Category Archives: Investing

August ETF flows


Archduke Francis and wife, shortly before his assassination, one precipitating cause of the The First World War, which began in August, 1914

Investors added $15 billion into US exchange-traded funds in August, raising total assets to $1.912 trillion.

The bulk of investor dollars flowed into US fixed income and international equity.

Alternative, commodity, currency, and leveraged exchange-traded funds all experienced investor redemption during the month (see table 1. below).

Among the top three US exchange-traded fund providers, Blackrock iShares garnered $10,734.11B of investor inflow; Vanguard added $5,237.96B: while State Street experienced an outflow of $-5,111.34 B, led by investor redemption from the SPDR 500 ETF.

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iShares to close target retirement ETFs


Recently, the Board of Trustees of the iShares Trust voted to close and liquidate the Fund[s]. Trading will be halted prior to market open on October 15, 2014. Proceeds of the liquidation are currently scheduled to be sent to shareholders on or around October 21, 2014.

Blackrock iShares has announced the imminent closing and liquidation of the firm’s target retirement exchange-traded funds. Trading is to be halted  on October 15, 2014 (see the quote to the right.)

The series of iShares target retirement funds hold approximately $300 million dollars.

The funds are indexed fund of funds portfolios, tracking S&P benchmark indexes,  with annual expense ratios ranging from 0.28% to 0.31%.

The closing funds, including ticker and assets under management, are listed below.

Fund Ticker Assets (millions)
iShares Target Date 2010 ETF TZD 9.1
iShares Target Date 2015 ETF TZE 31.1
iShares Target Date 2020 ETF TZG 56.9
iShares Target Date 2025 ETF TZI 44.1
iShares Target Date 2030 ETF TZL 43.3
iShares Target Date 2035 ETF TZO 35.2
iShares Target Date 2040 ETF TZV 53.9
iShares Target Date 2045 ETF TZW 8.8
iShares Target Date 2050 ETF TZY 14.2
iShares Target Date Retirement Income ETF TGR 13.6

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Vanguard surpasses SSgA for the first time

On Friday, August 8, 2014, Vanguard edged out SSgA as the second-place exchange-traded funds provider in the U.S.

As of August 8, assets under management for the big three US ETF issuers, along with Friday’s net asset flows:

Issuer AUM ($, mm) Net Flows ($, mm) % of AUM
BlackRock 706,588.88 459.64 0.07%
Vanguard 384,565.97 305.72 0.08%
SSgA 384,004.90 -2,612.08 -0.68%

In the near term the two firms are in a virtual dead heat in the asset gathering race. As investment flows wax and wane they are likely to waffle back and forth between the two and three slots in the assets under management tables.

However, Vanguard has been recently leading in asset gathering ( 2013, 2014) so analysts expect that solidifying the number two ranking is inevitable.

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July ETF flows

July 4, Washington D.C.

July 4, Washington D.C.

Investors added $18.175 billion into US exchange-traded funds for the month of July.  Dollars flowed most prominently  into US stocks, international stocks, and commodities.

U.S fixed-income and currency exchange-traded funds experienced investor outflows during the month (see Table 1 below).

The four largest ETF providers gathered the following ETF investment flows in July:  Vanguard ($5.43B), Blackrock iShares ($4.47B), State Street ($3.12B) and  Powershares (  $1.77B).

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June mutual fund flows

Solitude   Posted to flickr June 30, 2012e

June beachscape, Outer Banks, N.C. – image John Harding

The Investment Company Institute (ICI) has issued its report on June 2014 mutual fund flows. The ICI divides the long-term (non money market fund) mutual fund universe into five categories:

  • Domestic equity (US stocks)
  • World equity (International stocks)
  • Hybrid (balanced funds)
  • Taxable bonds
  • Municipal bonds

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Vanguard mutual fund brokerage commission expense in 2013


Floor of New York Stock Exchange

Stock market mutual funds incur the costs of making transactions in the market place.  These costs are in addition to the costs of managing the fund.

Transaction costs include brokerage commission expense, bid and ask spreads, and market impact costs.

Brokerage commission costs are reported in a mutual fund’s statement of additional information, which is a separate part of a fund’s annual prospectus.

If we take a fund’s commission expense and divide it into a fund’s average net assets (reported in each fund’s NSAR filing with the SEC EDGAR database) we can calculate a “commission ratio” percentage analogous to a fund’s expense ratio.

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Vanguard index fund security lending in 2013

In finance, securities lending involves a transfer of securities (such as stock shares or bonds) to a borrower, who gives the lender collateral (which can include shares, bonds or cash). The borrower pays the lender a fee each month for the loan and is contractually obliged to return the securities on demand.

In the U.S. the principal parties involved in security lending are the lender, the borrower, and in most instances, the agent lender.

Securities_LendingLenders are typically large-scale investors, such as pension funds, insurance companies, collective investment schemes and sovereign wealth funds. These investors would normally employ an agent (such as a custodian) to arrange, manage and report on the lending activity.

Borrowers are typically large financial institutions, such as investment banks, market makers and broker dealers. Hedge funds are among the largest borrowers of securities, but they will borrow through investment banks or broker dealers rather than directly from the investor.

Index mutual fund managers  often  use security lending income as a  means of offsetting portfolio management costs.  Firms usually pass along all, or a portion of  security lending income to the fund portfolio.

Dimensional Fund Advisors, T. Rowe Price, and Vanguard pass along 100% of after-cost security lending income to the mutual fund/ETF investor.  (Vanguard states that the average cost of the firm’s security lending program represents 5% of the program’s income; the industry average cost is 50% of income). 

State Street passes along 85% of security lending income for eligible portfolios. Note that funds organized as grantor trusts (e.g. the SPDR S&P 500 and SPDR S&P Mid Cap 400 ETF) are forbidden from loaning securities. Blackrock iShares pass along 70% to 75% of security lending income to its iShares ETF investors.

Vanguard security lending

The tables below provide  examples of expense offsets from the 2013 fiscal year results of Vanguard index fund security lending programs. 

Vanguard lends stock investments. The firm does not lend out fixed income securities.

Note that Vanguard runs its own security lending program, bypassing agent lenders. The firm elects to deal directly with borrowers, loans out illiquid stocks to reap premiums, and runs its own collateral investment program using its Market Liquidity Fund. Vanguard allocates 100% of security lending income to its funds.

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