S&P Sees ETFs Gaining More Assets From Mutual Funds

Despite seeing net outflows in November, there is nearly $1.05 trillion in assets under management at U.S. listed ETFs and ETNs, a 5.5% increase from the end of 2010. That's still well below total AUM for mutual funds, but Standard & Poor's Capital IQ believes ETFs will continue swiping assets from their 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. We think that growth in the ETF market adds to pressure on mutual fund companies and other financial service companies to offer ETF products,” S&P analyst Tom Graves said in a note. Currently, the top three ETF issuers – iShares, SSgA and Vanguard – control 84% of U.S. ETF assets. “However, despite the concentration at the top of the asset size rankings, we have seen newer ETF providers make significant in-roads, helped by innovative product, strong distribution capability, or lower costs,” Graves said. Among the 20 largest ETFs are 11 that are viewed by S&P Capital IQ as being in the equity category of which seven are rated overweight by the firm. Those funds are the PowerShares QQQ

, SPDR S&P 500

, Vanguard Total Stock Market ETF

, iShares Russell 1000 Growth Index Fund

, SPDR Dow Jones Industrial Average

, iShares Russell 1000 Value Index Fund

and the iShares S&P 500 Index Fund

. Among equity ETFs, the Vanguard Emerging Markets ETF

had the largest net cash flow ($7.7 billion) in 2011's first 11 months, followed by the iShares MSCI EAFE Index Fund

($4.4 billion), and Market Vectors Agribusiness ETF

at $3.8 billion, S&P said in the note. “Although the overall ETF market has grown rapidly in the U.S., we believe that its total amount of assets is still quite small relative to what it is found in mutual funds,” Graves said.