ETFs see best inflows of 2011

ETFOctober was the best month so far this year for exchange-traded funds (ETFs) with $26.5 billion (€19 billion) of inflows, according to BlackRock's monthly report.

Equity funds led the charge with $21.3 billion of inflows, reversing the trend of the previous two months when money flowed out of these products. Equity products now account for 70% of assets managed by ETFs while fixed income products account for 16% and commodities 12%.

“While flows into exchange-traded products suggested a preference for safe haven assets in early October, this was overtaken by a decisive move to equity assets and high yield bonds later in the month,” said Kevin Feldman, managing director at BlackRock. “Flows during October demonstrate that the risk-on trade has definitely resumed.”

BlackRock said European investors are showing a preference for physically backed ETFs over synthetic ones, which replicate the returns of a benchmark using derivatives. This may indicate weakening confidence in Europe's banks and increased concerns about counterparty risk.

BlackRock's ETF subsidiary, iShares, is the dominant global player with a market share of nearly 40%. But State Street Global Advisors, which is the second-biggest player with a 17% market share, has the two biggest ETFs. These are the S&P 500 and gold ETFs run by State Street's SPDR brand.

The long-term growth of ETF assets has slowed this year, most likely because of volatility in the markets. But October's total of nearly $1.4 trillion under management is still ahead of the 2010 total by $750 billion.

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