Assets held in U.S. exchange-traded funds declined last month because of poor market conditions, not a lack of interest in the product.
These mutual funds, which trade on an exchange like a stock, typically follow an index, but some companies have introduced actively managed products this month in a bid for assets.
Exchange-traded funds have gained popularity in the past few years, because of their low fees and flexible trading. But last month's results proved that not even the most popular products are immune to difficult market conditions.
Total assets held in exchange-traded funds declined 6.58% from a month earlier, to $570 billion as of Jan. 31, according to data compiled by State Street Global Advisors, the Boston investment management arm of State Street Corp.
Assets held in an alternative hedge-like ETF portfolio, leveraged exchange-traded funds, increased 19.2% from December. These short and double-short funds gained popularity among investors seeking to offset losses on their long-term investment vehicles.
Assets rose 13.4% in commodity exchange-traded funds and 8.8% in fixed-income ETF portfolios.
Meanwhile, assets dropped 10.1% in international exchange-traded funds and 10.8% in funds with a market-cap focus, State Street said.
Despite the decline in ETF assets, trading volume increased last month.
January trading volume in exchange-traded funds listed in the United States jumped 236% from a year earlier, to a record $2.23 trillion, according to the National Stock Exchange in Chicago.
Last month exchange-traded funds had $1.24 billion in net cash inflows, versus $29 million of inflows a year earlier, according to data the exchange released last week.
According to State Street, as of the end of last month there were 634 exchange-traded funds being managed by 21 managers. Five funds were launched last month.
Analysts said that they expect a wave of actively traded funds to begin to hit the market this month.
On Feb. 4, Invesco Ltd.'s PowerShares Capital Management became the first company to issue exchange-trade funds whose stocks are picked by a money manager, rather than just following an index.
Barclays PLC's Barclays Global Investors and Bear Stearns Cos. are expected to follow suit with similar products this month.
Jay Baris, a partner in the New York office of the law firm Kramer Levin Naftalis & Frankel LLP, who regularly advises mutual fund companies, said that these actively managed products may fuel even more growth in the "hot ETF sector."
The issue for fund sponsors "is whether they will draw funds from traditional mutual funds and exchange-traded funds, or will they attract new money," Mr. Baris said. "Some sponsors believe the latter."
