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January ETFs Report Card

ETF investors shifted in new directions in a down month for ETFs.
Author:

NEW YORK (

TheStreet

) -- ETF investors stuck with fixed income in January, but they also headed in new directions, thanks to fund launches and pockets of outperformance in an otherwise down month for equity ETFs.

Overall, $19.2 billion flowed out of long-equity ETFs, the bulk of which came from the $16 billion that left

SPDR S&P 500

(SPY) - Get Report

(a reversal of the previous month's inflows). Investors put $2.9 billion into long fixed-income ETFs, with more than a third of which went into one fund.

ETFS Platinum

(PPLT) - Get Report

made an auspicious debut on Jan. 8 and attracted over $350 million by the end of the month.

Established ETFs, such as

iShares Japan

(EWJ) - Get Report

, attracted significantly more capital than in previous months. Still, the top two ETFs for January, in terms of net inflows, were

iShares Barclays TIPS

(TIP) - Get Report

and

Vanguard MSCI Emerging Markets

(VWO) - Get Report

, two of the consistently popular ETFs of 2009.

Inflation concerns remain paramount in the minds of investors and net inflows into

iShares Barclays TIPS

(TIP) - Get Report

were $1.174 billion, the largest single inflow for the month. The fund more than doubled in size between January 2009 and January 2010 and the bulk of that growth came via inflows since TIP gained only 9% over the one-year period. TIP was the sixth largest ETF at the end of January with nearly $20 billion in assets.

Behind TIP was

Vanguard MSCI Emerging Markets

(VWO) - Get Report

, with $982 million in net inflows. Emerging market ETFs were not a popular destination in January though, thanks to the big corrections in China and Brazil. VWO was fueled instead by head-to-head competition with

iShares MSCI Emerging Markets

(EEM) - Get Report

, which saw the third largest net outflows, at $1.224 billion.

Since January 2009, VWO has quadrupled, from less than $5 billion in assets under management (AUM) to over $19 billion. Over the same period, EEM almost doubled, from $18 billion AUM to $35.5 billion.

ETFS Platinum also may have attracted capital from a competitor, the

SPDR Gold Shares

(GLD) - Get Report

. PPLT saw $356 million flow into the fund, and $169 million flowed into

ETFS Palladium

(PALL) - Get Report

, also launched last month. Offsetting the more than $500 million flowing into these two ETFs was $776 million flowing out of GLD. Gold prices tumbled in January, but not as much as platinum prices. Some of the flows out of GLD likely went into PPLT and PALL, the first physical platinum and palladium funds offered to U.S. investors, as investors diversified some of their precious metal investments.

iShares MSCI Japan saw $232 million flow into its coffers last month. Although it was a small inflow of $23 million in December, it saw triple-digit outflows in the three previous months and from January 2009 to January 2010, AUM declined very slightly, from $5.15 billion to $5.11 billion.

The inflows came during a month when No. 1 holding

Toyota

(TM) - Get Report

initiated a major recall, but investors were focused on the relatively strong performance from the Japanese stock market and the Japanese yen. EWJ bucked the trend in January and finished with a 1% gain. This may be a one-month anomaly, but it is worth paying attention to.

Other notable inflows were in

Vanguard Barclays Total Bond

TheStreet Recommends

(BND) - Get Report

,

iPath S&P 500 VIX Short Term Futures ETN

(VXX) - Get Report

,

Vanguard Mergent Dividend

(VIG) - Get Report

,

iShares Barclays 1-3 Year Credit

(CSJ)

and

Vanguard Morgan Stanley REIT

(VNQ) - Get Report

.

Most ETF investors were looking for safety from a declining stock market last month and went with bonds, but some looked to profit from it, with VXX.

On the other side, investors exited

iShares FTSE/Xinhua China 25

(FXI) - Get Report

to the tune of $1.270 billion. China tightened monetary policy last month and the government ordered some banks to halt lending in order to stop a lending spree. FXI is heavily weighted in banks that are the target of the government's policies and performance suffered.

By contrast,

Claymore/AlphaShares China Small Cap

(HAO) - Get Report

, which has a small financial allocation, enjoyed $25 million in net inflows and outperformed FXI.

Another outflow leader was

PowerShares DB U.S. Dollar Index Bullish Fund

(UUP) - Get Report

, where $1.031 billion exited the fund in January. That reversed much of the $1.766 billion in inflows from the previous month, which came at a time of U.S. dollar strength.

The difference in January was that the U.S. dollar was not so much strong as the euro was weak, and the currency comprises close to 60% of the U.S. dollar index. Despite dollar bulls exiting the ETF, UUP returned 1.6% for the month.

With February starting off the way January ended, investors are making many of the same decisions with their money. However, even if market performance reverses, the trend into fixed income, especially TIPS, and platinum and palladium, will likely continue.

The most interesting fund to watch though may be iShares MSCI Japan, since investors' interest in Japan is very low. If sentiment has started to turn favorable on the country, that would be big news.

January Inflow Leaders

iShares Barclays TIPS, $1.174 billion

Vanguard MSCI Emerging Markets, $982 million

Vanguard Barclays Total Bond, $418 million

iPath S&P 500 VIX Short Term Futures ETN, $386 million

ETFS Platinum, $356 million.

January Outflow Leaders

PowerShares DB US Dollar Index Bullish, -$1.031 billion

PowerShares QQQ, -$1.206 billion

iShares MSCI-Emerging Mkts, -$1.224 billion

iShares FTSE/XINHUA China 25, -$1.270 billion

SPDR S&P 500, -$16.018 billion

-- Written by Don Dion in Williamstown, Mass.

At the time of publication, Dion owned iShares Barclays TIPS and ETFS Platinum.

Don Dion is president and founder of

Dion Money Management

, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.