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September was a
disaster for the stock market in general, but not necessarily ETFs.

Exchange-traded funds continued to grow in prominence as
part of the overall U.S. equities market in September, reaching 35% of all
trading, up from the previous record-level of 31%, just reached in August,
according to National Stock Exchange data. The biggest part of that trading
story has been State Street Global Advisors’ SPDRs family of ETFs, which for
the month of September represented approximately 50% of all ETF trading volume,
with close to $1.4 trillion of the nearly $2.8 trillion in ETF trading volume.
Year-to-date, the SPDRs also represent approximately 50% of ETF trading volume
($8.8 trillion), with Barclays Global Investors’ iShares family a
distant-second at $3.75 trillion.

But in a month of massive market turmoil, the news was not
all good for ETFs. The iShares lost ground versus the SPDRs in terms of overall
industry market share, and recent industry darling ProShares, which has
received mounds of press for its rapid rise to above $20 billion in assets, saw
major outflows in September, outflows at a level far surpassing any other ETF
provider.

SPDR portfolios, such as its S&P 500 ETF (AMEX: SPY), saw
much of the short-term market trading action, and its gold portfolio (NYSE:
GLD), has been amassing considerable assets as the equities markets freefall.
However, SSgA has not only led the race in terms of trading volumes, but has
also gained considerable ground on Barclays Global Investors in terms of
overall assets year-to-date. The SSgA ETF family had close to $169.6 billion in
assets at the end of September, up from $144 billion in August, whereas BGI
fell from $295 billion in August to $280 billion.

On a year-over-year basis, there has been an approximate $30
billion asset flip-flop between the two top ETF providers. In September 2007,
BGI had $312 billion and SSGA $133 billion. And in terms of year-to-date cash
flow, SSGA has net cash flow of $38.5 billion, while BGI stands at $22.7
billion. In terms of the worst asset story in September, ProShares was far and
away the ETF industry loser in this respect, down $2.4 billion in cash flow. No
ETF provider even came close to that level of net outflows for the month. The
second-largest outflows were experienced by WisdomTree, which had net outflows
of $119 million.

SPDRs has been buoyed by trading on the SPY, which in
September had close to $20 billion in net cash flow. That is twice its
year-to-date net cash flows of near $10 billion. Investors piling into gold
also helped the SPDRs: GLD had net inflows of close to $3 billion in September.

Barclays suffered mostly in its broad international ETF
portfolio. In fact, among the top ten largest ETF portfolios, only the iShares
MSCI EAFE (NYSE: EFA) had net outflows in September, dropping $285 million. For
the year-to-date period, the EFA has hemorrhaged more than $4 billion in
assets. What’s more, year-to-date among the top-ten largest ETFs, EFA is the
only fund with net outflows of more than $1 billion, and the second-worst asset
story is a distant-second. Unfortunately for iShares, it’s also one of its own:
the iShares Russell 1000 Growth Index Fund (NYSEArca: IWF) has had year-to-date
outflows of $773 million.

Overall, only three of the top-ten ETFs have had net
outflows year-to-date, and all three are iShares, the third being the iShares
MSCI Emerging Markets (NYSEArca: EEM), which lost $129 million for the year. While
BGI still has six of the top 10 industry ETFs in terms of assets, only two of
those ETFs have larger asset bases than they did one year ago-the iShares
Lehman Aggregate Bond Fund (NYSEArca: AGG) and the iShares Russell 2000 Index
Fund (NYSEArca: IWM). And its largest ETFs are off considerably from a year
ago: EFA is down from $48 billion in September 2007 to $32 billion as of the
end of September. A silver lining for EEM is that, while it is
still down year-to-date, it was actually fourth in net inflows in September
among the largest ETFs, with a little more than $3 billion gained.

Notable, but not surprising among the September data is the
poor performance of exchange-traded notes, the sister-product to ETFs, which
have been hard hit by their unsecured debt structure amidst the worsening
credit crisis. While there has been debate as to whether the unsecured-debt
nature of these investments would cause a direct hit on their marketing, the
answer from the September data seems to be a ‘yes.’ The ETN industry had net
outflows of $443 million in September, with Barclays’ iPath family, in
particular, accounting for almost all of that unwanted movement, down $474
million in net inflows for the month. Only three among the 12 ETN providers had
net inflows in September, and at levels that would were nothing to get overly
excited about: PowerShares’ ETNs (co-branded with Deutsche Bank) had $68
million in ETN inflows; UBS’ family has $1 million; and HSBC’s ETNs saw $6
million in inflows. All of the other providers were either flat or negative,
and with nine of the 12 ETN providers having $100 million or less in total
assets, and marketing efforts hamstrung during the credit crisis, the situation
does not look promising in the short-term for these investments.

Among the major exchange-traded product categories, the only
dollar loser in September was currency, which had net outflows of $239
million. It was a minor recovery for
currency ETFs and ETNs, which in August, had larger outflows of $513 million.
The two worst category performers from August found better fortunes in September.
Commodity portfolios, which had outflows of $542 million in August, had net
cash flow of $3.6 billion in September, but that was primarily buoyed by
investors migrating to GLD. The global/international category, which had close
to $2 billion in negative net cash flow in August, had positive cash flow of
$3.88 billion in September, the second-most among categories, but still far
behind domestic equity net cash flow of $47 billion for the month.

Month End September 2008
Data Compiled by National Stock Exchange. Click here to view product list of ETFs/ETNs.

Source: Data provided by the National Stock Exchange

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