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ETFs see strong asset inflows in first half of 2010

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Assets in the US exchange-traded fund industry decreased 0.4 per cent during the first half of 2010 as investors held USD772bn in 897 ETFs as of 30 June, according to State Street Global Advisors.

During the same period, equity markets, as measured by the widely followed S&P 500 Index fell, 8.9 per cent.

"Despite the market’s performance during the first half of 2010, ETF net inflows are ahead of last year’s pace," says Tom Anderson, director of strategy and research for the intermediary business group at State Street Global Advisors. "This growth has been driven by financial professionals, individual investors and institutions, and underscores the way investors build and maintain portfolios in every market cycle using these innovative investment products."

The growth of fixed income ETF assets, which increased 78 per cent in 2009, remained a key trend during the first half of the year. Fixed income ETF assets increased by USD21.2bn or 21 per cent in the six months to 30 June 2010, as the number of bond ETFs available to investors reached 105. This growth illustrates the rapid evolution in the ETF industry in order to meet the needs of investors. In 2006, just six fixed income ETFs existed, representing approximately USD20bn in assets. In the first half of 2010, six of the ten ETFs with the highest net cash flows were bond ETFs.

The growth in bond ETFs was broad based – every category, from corporate bonds to municipal bonds to Treasury Inflation Protected Securities and US Treasuries, saw positive cash flows year-to-date. The most popular fixed income asset classes included short-term bond and US Treasury ETFs, which attracted more than USD7bn and USD5bn in net cash flows, respectively.

Amid concerns about the European debt crisis and the pace of economic recovery in the US, investors continued their search for non-correlated returns, as assets in gold ETFs increased by 30.2 per cent during the first half of the year. SPDR Gold Shares currently leads all ETFs in net cash flows, attracting more than USD7.6bn during the first half of the year. SPDR Gold Shares’ total assets surpassed USD50bn in the second quarter.

With ETFs accounting for more than 60 per cent of all cancelled trades during the market disruption that occurred between 2:40 p.m. and 3:00 p.m. on 6 May 2010, several third parties questioned their role in the market turmoil. Preliminary findings, which are consistent with internal reviews, indicate that the events of 6 May were the result of market structural issues, including the lack of published, uniform standards on erroneous trades, market circuit breakers and speed bumps, and were not caused or exacerbated by ETFs or ETF trading. Investor confidence in ETFs in the weeks that followed the "flash crash" remained strong, as net new inflows into ETFs totalled USD20.2bn in May and June.

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