Index managers are holding steady despite the market downturn, according to a biannual survey of managers of indexed assets by
InvestmentNews' sister publication Pensions & Investments.
Total worldwide assets under internal indexed management reached $5.65 trillion as of Dec. 31, a 1.1% increase from $5.59 trillion six months earlier. When adjusted for the market, total worldwide indexed assets fell 0.4%.
During the six-month period, the Russell 3000 returned -1.84%; the Lehman Brothers U.S. Government/Credit Bond index returned 6.2%; the Morgan Stanley Capital International Europe Australasia and Far East index returned 0.48%; and the
Citigroup Non-U.S. World Government Bond index returned 12.32%.
Barclays Global Investors of San Francisco reported $1.93 trillion in total worldwide indexed assets, a 2.3% market-adjusted increase from $1.85 trillion as of June 30.
When comparing asset classes, Barclay's reported a market-adjusted gain of 3.3% in international equity, to $695.5 billion as of Dec. 31, compared with $670.3 billion as of June 30.
Domestic equity, however, fell a market-adjusted 3.1% in the same period, to $651.7 billion as of Dec. 31, from $684.9 billion as of June 30.
"We have seen a pretty consistent reallocation with our clients away from U.S. equity to international equity, both in the EAFE space and the emerging markets space," said Amy Schioldager, a managing director and head of U.S. indexing at Barclay's.
Part of the dip in domestic equity might be due to plan executives' pulling money from domestic-equity-index accounts to make benefit payments.
"In many cases, we see plan sponsors make those payments with their U.S.- equity index allocations," said Ms. Schioldager.
SSGA NUMBERS MIXED
State Street Global Advisors of Boston reported $1.659 trillion as of Dec. 31, a 0.1% decrease from its total of $1.661 trillion as of June 30. When adjusted for the market, the total represents a decrease of 3.1%.
However, SSgA had a very strong showing in domestic equity indexing, reporting $477 billion in total worldwide domestic-equity-indexed assets as of Dec. 31, a market-adjusted increase of 16.2% from $418.4 billion reported as of June 30.
"There are a few things driving that. One is ... on our true paths of businesses we are seeing inflows from terminated active portfolios. We've seen that kind of flow into the passive area throughout 2007, and we did have a $46 billion growth not just for the U.S. but throughout, in our passive areas," said Arlene Rockefeller, executive vice president and global-equity chief investment officer for SSgA.
The Vanguard Group Inc. of Malvern, Pa., reported $656.6 billion in total worldwide indexed assets as of Dec. 31, a market-adjusted in-crease of 4.2% from $633.2 billion as of June 30.
Northern Trust Global Investments of Chicago reported $267.8 billion as of Dec. 31, a market-adjusted increase of 4.8% from $254.4 billion as of June 30.
Both Vanguard and
Northern Trust did particularly well in international equities, with market-adjusted gains of 15.4% and 15.1% respectively.
"We have been at the forefront of encouraging our clients to go broader and deeper than EAFE ... and we have what we consider leading products with these capabilities," said Steven Schoenfeld, chief investment officer for global quantitative management at
Northern Trust.
Rounding out the top five, Bank of New York Mellon Corp. of Pittsburgh reported $184.2 billion in total worldwide indexed assets as of Dec. 31, a market-adjusted drop of 4% from $192.6 billion as of June 30.
The newly combined company had reported $218.6 billion as of June 30 in the last survey, but revised the number to $192.6 billion following a more complete look after the merger between Bank of New York and Mellon Financial Corp. in July 2007, according to spokesman Mike Dunn.
INSTITUTIONAL ASSETS FALL
Overall, institutional tax-exempt indexed assets fell a market-adjusted 1.5%, to $2.63 trillion as of Dec. 31, down from $2.65 trillion six months earlier.
Both Barclay's and SSgA saw their institutional tax-exempt assets drop. Barclay's reported $768.7 billion in institutional tax-exempt indexed assets as of Dec. 31, a market-adjusted drop of 2.6% from $783.4 billion as of June 30. SSgA reported $732.9 billion in institutional tax-exempt indexed assets as of Dec. 31, a market-adjusted drop of 4.8% from $748.6 billion as of June 30.
Vanguard Group, while posting a market-adjusted increase on its total worldwide indexed assets, saw institutional tax-exempt indexed assets drop a market-adjusted 6.8%, to $192.6 billion as of Dec. 31, from $207.9 billion as of June 30.
Northern Trust and
BNY Mellon both posted market-adjusted gains in institutional tax-exempt indexed assets. Northern Trust reported $173.6 billion as of Dec. 31, a market-adjusted increase of 7.6% over $161.5 billion as of June 30.
BNY Mellon reported $173.9 billion as of Dec. 31, a market-adjusted increase of 6.6% over $163.6 billion as of June 30.
Within the U.S. institutional tax-exempt universe, enhanced-indexed assets fell 3.1%, to $431.9 billion as of Dec. 31, from $445.7 billion as of June 30.
Barclay's, by far the largest manager of enhanced-indexed assets, reported $141.5 billion in institutional tax-exempt enhanced-indexed assets as of Dec. 31, down 8.5% from $154.6 billion reported as of June 30.
Ms. Schioldager attributes the drop to clients' reacting to the market volatility in the third quarter of last year.
"I think that some clients have reduced their enhanced exposure and moved it into [passive] indexing. I wouldn't expect that the volatility we witnessed last year will last forever, of course," said Ms. Schioldager.
Of the top five enhanced managers, only Newark, N.J.-based
Prudential Financial Inc. reported a gain for the six-month period, with $24.2 billion as of Dec. 31, up 10.1% from $22 billion as of June 30.
Total worldwide assets in exchange traded funds were $570.3 billion as of Dec. 31, up 11.2% from $512.9 billion as of June 30.
Total U.S. institutional tax-exempt ETFs reached $13.8 billion as of Dec. 31, up 113.6% from $6.5 billion as of June 30. The change was caused mostly by Barclay's reporting $8.2 billion as of Dec. 31, up from $2.2 billion as of June 30.
Barclay's changed its methodology in reporting ETFs within the institutional tax-exempt universe, according to spokeswoman Christine Hudacko.
