S&P Sees More Pilfering of Mutual Fund Assets by ETFs

This probably won't come as a surprise to fans of exchange-traded products, but the folks at Standard & Poor's Capital IQ are forecasting that the next year will see ETFs continue swiping assets from their more costly mutual fund rivals. “In the year ahead, we expect that ETFs will continue to gain market share from mutual funds and individual securities, reflecting greater investor awareness of ETFs as an investment choice, and appreciation of prospective advantages that ETFs offer,” S&P analyst Tom Graves said in a note today. “We think that growth in the ETF market adds to pressure on mutual fund companies and other financial service companies to offer ETF products.” The view from S&P comes just a few days after the National Stock Exchange monthly ETF data showed investors poured $23.7 billion into exchange-traded products last month. Year-to-date, investors have put $99.5 billion into ETFs and ETNs, the data show. Still, the ETF market remains dominated by the largest funds and the largest issuers. That means iShares, State Street Global Advisors and Vanguard. As of October 31, 2011, the 10 largest ETFs accounted for about 37% of total ETF assets, according to S&P. iShares, SSgA and Vanguard control 84% of all U.S. ETF assets. Among the 10 top-ranked large equity ETFs, all of them fared well in S&P's Cost Factors category, which includes such analytics as gross expense ratio and bid/ask spread. Seven of these ETFs had a relatively favorable gross expense ratio of 0.20% or less. Also, four of the 10 ETFs received an Overweight ranking in the Risk Considerations category, where S&P utilizes such holdings-related metrics as S&P Quality Ranking, S&P Credit Rating, plus an assessment of the ETF's standard deviation, according to S&P's note. Regarding large equity-based funds, S&P has “overweight” ratings on the following ETFs: Vanguard MSCI Emerging Markets ETF

, SPDR S&P 500

, SPDR Dow Jones

, PowerShares QQQ

, Vanguard Total Stock Market Index Fund

, iShares S&P 500 Index Fund

, iShares Russell 2000 Index Fund

, iShares Russell 1000 Value Index Fund

, iShares Russell 1000 Growth Index Fund

and the iShares MSCI EAFE Index Fund

. Year-to-date, Vanguard has led the field in terms of attracting new ETF assets with $30.4 billion, easily outpacing both iShares and SSgA.