ETFs

Stock ETFs steal the show in September

Best month of sales in more than three years, thanks to a rush into U.S. large-caps

It was a September to remember for the exchange-traded-fund industry as investors, piling into U.S. equities, pumped more than $38 billion into ETFs, the largest single month of inflows in more than three years.

Large-cap ETFs had $18 billion in inflows, with the SPDR S&P 500 ETF Ticker:(SPY) attracting two-thirds of that, just one month after investors withdrew $8 billion, according to Morningstar Inc.

Other “risky” asset classes — such as emerging markets, international stocks, high-yield bonds and small-caps — also drew strong inflows.

The rekindling of stock love was thanks in part to the Federal Reserve’s announcement of QEternity, its latest round of quantitative easing that’s scheduled to last until the unemployment picture gets better or the sun burns out.

The Fed’s QE policies have been designed to push investors to take on more risk, primarily by squashing the expected returns on bonds and savings accounts with a near-zero interest rate policy.

The Fed’s easy monetary policy also led to a rush into gold ETFs as investors looked to hedge against the potential for QE-driven inflation. The SPDR Gold Shares ETF Ticker:(GLD) had inflows of $2 billion.

BlackRock’s iShares, the largest provider of ETFs, had $12 billion in inflows during the month, $7 billion more than rival The Vanguard Group Inc. Both ETF firms, along with The Charles Schwab Corp., have been making headlines in recent weeks, thanks to a tit-for-tat fee-cutting race.

BlackRock Inc. announced that it would be cutting the fees on a select group of ETFs in the fourth quarter, presumably those that compete directly with Vanguard ETFs.

BlackRock hasn’t announced its specific plans, but with its third-quarter conference call scheduled for Oct. 17, it’s likely the fee cuts will be announced around then.

Before Vanguard could respond, Charles Schwab announced that it had cut the fees for its entire lineup of ETFs so they will be the the cheapest in their respective categories. (Schwab’s fee cuts weren’t announced until the end of September, so the $219 million in inflows it had during the month didn’t likely reflect the new fee structure.)

Not to be outdone, Vanguard completed the fee-cutting trifecta last week when it announced it was dropping index provider MSCI Inc. as the underlying index for 22 of its ETFs, so they would have the cheaper products too.