Euro Crisis Raises Bond ETF Doubts at the WSJ
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Monday, January 09, 2012

Euro Crisis Raises Bond ETF Doubts at the WSJ

Mutual fund buyers poured out of actively managed mutual funds and into index ETF products at just the wrong time. Or so posits Tom Lauricella in the Wall Street Journal. The report covers 2011 mutual fund flows, noting the well-reported trend of ETFs and bond products replacing active U.S. equity funds in shareholders hearts.

Yet, the report points out that events underscored a failure of indexing. Writes Lauricella:
But even as bond investors piled into ETFs, the bond markets in Europe were providing an example of how indexing can fail to provide needed flexibility when there is a significant change in the investing world.

A specific case highlighting this "failure" of indexing was provided by iShares S&P/Citigroup International Treasury Bond Fund. The $275 million ETF had roughly a quarter of its assets invested in PIIGS when the crisis unfolded in September.

He cites Morningstar's figure of "nearly $100 billion" flowing out from actively managed stock funds and $45 "shoveled into" U.S.- and international-stock ETFs.

Morningstar's report that taxable-bond ETFs saw $38 billion of net flows through November also makes the article. That figure, by the way, accounted for 30 percent of all flows into bond funds, more than double the 12 percent share bond ETFs captured in 2010.

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