It was a September to remember for the exchange-traded-fund industry as investors, piling into U.S. equities, pumped more than $38 billion into ETFs, the largest single monthly inflow amount in more than three years.
Large-capitalization ETFs had $18 billion in inflows, with the SPDR S&P 500 ETF (SPY) attracting two-thirds of that, just one month after investors withdrew $8 billion, according to Morningstar Inc.
“Risky” asset classes — such as emerging markets, international stocks, high-yield bonds and small-caps — also drew strong inflows.
The rekindling of stock love was due in part to the Federal Reserve's announcement of QEternity, its latest round of quantitative easing that will last until the unemployment picture gets better.
The Fed's QE policies have been designed to push investors to take on more risk, primarily by squashing the expected returns on bonds and savings accounts with a near-zero interest rate policy.
The Fed's easy monetary policy also led to a rush into gold ETFs as investors looked to hedge against the potential for QE-driven inflation. The SPDR Gold Shares ETF (GLD) had inflows of $2 billion.
BlackRock Inc.'s iShares, the largest provider of ETFs, had $12 billion in inflows during the month, $7 billion more than
The Vanguard Group Inc. Both firms, along with The
Charles Schwab Corp., have been making headlines in recent weeks, thanks to a tit-for-tat fee-cutting race.
CUTTING FEES
BlackRock said that it would be cutting the fees on a select group of ETFs in the fourth quarter, presumably those that compete directly with Vanguard ETFs.
BlackRock hasn't an-nounced its specific plans, but with its third-quarter conference call scheduled for Wednesday, it is likely that the fee cuts will be announced around then.
Before Vanguard could respond, Schwab said that it had cut the fees for its entire lineup of ETFs so that they will be the the cheapest in their respective categories. Schwab's fee cuts weren't announced until the end of September, so it is likely that the $219 million in inflows it had during the month didn't reflect the new fee structure.
Not to be outdone, Vanguard completed the fee-cutting trifecta Oct. 2 when it said that it was dropping index provider MSCI Inc. as the underlying index for 22 of its ETFs so they would have the cheaper products, too.
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