Total assets in exchange-traded funds fell 5.8%, or $45 billion, in January from a month earlier, according to monthly data from State Street.
That brought ETF assets in the U.S. down to $730 billion from the $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, in January, continuing the trend that began last year. Fixed income, most notably 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.
At the end of last year, however, 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 turned toward equity ETFs for potentially higher returns- 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.
"It will be interesting to see, as yields dry up, what investors will add to their portfolios to find that income somewhere else," said Dan Dolan, director of wealth management strategies at State Street's Select Sector SPDRs. Dolan predicted investors would turn to high-yielding equities in 2010. But right now, fixed income is still leading the pack.