Total assets in the U.S. exchange-traded funds fell 5.8%, or $45 billion in January from a month earlier, according to monthly data from State Street Corp.

That brought ETF assets in the U.S. down to $730 billion from the coveted $1 trillion milestone they hit in December. The drop was mostly in line with the market’s disappointing performance in January, as the S&P 500 fell 3.6% and the MSCI EAFE Index lost 4.4%.

Assets in fixed-income ETFs, however, rose 3.2%, or $3.2 billion, last month, continuing the trend that began last year in the sector. Fixed income, most notably TIPS, or Treasury Inflation-Protected Securities, and one- to three-year bonds, led the asset surge into ETFs last year, taking in more than $200 billion through the first 11 months of 2009.

In fact, 2009 was an all-around great year for ETFs. Global ETF assets rose a whopping 45.2% last year, while U.S. ETF assets grew a substantial 41.9%, according to data from BlackRock. In November, ETFs took in $50.3 billion, pushing assets to $739 billion, the highest ever month-end level up to that point.

At the end of last year, however, Dan Dolan, director of wealth management strategies at State Street's Select Sector SPDRs, indicated that the trend of retirees and pre-retirees looking to fixed-income funds like bond ETFs to replace some of the income they lost during the financial meltdown could come to a screeching halt this year.

“The need for income is thriving,” he said. “It will be interesting to see, as yields dry up, what investors will add to their portfolios to find that income somewhere else.”

Dolan predicted investors will turn to high-yielding equities in 2010. But right now, fixed income is still leading the pack.

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