increase in assets.
In the universe of U.S. institutional tax-exempt indexed assets, enhanced assets reached $449.5 billion as of Dec. 31, an increase of 14.8% from $391.5 billion as of June 30. The leading enhanced manager, BGI, saw its institutional tax-exempt enhanced assets rise to $150.7 billion as of Dec. 31, an increase of 18.5% over $127.2 billion as of June 30.
Total worldwide exchange-traded funds also saw significant growth.
Total ETFs reached $451 billion as of Dec. 31, an 18.8% increase from $379.7 billion as of June 30. Only $5.5 billion of that total was institutional.
