The MarketsMarch 1, 2010

ETFs Continue Growth in 2009

U.S. exchange-traded funds (ETFs) closed out 2009 with $785 billion in assets, up from roughly $533 billion at the end of 2008, according to Morningstar Fund Flows and Investment Trends.

Reported by Rebecca Moore

In 2009, investors poured $104.1 billion in net new assets into ETFs, following a banner year in 2008 that saw ETFs draw some $156.6 billion in net inflows. Of the industry’s 47% increase in year-over-year total net assets, roughly 40% was attributable to net inflows over the past year, while the remaining 60% was due to strong market performance, the report said.

Fixed-income ETFs took in the most new assets of all the broad asset classes in 2009, while International equity ETFs posted a strong year, both in terms of performance and asset flows. Morningstar said investors’ cost-consciousness was on display in the showdown between iShares MSCI Emerging Markets Index EEM and Vanguard Emerging Markets Stock ETF VWO. In 2009, VWO took in $9 billion in net new assets and ended the year with $19.5 billion in total assets, while EEM brought in approximately $4.4 billion and ended the year with $39.2 billion in assets.

Several single-country ETFs were quietly amassing assets over the past year. Investors flocked toward resource-rich countries such as iShares MSCI Brazil Index EWZ ($1.7 billion in total net inflows in 2009), iShares MSCI Australia Index EWA ($1.2 billion), iShares MSCI Canada Index EWC ($1.1 billion), and iShares MSCI Taiwan Index EWT ($1.1 billion).

In addition, commodity ETFs saw healthy inflows in 2009, led by SPDR Gold Shares GLD, which took in more than $11 billion in total net inflows in 2009 (the most for any individual ETF). The flows into GLD (which has $40 billion in assets) last year represented more than 42% of total flows into the commodity asset class.

According to the report, a total of 134 new ETFs were launched in 2009, with U.S. equity (37 ETF launches last year), leveraged and inverse (33), fixed-income (30), and international equity (24) being the most popular categories, in terms of product proliferation. Meanwhile, 54 ETFs were shuttered, 12 of which were exchange-traded notes.

In 2009, Charles Schwab and PIMCO tossed their hats into the ETF ring. Schwab offered commission-free trading on its ETFs for any investor trading on the firm’s platform, and it enjoyed a healthy response from investors, closing out January 2010 with more than $500 million in assets in the new funds which didn’t begin trading until November 2009.

Other major fund companies that applied for exemptive relief in 2009 to launch ETFs include T. Rowe Price, Russell Investments, John Hancock, and Goldman Sachs, according to the report.

Only nine of the new fund launches in 2009 were ETNs. Morningstar said the rapid growth of ETNs came to a screeching halt in the fourth quarter of 2008 as the financial crises led investors to adopt a strong aversion to credit risk.

Northern Trust threw in the towel on its ETF business in 2009, shuttering all 17 of its internationally focused ETFs. SPA-ETFs also folded in 2009 and closed its six ETNs in March 2009. PowerShares trimmed its fund lineup by closing 19 of its funds in May 2009.

The full report is here.