'Incredible breadth of funds' propels ETPs to incredible year

Exchange-traded bandwagon not dragging as new record set; inflows even in shunned sectors

Dec 27, 2012 @ 3:14 pm (Updated 3:56 pm) EST

ETF, exchange-traded funds
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Exchange-traded products in the U.S. gathered record deposits this year as investor demand for low- cost stock-and-bond funds drove expansion in the fastest-growing segment of the asset-management industry.

Investors deposited $183.3 billion into ETPs in 2012 through Dec. 24, surpassing the $175.6 billion peak in 2008 and pushing assets to $1.34 trillion, according to research firm IndexUniverse LLC. Bond ETPs took in $55.7 billion, more than double the amount such funds attracted in 2008. Stock ETPs that invest primarily in the U.S. attracted $67.2 billion, and international equities gathered $48.5 billion.

“The story in the 2012 numbers is the incredible breadth of funds involved,” David Nadig, director of research at the San Francisco-based company, said in a telephone interview. “Even in the laggard columns, U.S. equity had 11 percent growth from inflows.”

Investor assets in ETPs have more than doubled since the end of 2008 as they're easier to buy and sell and are often cheaper than traditional mutual funds. The broad-based growth in ETPs this year contrasts with the mixed results for U.S. mutual funds. Stock mutual funds saw $139.2 billion in withdrawals in 2012 through Dec. 19, the fifth straight year of redemptions, as bond mutual funds reported deposits of $302.6 billion, according to the Investment Company Institute.

Within fixed-income, U.S.-focused bond ETPs took in $44 billion, and those that invest globally took in $11.7 billion, according to data compiled by IndexUniverse.

“Fixed income had a particularly good year, with things like emerging markets local currency bonds and international corporate high yield becoming viable asset classes,” Nadig said.

New Products

Providers rolled out 176 new ETPs in 2012, including 104 that invest in equities, 42 in bonds, 18 in commodities and 17 in multiple asset classes, according to data compiled by Bloomberg. BlackRock Inc. (BLK), the world's biggest ETP provider, opened the most new products with 47.

ETPs include those structured as funds, as well as exchange-traded notes. ETFs grant shareholders a claim on assets held by the fund, while ETNs represent an unsecured debt obligation by the issuer to the holder.

Actively managed ETFs took a prominent step forward in 2012 with the success of Pacific Investment Management Co.'s Total Return ETF, an exchange-traded version of Bill Gross's Total Return Fund. Opened ten months ago, it held $3.76 billion as of yesterday, or 36 percent of all assets in actively-managed ETPs.

ETPs, unlike mutual funds, trade throughout the day on an exchange, like stocks. They typically hold a basket of securities or physical commodities that tracks an index. Actively-managed ETPs select holdings based on proprietary research, aiming to beat a benchmark index.

--Bloomberg News--