BlackRock takes the lead in indexing

Last year’s acquisition of Barclays Global Investors pushed BlackRock Inc. to the No. 1 spot in internally managed indexed assets for the 12-month period ended June 30, topping the field with $1.7 trillion, according to Pensions & Investments’ annual survey of managers of indexed assets.

BGI was the top-ranked manager of internally managed indexed assets a year earlier with $1.62 trillion. BlackRock ranked sixth last year with $86.1 billion.

State Street Global Advisors remained in second place with $1.13 trillion in internally managed indexed assets.

Both BlackRock and SSgA re-vised reporting data for the latest survey by eliminating cash assets that previously had been reported as fixed-income assets.

BlackRock excluded assets that BGI had reported in previous surveys. SSgA revised its data to exclude cash assets that were actually actively managed.

When removing the cash assets from last year’s totals, SSgA’s internally managed indexed assets rose 25.5% for the 12-month period ended June 30. BlackRock didn’t provide revised 2009 assets.

The overall numbers also were affected by the omitted cash numbers from both managers. Total worldwide assets under internal indexed management rose to $4.78 trillion as of June 30, a 3.1% increase over a revised $4.64 trillion as of June 30, 2009.

For the 12-month period ended June 30, the Russell 3000 Index returned 15.72%, the Barclays Capital U.S. Government/Credit Index returned 9.65%, the Morgan Stanley Capital International Europe Australasia Far East Index returned 3.13%, and the Citigroup Non-U.S. World Government Bond Index returned 1.52%.

Among the 67 index managers surveyed, $2 trillion was internally managed in U.S. equity, up 13.8% from the previous year, while the $1.41 trillion in international equity was 28.4% higher than a year earlier.

Clients have displayed a continued shift toward a global focus, according to Carter Lyons, BlackRock’s managing director of institutional business.

“We’ve seen the U.S. equity component go down and the non-U.S. equity component go up,” he said. Clients are replacing “regional approaches to equity indexing to more of a global approach.”

INTERNATIONAL EQUITY

Internally managed indexed international equity assets increased 29% to $731 billion for BlackRock for the 12-month period ended June 30, while domestic equity assets increased 4.1% to $507.5 billion, according to the P&I survey.

Benchmark expansion in the non-U.S. equity sector has also garnered client interest, according to Mr. Lyons.

“For well over 10 years, EAFE was the primary benchmark for the U.S.,” he said. “Really, it’s adding small-cap on the non-U.S. side. [Clients] are reassessing their international exposure.”

“They’re missing the small-cap in developed and emerging markets,” he said.

At SSgA, index strategies continued to perform strongly during the survey period, said Alistair Lowe, executive vice president and global equities chief investment officer.

“We’ve continued to see a flow toward indexed assets,” he said. “It’s not the real flight to safety [we saw] in “08 and the beginning of “09 … We got through the peak of derisking.”

SSgA has also seen significant growth in international equity.

“In our core passive products, we continue to see broad global mandates that include both emerging and small-cap,” said Lynn Blake, senior managing director and head of non-U.S. markets in the firm’s global structured-products group.

Internally managed international-equity-indexed assets for SSgA totaled $314.8 billion as of June 30, a 9.2% increase from a year earlier.

“Another area we’ve seen a lot of interest in, and are beginning to get some real asset growth, is in alternative beta strategies,” Ms. Blake said. “It’s an alternative to traditional cap-weighted benchmarks with a very broad low-cost exposure geared to deliver the returns to the client, based on whatever investment thesis they have.”

The rest of the top five index managers also saw gains, led by the 31.6% increase in worldwide indexed assets by The Vanguard Group Inc., which reported $780 billion as of June 30.

Much of Vanguard’s growth was because of its adoption of index tiers in defined-contribution plans, according to Gerard Mullane, principal and director of institutional sales.

Some DC plans have added all-index tiers — a package of multiple passive index funds — that give participants market exposure without the risks of active management.

The index tier is something that plans have been “moving towards as the number of investment options in DC [plans] continues to escalate. There’s choice overload for participants,” Mr. Mullane said.

“Plans that in the past might not have had any index funds, regardless of who their record keeper is, they want to add a whole tier of index funds now,” he said.

Of the $218.2 billion Vanguard manages in U.S. institutional tax-exempt indexed assets, $170 billion was in U.S.-based DC plans as of June 30, a 22.6% increase from a year earlier.

Northern Trust Global Investments reported worldwide indexed assets of $253.8 billion as of June 30, a 7.7% increase from a year earlier.

INTERNATIONAL EQUITY

The firm’s best indexed asset class in terms of growth was international equity, reaching $81.5 billion as of June 30, a 23.9% increase from a year earlier.

The Bank of New York Mellon Corp. reported worldwide indexed assets of $152.1 billion as of June 30, a 16.9% increase from a year earlier.

International indexed equity had the most growth among BNY’s asset classes, reaching $21.6 billion as of June 30, a 27.2% increase from a year earlier.

U.S. institutional tax-exempt indexed assets totaled $1.68 trillion as of June 30, with BlackRock reporting $471 billion. Revised numbers for 2009 weren’t provided.

SSgA reported $367 billion in U.S. institutional tax-exempt assets under internal indexed management as of June 30, a 14.6% increase over the revised total of $320.2 million as of June 30. When adjusted for the market, the increase is 3.2%.

U.S. institutional tax-exempt assets under internal enhanced management fell 13.7% from last year, with index managers reporting $187.5 billion as of June 30, down from $217.3 billion a year earlier.

BlackRock was the top enhanced manager, reporting $46.7 billion as of June 30. BGI had reported $69 billion, and BlackRock had reported $9.1 billion the previous year.

The decrease was due to BlackRock’s considering some assets as active following the merger.

Exchange-traded funds showed very solid growth during the survey period, with total worldwide ETF assets reaching $767 billion as of June 30, an increase of 28.3% from a year earlier. Institutional ETFs dropped 28% to $5.9 billion as of June 30, from $8.2 billion a year earlier.

BGI had reported $7.8 billion the previous year, while BlackRock reported none.

Rob Kozlowski is a reporter at sister publication Pensions & Investments.

Related Topics: Barclays Global Investors, BlackRock Inc., State Street Global Advisors