December ETF Roundup: $1 Trillion And Counting

by on January 7, 2011 | ETFs Mentioned:

U.S. ETF assets topped $1 trillion for the first time in December, as a year-end rally in global equity markets and another strong month of inflows pushed the industry past the milestone. ETF assets also finished the year above this key mark, according to the latest data from the National Stock Exchange, representing an increase of 28% over the previous year. Since the end of 2005, ETF assets have grown by nearly 225%.

Year ETP Assets
Dec ’05 $311.3
Dec ’06 $432.7
Dec ’07 $622.6
Dec ’08 $539.0
Dec ’09 $790.9
Dec ’10 $1,008.7
Source: NSX.com. $ in billions

The ETF industry remains top heavy, with the four largest firms accounting for about 88% of total assets. iShares remains the market leader, accounting for about 44% of U.S.-listed ETF assets at the end of last year–down from about 47% in 2009. Among the “big four” Vanguard posted the strongest growth in 2010, as market share increased from 12% to about 15%.

Net inflows into ETFs in 2010 totaled $118.7 billion, a slight decline from the $119.4 brought in during 2009. December was one of the best months of the year for cash inflows, as more than $19 billion came into ETPs. About $6 billion of that went into SPY, which finished the year with assets of nearly $90 billion. At the end of 2010, there were approximately 1,100 U.S.-listed ETPs. More than 200 new products debuted in 2010, while 49 shut down over the course of the year [see Complete List of New 2010 ETFs].

But many of the smaller players saw tremendous growth in assets in 2010. Global X burst on to the scene, with assets growing from about $85 million at the end of 2009 to nearly $1.3 billion at the end of 2010. EGShares saw asset growth of more than 800% on the year, finishing 2010 with about $425 million in AUM. Schwab and ETF Securities, two well-established firms that were relative newcomers to the U.S. ETF space, also saw big growth in 2010. First Trust also had a stellar year; the Chicagoland issuer known for its line of AlphaDEX products finished 2010 with close to $5.5 billion in assets, up from $2 billion the year before [read Battle For ETF Market Share: Who's Gaining Ground, Who's Falling Behind].

Head To Head ETF Battles

There were some interesting developments in a couple of closely-watched head-to-head ETF battles in December. Vanguard’s Emerging Markets ETF (VWO) continued to close the gap on iShares’ EEM (both products seek to replicate the MSCI Emerging Markets Index). VWO saw inflows of about $1.0 billion in December, while EEM saw $1.0 billion go out the door. At year end, EEM maintained a slim edge; the iShares fund has about $47.5 billion in assets, while VWO stands at $44.4 billion. VWO charges an expense ratio of 0.27%, while EEM charges 72 basis points.

While the largest ETF on the market (SPY) took in more than $6 billion in December, the second largest (GLD) saw outflows for the third consecutive month. The iShares COMEX Gold Trust (IAU), which earlier this year slashed its expense ratio to 25 basis points, saw inflows of more than $450 million in December, narrowing the gap slightly between the physically-backed fund and its much larger SPDR competitor (GLD charges 40 basis points in expenses). During the fourth quarter of 2010, GLD saw aggregate outflows of nearly $1 billion; during that same period, IAU took in about $800 million [read Precious Metal ETFs: Physical vs. Equity Exposure].

Nine ETFs saw inflows of at least $2.5 billion in 2010; VWO took the crown with $19.3 billion coming in the door, followed by the Gold SPDR (GLD, $5.8 billion), SPDR S&P Dividend ETF (SDY, $3.5 billion), iShares S&P U.S. Preferred Stock (PFF, $2.8 billion), SPDR Barclays Capital High Yield Bond ETF (JNK, $2.8 billion), Vanguard Barclays Total Bond Market ETF (BND, $2.7 billion), iShares iBoxx High Yield Corporate Bond Fund (HYG, $2.6 billion), Vanguard MSCI Total Market (VTI, $2.6 billion), and the iPath S&P 500 VIX Short-Term Futures ETN (VXX, $2.5 billion).

Four ETFs saw outflows of at least $1 billion last year: SPY ($3.8 billion), the PowerShares DB U.S. Dollar Index Bullish (UUP, $2.3 billion), iShares FTSE China 25 Index Fund (FXI, $2.9 billion), and the SPDR Dow Jones Industrial Average ETF (DIA, $1.1 billion).

Asset Class Breakdown

After raking in more than $30 billion in 2009, commodity ETFs cooled down considerably in 2010. Inflows totaled about $11 billion on the year, with nearly $9.5 billion of that amount attributable to physically-backed gold and silver ETFs. After suffering net outflows in 2009, domestic equities bounced back last year; this asset class saw about $37 billion in inflows in 2010. Once again, it was international equities that led the way; almost $40 billion flowed into non-U.S. stock ETFs.

While most major asset classes turned in impressive performances in 2010, it was interesting to note that long leveraged ETFs saw outflows of about $3 billion, while short leveraged products took in almost $6.5 billion. A big chunk of that total went into betting against long-term bonds; the ProShares Ultra Short 20+ Year Treasury (TBT) took in more than $2 billion [see Shorting Long-Term Treasuries: Four Different ETF Plays].

ETNs Catch Fire

Another interesting sidenote was a renewed interest in exchange-traded notes. Because ETNs are debt securities linked to the performance of an underlying index, they expose investors to the credit risk of the issuing institution. Some investors shied away from these securities in 2008 and 2009 in the midst of a financial crisis, but as the financial health of big banks has increased so too has demand for ETNs. ETN assets grew by about 64% in 2010, more than twice the rate of growth for the entire ETP industry. With nearly $6 billion of inflows in 2010, ETN assets finished the year just north of $14 billion [see the Basics of ETN Investing].

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Disclosure: No positions at time of writing.