Asset Location

ETF Assets Fall in Weak Market

Asset Location

Exchange-traded fund (ETF) assets fell slightly in July, underscoring the current climate of soft equity prices. The slim $40 million decline occurred despite the fact that issued shares exceeded redeemed shares by $2.58 billion, according to Investment Company Institute (ICI).

In June, ETF assets under management actually rose by $2.8 billion while mutual fund assets shed $82.5 billion (or 1.2%) of their value for the month. The July decrease in ETF assets comes amidst a 7-year run of exponential growth in ETF assets.

Off and Running - ETF Assets 1993-2000



According to State Street Global Advisors (SSgA), there was almost $89 billion in assets in 150 ETFs worldwide as of the end of July 2001, although that number has since risen to 157 funds. Three fund managers control a vast majority of ETF
assets - over 94%, as shown in the below table.

ETFs - The Big Three
Fund Manager # of ETFs Total ETF Assets Worldwide Market Share
State Street
26
$38.0 billion
44.43%
Bank of NY
2
$26.7 billion
31.22%
Barclays Global
88
$16.0 billion
18.77%

Source: State Street Global Advisors, data as of 7/31/2001 [/:Author:]
Although Bank of NY manages only two ETFs - MidCap SPDRs (MDY) and Nasdaq-100 Tracking Stock (QQQ) - the popular QQQ or "cubes" were the second-largest ETF as of the end of last week, according to the American Stock Exchange (AMEX). With almost $23 billion in assets, QQQ is second only to the SPDR 500 (SPY), which was the first U.S. ETF launched in 1993 by SSgA. The SPDR 500 fund had $28.7 billion in assets under management as of 8/24/2001.

Currently, there are 90 ETFs trading on AMEX with nearly $75 billion in assets under management, not including HOLDRs.

ETF Series
Total Assets
FORTUNE Index Funds (2)
$60,190,000
iShares Cohen & Steers (1)
$44,415,000
iShares Dow Jones (15)
$825,865,000
iShares Goldman Sachs (4)
$153,372,500
iShares MSCI (22)
$1,883,532,100
iShares Nasdaq Series (1)
$130,949,500
iShares Russell (12)
$4,590,735,893
iShares S&P (11)
$5,077,037,500
Select SPDRs (9)
$2,779,743,270
streetTRACKS Dow Jones Series (5)
$114,773,000
streetTRACKS Morgan Stanley Series (2)
$74,484,500
streetTRACKS Wilshire Series (1) - REIT
$18,823,500
Vanguard Wilshire (1) - Total Market
$126,367,550
Total AMEX ETF Assets
$74,991,725,890

Source: AMEX, data as of 8/24/2001

The two domestically-traded ETFs not listed on AMEX are iShares S&P 100 Index Fund (OEF) and iShares S&P Global 100 Index Fund (IOO). The iShares S&P 100, which trades on Chicago Board Options Exchange, currently has over $210 million in assets. The NYSE-traded iShares S&P Global 100 has over $48 million in assets under management.

ETFs Down Under

State Street Global Advisors today launched two exchange-traded funds tied to broad Australian equity indexes: the streetTRACKS S&P/ASX 50 and the streetTRACKS S&P/ASX 200. Both are trading on the Australian Stock Exchange (ASX) and have an expense ratio of 0.286%.

The S&P/ASX 50 index is comprised of the largest national and multinational securities listed on the Australian equity market, reflecting 76% of the market capitalization of domestic equities listed on the ASX. The S&P/ASX 200 is an even broader benchmark of the largest companies in Australia, and represents about 91% of the market cap of the Australian equity market.

Through the Grapevine

At the end of 2001, index provider Standard & Poor's (S&P) will shift its indexes to the Global Industry Classification System (GICS). As the above table illustrates, there are currently 9 Select SPDRs with over $2.7 billion in assets.

According to SSgA, which manages the Select SPDRs, these sector ETFs were developed through a partnership between Merrill Lynch and State Street Global Advisors in 1998. SSgA and Merrill Lynch developed a sector classification system based on S&P 500 stocks under the guidance of Merrill Lynch's former chief investment strategist.

SSgA says the current asset size and the trading costs that would be incurred for the Select SPDRs to adjust to the new GICS system have ruled out a switch to the new indexes. Therefore, Merrill Lynch will maintain indexes based on the old S&P sector classification methodology to prevent what would otherwise be a huge rebalancing of the Select SPDRs.