Notes from the Capital Link Conference

• Morgan Stanley’s Dominic Maister, winner of the 2009 award for contribution to the ETF sector award and head of the Best ETF Research Team, moderated the ETF Roundtable. Maister says ETF assets grew 47% in 2009. Of that total asset growth, 50%, or $120 million, comes from net cash inflows. The other half from increased valuations. Equity ETFs see $30 billion in net inflows, while equity mutual funds see $9 billion in net outflow.
• State Street Global Advisors’ director of ETF global capital markets, says the main driver of ETF growth the last few years was fixed income ETFs. From six fixed income ETFs in 2006 to 92 today. This has led to significant growth of full-service dealers using ETFs in portfolio models. Only 14% of institutional investors use ETFs, but they make up 50% of the assets. This would appear to mean there’s lot of growth potential left among institutions. Quigg said, “Institutions see ETFs as an investment tool, not a choice, and use ETFs to solve problems.” He said this usage will increase over the next 5 to 10 years.
• Gabriel Hammond, the chairman and founder of Alerian, the index provider for the J.P. Morgan Alerian MLP Index ETN (AMJ). MLP stands for master limited partnerships, a company with a different tax structure than a public corporation. These often focus on the energy and oil sector. He says the big advantage ETFs have over closed-end funds is their liquidity and transparency. Probably most important, investors could pay up to 200 basis points more than an ETF to own the top ten holdings in the MLP space in an closed-end fund.

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