Cerulli Associates on Wednesday released data showing that ETFs have been gaining assets at nearly the same pace that mutual funds have seen outflows. ETFs are increasingly gaining a foothold in both core and satellite elements of investment portfolios.

However, it may be a mistake to link inflows to outflows causally and to see this recent move as a portent of a continued shift in ETF market share.

When put in a global perspective the ETF share seems relatively minor, with ETFs holding only 1.7 percent of worldwide professionally managed assets. Furthermore, there is evidence that inflows back into mutual funds are starting to pick up as investors try to capitalize on economic recovery by seeking alpha.

An editorial piece embedded in the report notes that ETFs tend to collect assets in times of economic upheaval (think the internet bubble and financial crisis) and that signs of an increase in the rate of market share growth are not necessarily permanent. Bear market demand for ETFs, the paper argues, must be separated by fundsters from a more fundamental shift in tastes.

The report also comments relatively ambivalently on the arrival of actively managed ETFs. While many in the ETF industry tout these active funds as the first step towards a wholesale conversion to ETFs, the report is more split. It reiterates some commonly cited challenges regarding active funds -- namely, that the traditionally noted benefit of ETF transparency quickly becomes an issue in an actively managed setting, and focus on fees and liquidity get shadowed by performance. Thus, the report keeps the challenges posed to mutual funds by active ETFs in perspective, and essentially tells managers not to stake hopes for ETF future on actively managed funds.

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PRESS RELEASE

Outlined below are highlights and key findings from Cerulli's latest research contained in the June 2009 Issue of The Cerulli Edge--Global Edition.

In this Exchange-Traded Funds Issue, regions and countries highlighted include the United States and Asia-Pacific. Also included in this issue is a special report on the findings from our global and Europe-focused asset management surveys. This month's Quantitative Update section focuses on Canada.

If you would like a complete copy of this issue, or to speak with an analyst about story ideas, please contact us at +1 617-437-0084, CAmarketing@cerulli.com.

KEY IMPLICATIONS Global assets under management in exchange-traded funds (ETFs) grew at a compound annual growth rate of nearly 25% between 2004 and 2008, falling only modestly from 2007 to US$750 billion last year amid strong worldwide flows.

ETFs are increasingly being used in both the core and satellite elements of investment portfolios, and pose a long-term threat to mutual fund flows, with the United States the most developed market.

The ETF threat needs to be kept in proper perspective. The so-called “Holy Grail” of active ETFs still face major obstacles. And, global ETF AUM in 2008 amounted to only 1.7% of worldwide professionally managed assets. 

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