December Marks Record Month For Exchange-Traded Funds

by Phillip Morton, Investors Offshore.com

30 January 2004

According to the latest statistics from the Investment Company Institute released on Tuesday, investors placed a record $12.57 billion of new money into exchange-traded funds during the month of December as alternatives to the traditional mutual fund market were sought.

During December, the value of all ETF shares issued exceeded that of shares redeemed by $12.57 billion, the ICI reported. Meanwhile, equity index ETFs experienced a positive net issuance of $12.18 billion, while bond ETFs experienced a positive net issuance of $391 million. Gross issuance of all ETFs increased in December to $24.42 billion from $6.50 billion in November, and redemptions increased to $11.85 billion from $4.36 billion in November.

Furthermore, the data revealed assets of all exchange-traded funds increased by $18.26 billion to $150.98 billion in December. Equity index ETF assets increased by $17.85 billion to $146.32 billion, while bond index ETF assets increased by $414 million to $4.67 billion. Assets of domestic equity ETFs increased by $15.81 billion, and international equity ETF assets increased by $2.04 billion.

According to fund industry experts, the recent popularity in ETFs is due to a variety of factors, such as the recovery in the equities markets, a higher demand for emerging market funds and the recent scandals in the mutual fund sector which have led many investors to seek a more stable alternative.

An exchange-traded fund is an investment company with shares which trade intraday on stock exchanges at market-determined prices. Investors may buy or sell ETF shares through a broker just as they would the shares of any publicly traded company.

The ICI states that seventy-two ETFs tracked domestic stock indexes in December and held assets of $132.33 billion. Forty-one of these tracked international equity indexes and held assets of $13.98 billion whilst six ETFs tracked bond indexes.

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