Enhanced indexed assets managed on behalf of U.S. institutional tax-exempt investors fell nearly 20% in the first half of the year, according to data collected by Pensions & Investments.
Those managers — many of whose performance was hurt by the credit crunch that started 13 months ago — reported a 19.7% decline to $346.9 billion in total U.S. institutional tax-exempt enhanced indexed assets under internal management as of June 30. As of Dec. 31, those managers ran $432 billion in indexed assets.
Overall, total worldwide indexed assets — including enhanced portfolios and exchange-traded funds — declined to $5.4 trillion as of June 30, down 4.4% from $5.65 trillion as of Dec. 31.
The drop came during an undeniably rough market environment: the Russell 3000 returned -11.05% and the Morgan Stanley Capital International Europe Australasia Far East index returned -10.58% for the six months.
Not all was bad news, however. Managers reported strong interest in international indexed portfolios.
While the drop in interest in enhanced index portfolios has been noted before, the depth of the plunge was much deeper than previously reported. In the six-month period ended Dec. 31, enhanced index assets managed on behalf of U.S. institutional tax-exempt investors had declined 3.1% (P&I, March 17).
Barclays Global Investors, San Francisco, the largest enhanced manager, reported $116.2 billion in U.S. institutional tax-exempt internal enhanced indexed assets as of June 30, a 17.8% decrease from $141.4 billion as of Dec. 31.
Goldman Sachs Group Inc., New York, the second-largest enhanced index manager, saw its U.S. institutional tax-exempt internal enhanced indexed assets plummet 32.7%, to $25.2 billion as of June 30 from $37.5 billion as of Dec. 31.
However, Prudential Financial Inc., Newark, N.J., experienced a slight gain in its U.S. institutional tax-exempt internal enhanced index assets, reporting $24.6 billion as of June 30, a 1.7% increase from $24.2 billion as of Dec. 31.
The rest of the top five enhanced managers reported drops.
Pacific Investment Management Co., Newport Beach, Calif., reported $21 billion in U.S. institutional tax-exempt internal enhanced indexed assets as of June 30, a 19.6% decrease from $26.1 billion reported as of Dec. 31.
Also, TIAA-CREF, New York, reported $20.8 billion in U.S. institutional tax-exempt internal enhanced indexed assets as of June 30, an 11.9% decrease from $23.6 billion as of Dec. 31.
Overall, index managers are benefiting from a move away from risk as well as a shift toward passive international equity portfolios.