MutualFundWire.com: Active ETFs Are Not Off to a Smashing Start, Study Says

MutualFundWire.com

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Monday, August 11, 2008

Active ETFs Are Not Off to a Smashing Start, Study Says

A new study from State Street Global Advisors found that active ETFs, in their first few months of existence, have yet to become as popular as their hype would have suggested. The report found as of end-June, the new products traded, on average, just 2,000 shares a day.

Tom Anderson, author of the study and head of strategy and research for State Street’s Intermediary Business Group, told The MFWire that the two factors that make an ETF successful are the ability to attract assets and a high trading volume and so far, active ETFs have achieved neither of these, with combined assets of $65 million across all products and trading volume of 2,000 shares a day.

Anderson said this is not at all a comment on the performance of actively managed ETFs. In fact, SSgA itself has not ruled out adding an active ETF to its stable of products one day.

"It is really still just early in the cycle for actively managed products," Anderson said. "Customers are used to using ETFs to gain exposure to certain market segments, active ETFs are more of a strategy," he added.

In March, Bear Stearns Asset Management came out with the industry's first active ETF. (see MFWire 3/25/08) A month later, PowerShares rolled out its own set of active ETFs. (see MFWire 4/11/08)

The SSgA study, released Monday morning, also found that pace of ETF launches slowed significantly compared to the first half of 2007. Eighty-seven new ETFs were launched in the first six months of this year, compared to 167 during the same period a year ago.

Company Press Release

BOSTON — August 11, 2008 — State Street Global Advisors (SSgA), the investment management arm of State Street Corporation (NYSE: STT), today announced the release of a new report detailing several key themes that have emerged in the U.S. exchange traded funds industry during the first half of the year. Titled 2008 Mid-Year Exchange Traded Fund Report, the research is designed to reveal new insights into how the exchange traded fund market is evolving amid recent stock market volatility.

According to the report, which is authored by Tom Anderson, head of strategy and research for State Street’s Intermediary Business Group, US ETF assets totaled approximately $575 billion at the midway point of 2008 – down 5.4 percent from the start of the year. This drop in assets is attributed to declining equity valuations, as the number of ETF shares outstanding increased 9 percent during the same period of time, indicating that investors have continued to add shares of ETFs to their portfolios as the markets declined.

“Despite a sharp decline for US equities in the first half of 2008, investors continued to increase their appetite for ETFs, which is a testament to the increasingly vital role ETFs play in a growing number of portfolios and strategies,” says Anderson. “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.”

Other key findings from the 2008 Mid-Year Exchange Traded Fund Report include: ·

The pace at which new ETFs are entering the market has slowed - 87 new ETFs were launched in the first half of 2008, compared to 167 during the same period in 2007;

· Despite their much anticipated arrival, active ETFs are on average trading just over 2,000 shares daily; and

· With energy and food costs rising, investors are increasingly protecting their assets from inflation. In the first half of 2008, assets in Treasury Inflation Protected Securities (TIPS) ETFs and commodity ETFs have increased 39 percent and 34 percent respectively.

For more information on these trends and others emerging in the ETF industry, financial professionals can download a free copy of the 2008 Mid-Year Exchange Traded Fund Report at SPDR University (www.spdru.com), a new web site offering proprietary research and educational materials on exchange traded products (ETPs), the markets, portfolio strategies, and practice management for investment professionals.

About State Street Global Advisors

State Street Global Advisors, the investment management arm of State Street Corporation, delivers investment strategies and integrated solutions to clients worldwide across every asset class, investment approach and style. With $1.9 trillion in assets under management as of June 30, 2008, State Street Global Advisors has investment centers in Boston, Hong Kong, London, Toronto, Montreal, Munich, Paris, Singapore, Sydney, Tokyo and Zurich, and offices in 27 cities worldwide. For more information, visit State Street Global Advisors at www.ssga.com.