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Fund Flows for September Hint at Emerging-Market Resurgence

Fund flows continue to show a surge in U.S. equities, and the bull case for domestic stocks seems to be strong based on where investors are putting their money right now.

However, emerging markets could be returning to favor based on ETF trends.

ETF fund flows data for September, according to independent funds research firm Index Universe, was surprisingly encouraging. About $33 billion in new assets flowed into U.S.-listed ETFs last month.

That’s not surprising, given that the S&P 500 was up about 3% in the month of September.

Broadly, the ETF space continues to attract money to all asset classes, with inflows looking to match last year’s asset-gathering record of $188 billion — with about $134 billion in fresh investor dollars attracted to ETF investments so far.

Here are some highlights:

The SPDR S&P 500 ETF (SPY) topped the list of September inflows, with $6.7 billion in new funds. The SPY is up 18% so far in 2013, just like its benchmark index.

Next in line was the iShares MSCI Emerging Markets ETF (EEM) with $4.45 billion in net inflows — a bit of a surprise, considering the 5% decline year-to-date in the fund. But investors seem to be looking overseas once more.

Roughly $4.4 billion was poured into shorter-term U.S. bond ETFs last month, with the iShares 3-7 Year Treasury Bond ETF (IEI) adding $2.8 billion and the ProShares Ultra 7-10 Year Treasury ETF (UST) sucking up $789 million to make the top 10 list of ETF inflows.

On the flip side were longer-dated funds like the iShares iBoxx Investment Grade Corporate Bond ETF (LQD). The LQD fund has 15% of holdings with a maturity of over 25 years, and lost $478 million in assets thanks to redemption. The specter of higher rates is working against longer-duration bond funds like this one.

On the whole, based on September data, it seems like U.S. stocks remain the best investment out of all the asset classes.

Of course, if things continue to sour amid the government shutdown and debt ceiling debate, that could change in October.

Related Reading on Fund Flows and EEM

  • The full report on September fund flows. (Index Universe)
  • Read more about the EEM fund and its holdings. (iShares)
  • Charles Sizemore calls the EEM one of the best ways to invest in emerging markets now. (InvestorPlace.com)

Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

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