The Markets January 11, 2011

ETF Assets Continue Strong Growth

Exchange-traded fund (ETF) assets rose $63.3 billion for the month of December—up 6.8%.

Reported by

According to State Street Global Adviosrs’ ETF Snapshot, for the year, ETF assets increased by $219 billion, or 28.2%.

The report said the S&P 500 Index rose 6.7% in December while the MSCI EAFE Index gained 8.1%. U.S. Bonds fell with the Barclays U.S. Treasury Index falling 1.8% and the Barclays U.S. Aggregate Index falling 1.1%. Gold rose 1.6% to $1,405 per ounce.

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Large Cap gains were driven mainly by inflows to the SPDR S&P 500 [SPY]. Losses in Fixed Income were driven by a combination of negative performance and outflows.

Year-to-date, Emerging Market ETFs dominated, gaining $43.9 billion in assets, followed by Commodity, up nearly $31 billion, and Fixed Income, up $28.8 billion. Total 2010 ETF flows topped $111 billion—the fourth consecutive year with more than $100 billion in flows, according to the report. International-Emerging and Fixed Income were by far the largest recipients, gaining $27.1 billion and $26.4 billion, respectively.

The top three managers in the U.S. ETF marketplace as of December 31, 2010 were BlackRock, State Street, and Vanguard. Collectively, they accounted for approximately 83.7% of the U.S.-listed ETF market.

The top three ETFs in terms of dollar volume traded for the month were the SPDR S&P 500 [SPY], iShares Russell 2000 [IWM], and PowerShares QQQ [QQQQ]. The top three ETFs in terms of assets for the month were the SPDR S&P 500 [SPY], SPDR Gold Shares [GLD], and iShares MSCI Emerging Markets [EEM].

The Markets January 11, 2011

Money Market Floating NAV Could Produce Asset Shifts

Four out of five companies would drop money market mutual funds (MMFs) from their portfolios if a floating net asset value (NAV) becomes a requirement.

Reported by

Fred Schneyer

That was a key conclusion from a survey by the Association for Financial Professionals (AFP), according to a news release.

In follow-up questions to AFP’s recent 2011 Business Outlook Survey, 54% of survey respondents indicate that their organizations would shift corporate cash into bank deposits and U.S. Treasury securities and out of money market funds if a floating NAV becomes reality.

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Of those responding, 22% would move funds out of MMFs and into non-2a-7 fixed-value investment vehicles, such as offshore money market funds, enhanced cash funds and stable value vehicles. Four percent of survey respondents anticipate their organization would move funds currently in MMFs into other short-term, variable share price investments, such as ultra short bond funds.

The $2.8 trillion that organizations invest in MMFs provides a critical source of funding to U.S. businesses through the purchase of commercial paper, according to the news release. A reduction in the balances held in money funds would reduce capital available to purchase commercial paper, which companies utilize to fund their operations and short-term funding needs. Companies would have to find an alternate funding source, or reduce their spending to compensate for funding shortfalls, AFP said.

On the other hand, some financial professionals surveyed believe that the NAV should be allowed to float, ostensibly to provide greater transparency for investors. This echoes the view expressed by the President’s Working Group (PWG) on Financial Markets, which issued an October report suggesting more reforms to ensure the resiliency of MMFs during periods of financial crises.

From November 29 through December 10, 2010, the AFP surveyed U.S. financial professionals about current and expected business conditions in the U.S., then sent follow-up questions based upon policy issues, which included potential floating NAV for MMFs and corporate tax issues for repatriated cash. The original survey generated 808 responses from professionals holding a variety of positions within their organizations, including CFO, vice president of finance, treasurer and assistant treasurer.