The growing popularity of exchange-traded funds is bearing fruit for




The parent company of Standard & Poor's said it saw assets under management in S&P ETFs climb 36% in the third quarter to $66.6 billion.

The ETF is "a tremendous innovation and it's been hugely successful," said Edward Atorino, an analyst at Blaylock & Partners.

Atorino said while McGraw-Hill hasn't broken out how much money it's made from exchange-traded funds, he believes it is "a multimillion-dollar add-on to the financial service part of their business" and is poised to grow further.

Neil Godsey, an analyst at ThinkEquity Partners, noted that the ETF unit contributes just a small amount to the firm's overall revenue but agreed that the unit is "highly profitable" and likely to grow further as ETFs gain even wider acceptance.

Exchange-traded funds have become a popular investment tool over the past few years because they combine the benefits of mutual funds with the flexibility of stocks. For example, the

Spiders ETF

(SPY) - Get Report

enables investors to purchase all of the companies in the Standard & Poor's 500 index in one transaction.

Like stocks, ETFs are traded on an exchange throughout the day and can be bought on margin or even sold short. So far this year, eight new ETFs have been brought to market, according to data from Merrill Lynch, bringing the total number available on U.S. exchanges to 134. That's up from 122 last year.

Besides providing diversity, ETFs also tend to be cheaper than mutual funds. The average expense ratio for an ETF is about 0.46% compared with 0.74% for a mutual fund. But some investors complain that because ETFs are traded more frequently than mutual funds, transaction costs tend to offset the benefits of low expense ratios.

McGraw-Hill has benefited from the ETF movement by licensing to other brokerages the Standard & Poor's name, as well as the intellectual property involved in selecting the components.

Barclays Global Investors, a unit of London-based

Barclays Bank

(BCS) - Get Report

has launched a number of ETFs using the S&P moniker, including the

iShares S&P 100 Index

(OEF) - Get Report

. In the first half of the year, Barclays said, assets in its ETF business grew 27% to ¿28 billion.

Barclays is the largest provider of ETFs in the world, having launched some 82 offerings so far. Earlier this year,

Merrill Lynch


handed over the management of two ETFs -- which track Dow Jones STOXX indices -- to Barclays, saying it wished to focus on its core strengths of brokerage, trading and research. Still, Merrill claims that it remains committed to the ETF market, and the broker still manages 17 ETFs. State Street Global Advisors is also active in this area, having rolled out 21 offerings so far.

On Thursday, McGraw-Hill said net income rose 5%, thanks to a 15% jump in revenue at the firm's financial services segment, which includes the ETF business. "This unit will grow as fast as the company can create new ideas," Atorino said.