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U.S. ETF Market Value Topped $1 Trillion Last Year

The combined market value of U.S. exchange-traded funds surpassed $1 trillion for the first time in 2010, while ETFs investing in emerging markets and bonds receiving the most new money, Birinyi Associates Inc. said.

Total market capitalization surged 30 percent from $782 billion at the end of 2009. A total of $111.4 billion in net new money flowed into the funds last year, including $18.9 billion in December, according to a report today from the Westport, Connecticut-based firm. Emerging-market ETFs took in $32.2 billion in 2010, while bond funds had net inflows of $23.7 billion. U.S. sector ETFs were in third place at $13.9 billion.

Funds that buy U.S. stocks saw a surge in inflows during the past two months, while bond ETFs have experienced outflows for the first time since October 2008, Birinyi Associates analysts Kevin Pleines and Rob Leiphart wrote in today’s report. The Standard & Poor’s 500 Index, the benchmark measure of American equities, posted the biggest December advance since 1991 and the largest September-and-October rally in 12 years.

“It’s confirmation of the trends we’ve been seeing recently, pulling proceeds out of the fixed-income arena and putting them into equities,” said Jason Cooper, who oversees $2.5 billion in South Bend, Indiana at 1st Source Investment Advisors. “Yields are just not relatively attractive on the fixed-income side, versus holding a good basket of high-quality names that are paying double the yield when it comes to the dividends.”

Emerging-Market Funds

Emerging-market funds posted net inflows every month except February, receiving a total of $32.2 billion, according to Birinyi. U.S. equity ETFs saw a $6.9 billion gain for the entire year, including September’s $15 billion.

“ETFs give you the ability to have quick access to those emerging-market countries,” Cooper said. “ETFs can get you diversification geographically, as well as the basket approach you may want to try with these countries. The cost is also certainly attractive.”

Managers use ETFs to speculate on stock, bond and commodity markets, or to reduce the risks of investing in those assets. ETFs are listed on stock exchanges, allowing investors to trade them whenever markets are open.

To contact the reporter on this story: Inyoung Hwang at ihwang7@bloomberg.net.

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net.

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