The Markets January 24, 2012

ETF Industry Crossed $1T in 2011

The U.S. exchange-traded funds (ETF) industry grew to more than $1.04 trillion in assets under management in 2011, according to a report from State Street Global Advisors (SSgA).
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This is a 5.5% increase from the previous year, with investor inflows offsetting declining equity prices. During the year, U.S. ETFs attracted $119 billion of new assets, as investors increased their exposure to fixed income, dividend/fundamental strategies and developed markets outside the U.S.  

2012 ETF & Investment Outlook: Sink or Swim, developed by the SPDR ETF Strategy & Consulting Group, features insights on macroeconomic trends impacting the financial markets and examines key developments expected to shape the ETF industry and asset flows in 2012.  

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“Despite significant headwinds facing the financial markets in 2011, investors continued to increase their appetite for ETFs, which was evidenced by industry assets crossing the trillion dollar tipping point,” said Kevin Quigg, global head of ETF Strategy & Consulting at SSgA. “Our 2012 investment outlook is cautious due to the European debt crisis; however, the ETF industry is well-positioned to build on its success in recent years, as awareness of the benefits of ETFs continues to grow.”  

The report outlines three potential market scenarios for 2012. It also highlights two investment themes expected to prevail regardless of what direction the markets may take.   

With the Federal Reserve intending to maintain a low rate environment until 2013 or longer, generating income via higher-yielding fixed income, dividend producing equities and hybrid securities is one theme likely to continue to shape investment decisions in 2012. In an environment where the growth potential of developed nations seems relatively muted, another theme projected to garner investor attention is the opportunity for growth in emerging markets.  

In addition to shaping ETF product development in 2012, these investment themes are also poised to drive asset flows, as an increasing number of investors use ETFs to implement their investment strategies.  

To download a copy of 2012 ETF & Investment Outlook: Sink or Swim, visit SPDR University at http://www.spdru.com, or ETF Fact or Fiction at http://www.etffactorfiction.com, a new website launched by State Street to provide individual investors with ETF education.

 

The Markets January 24, 2012

401(k) Participant Transfer Activity Slowed in December

The volume of 401(k) participant transfer activity was below average for December, according to the Aon Hewitt 401(k) Index.
Reported by

In December, the daily average of total defined contribution plan balances transferred was just 0.027%, compared to a daily average of 0.035% of total balances over the past 12 months. Only two days in December saw trading volume exceed the trailing 12-month daily average.  

While the markets were mixed, the direction of transfers and total assets moved heavily favored fixed income investments (including bonds, stable value and money market), as 71% of the days experienced net fixed income transfers, and only 29% of days had a net flow towards equities. This amounts to $218 million transferring out of diversified equities (equities excluding company stock), which is high considering the low volume of transfer activity for December.   

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All equity-based asset classes had net outflows during December. Even though Large U.S. Equity stocks had a strong rally for the month, this asset class saw the largest net outflow, at $78 million. International funds and Small U.S. Equity also experienced significant outflows of $63 million and $44 million transferring out, respectively.  

Fixed income asset classes all experienced gains for the month. Bond funds had $169 million of inflows from transfer activity, which was by far the largest movement. GIC/Stable Value also saw $47 million transferred in, and Money Market flows were $9 million.  

Participants’ discretionary contributions, a gauge of sentiment, also moved away from equities, with the overall allocation directed to stock funds down from 60.8% in November to 59.7% in December.  

Fixed income asset classes now hold 41.7% of total assets, with 58.3% in equities. This is explained by the transfer activity flowing toward fixed income assets since the market indices show a mix of gains and losses that translate to a negligible effect on asset allocation, Aon Hewitt said.  

More data is available at http://www.aon.com/human-capital-consulting/thought-leadership/outsourcing/401k_index/401k_index_2011_dec.jsp.

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