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Thursday, November 04, 2004

Bulk of ETF Inflows Go to BGI

Reported by Theresa Sim

While it may be common knowledge that Barclays Global Investors is the biggest exchange-traded fund player out there, what may not be clear is by how much the front runner is gaining.

BGI, with $90.2 billion in ETF assets as of mid-October, already holds approximately 49 percent of the total market, according to a report by Morgan Stanley Equity Research.

The more surprising news is that of the $30.2 billion in assets that have flowed into exchange-traded funds this year, BGI, with a whopping 97 funds, captured the lion's share of the assets -- more than 90 percent.

State Street Global Advisors and the Bank of New York, with 33 percent and 15 percent of total ETF market share, respectively, failed to attract assets in line with current market share this year.

SSgA has garnered $5 billion in ETF assets this year, just 17 percent of total inflows; the BoNY fared worse, losing $4.5 billion in assets.

Although investors put money into all sectors of ETFs, the largest investments were $9.4 billion into international ETFs and $8.2 billion in large-cap domestic ETFs. Meanwhile, the largest outflows were in the QQQ.

BGI, unlike SSgA and BoNY, has trained a laser-like focus on courting retail investors, said Paul Mazzilli, director of ETF research at Morgan Stanley. Although part of their success may be explained by the sheer number of funds, BGI has built up a sales infrastructure to assist financial advisors with the products, said Mazzilli.

The fee landscape on ETFs remains unclear. While BGI cut fees on their international equity ETFs by 25 basis points, and SSgA reduced fees two basis points on their S&P 500 SPDR to 10 basis points, managers of speciality ETFs increased fees.

Mazzilli cited the iShares Dow Jones Select Dividend fund and the iShares Lehman TIPS fund as two specialty funds that are able to charge a premium in price. "They're unique and people wanted them," said Mazzilli.

One wildcard could be Vanguard's introduction of three international index-based VIPERs. The low-cost provider, keeping to its guns, will likely exert fee pressure with the introduction of its lower cost international products. 

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