Tactical use of ETFs to fuel asset growth

Tactical use of ETFs by investors is expected to influence and fuel ETF asset flows through 2010, according to State Street Global Advisors (SSgA).

In its 2009 Exchange Traded Funds Year-End Review and 2010 Outlook report, SSgA says 2009 marked the third consecutive year in which ETF net inflows exceeded $100bn, as investors increased their exposure to ETFs in order to provide efficient exposure to a range of asset classes.

SSgA director of strategy and research for the Intermediary Business Group Tom Anderson says: "While the pace of new product launches slowed in 2009, the trajectory of ETF asset growth underscores how these innovative investment vehicles are changing the way investors and advisors construct portfolios."

The report says assets in emerging market ETFs grew 147% last year, far exceeding market returns despite emerging market stocks being hit hard in 2007.

Investors also turned to asset classes which offered more appealing investment opportunities, especially fixed income. SSgA says US Treasury Inflation Protected Securities (TIPS) ETF assets surged by 118% last year.

The report shows corporate bonds were also popular in 2009, as yield spreads over US Treasuries widened to all-time highs. Assets in investment grade corporate and credit ETFs increased by $11bn, or 134%, while assets in high yield bond ETFs grew more than $5bn, or 206%.

The report highlights traditional mutual fund providers are entering the ETF space, exemplified by inaugural launches from Pimco and Charles Schwab last year.

The firm also expects the continued expansion of fixed income ETF products and assets, and the emergence of more actively managed ETFs.