The Markets August 11, 2008

ETFs Feel Effects of Stock Market Volatility

U.S. exchange-traded fund (ETF) assets totaled approximately $575 billion at the midway point of 2008 – down 5.4% from the start of the year, according to a report from State Street Global Advisors (SSgA).
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The report attributes the drop in assets to declining equity valuations, according to an SSgA new release. Investors continued to add shares of ETFs to their portfolios despite the market decline, as the number of ETF shares outstanding increased 9% during the first half of 2008.

“Many of the trends highlighted in the 2008 Mid-Year Exchange Traded Fund Report, including the strong growth of sector, fixed income, inverse, and commodity ETFs, illustrate how ETFs are helping to level the playing field by improving access to segments of the market that were once beyond the reach of most investors,” said Tom Anderson, head of strategy and research for State Street’s Intermediary Business Group and author of the report, in the news release.

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However, the trends report shows that ETFs are feeling the effects of stock market volatility. The pace at which new ETFs are entering the market has slowed – 87 new ETFs were launched in the first half of 2008, compared with 167 during the same period in 2007.

In addition, investors are moving to more conservative choices. In the first half of 2008, assets in Treasury Inflation Protected Securities (TIPS) ETFs and commodity ETFs have increased 39% and 34%, respectively.

A free copy of the 2008 Mid-Year Exchange Traded Fund Report can be downloaded from www.spdru.com.

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