Exchange-traded funds continued to grow in prominence as part of the overall U.S. equities market in September, reaching 35% of all trading, up from the previous record level of 31%, just reached in August, according to National Stock Exchange data.

The biggest part of that trading story has been State Street Global Advisors' SPDRs family of ETFs, which for the month of September represented approximately 50% of all ETF trading volume, with close to $1.4 trillion of the nearly $2.8 trillion in ETF trading volume.

Year-to-date, the SPDRs also represent approximately 50% of ETF trading volume ($8.8 trillion), with Barclays Global Investors' iShares family a distant second at $3.75 trillion.

But in a month of massive market turmoil, the news was not all good for ETFs. The iShares lost ground versus the SPDRs in terms of overall industry market share, and recent industry darling ProShares, which has received mounds of press for its rapid rise to above $20 billion in assets, saw major outflows in September, outflows at a level far surpassing any other ETF provider.

SPDR portfolios, such as its S&P 500 ETF (AMEX: SPY), saw much of the short-term market trading action, and its gold portfolio (NYSEArca: GLD), has been amassing considerable assets as the equities markets free fall.

However, SSgA has not only led the race in terms of trading volumes, but has also gained considerable ground on Barclays Global Investors in terms of overall assets year-to-date. The SSgA ETF family had close to $169.6 billion in assets at the end of September, up from $144 billion in August, whereas BGI fell from $295 billion in August to $280 billion.

Asset Flip-flop

On a year-over-year basis, there has been an approximate $30 billion asset flip-flop between the two top ETF providers. In September 2007, BGI had $312 billion and SSGA $133 billion. And in terms of year-to-date cash flow, SSGA has net cash flow of $38.5 billion, while BGI stands at $22.7 billion.

In terms of the worst asset story in September, ProShares was far and away the ETF industry loser in this respect, down $2.4 billion in cash flow. No ETF provider even came close to that level of net outflows for the month. The second-largest outflows were experienced by WisdomTree, which had net outflows of $119 million.

SPDRs has been buoyed by trading on the SPY, which in September had close to $20 billion in net cash flow. That is twice its year-to-date net cash flows of near $10 billion. Investors piling into gold also helped the SPDRs: GLD had net inflows of close to $3 billion in September.

Barclays suffered mostly in its broad international ETF portfolio. In fact, among the top 10 largest ETF portfolios, only the iShares MSCI EAFE (NYSEArca: EFA) had net outflows in September, dropping $285 million. For the year-to-date period, the EFA has hemorrhaged more than $4 billion in assets.

What's more, year-to-date among the top 10 largest ETFs, EFA is the only fund with net outflows of more than $1 billion, and the second-worst asset story is a distant-second. Unfortunately for iShares, it's also one of its own: The iShares Russell 1000 Growth Index Fund (NYSEArca: IWF) has had year-to-date outflows of $773 million.

Overall, only three of the top 10 ETFs have had net outflows year-to-date, and all three are iShares, the third being the iShares MSCI Emerging Markets (NYSEArca: EEM), which lost $129 million for the year.

While BGI still has six of the top 10 industry ETFs in terms of assets, only two of those ETFs have larger asset bases than they did one year ago—the iShares Lehman Aggregate Bond Fund (NYSEArca: AGG) and the iShares Russell 2000 Index Fund (NYSEArca: IWM). And its largest ETFs are off considerably from a year ago: EFA is down from $48 billion in September 2007 to $32 billion as of the end of September. A silver lining for EEM is that, while it is still down year-to-date, it was actually fourth in net inflows in September among the largest ETFs, with a little more than $3 billion gained.

Notable, but not surprising among the September data, is the poor performance of exchange-traded notes, the sister-product to ETFs, which have been hard hit by their unsecured debt structure amidst the worsening credit crisis. While there has been debate as to whether the unsecured-debt nature of these investments would cause a direct hit on their marketing, the answer from the September data seems to be a "yes." The ETN industry had net outflows of $443 million in September, with Barclays' iPath family, in particular, accounting for almost all of that unwanted movement, down $474 million in net inflows for the month.

Only three among the 12 ETN providers had net inflows in September, and at levels that were nothing to get overly excited about: PowerShares' ETNs (co-branded with Deutsche Bank) had $68 million in ETN inflows; UBS' family has $1 million; and HSBC's ETNs saw $6 million in inflows. All of the other providers were either flat or negative, and with nine of the 12 ETN providers having $100 million or less in total assets, and marketing efforts hamstrung during the credit crisis, the situation does not look promising in the short term for these investments.

Among the major exchange-traded product categories, the only dollar loser in September was currency, which had net outflows of $239 million. It was a minor recovery for currency ETFs and ETNs, which in August, had larger outflows of $513 million. The two worst category performers from August found better fortunes in September.

Commodity portfolios, which had outflows of $542 million in August, had net cash flow of $3.6 billion in September, but that was primarily buoyed by investors migrating to GLD. The global/international category, which had close to $2 billion in negative net cash flow in August, had positive cash flow of $3.88 billion in September, the second-most among categories, but still far behind domestic equity net cash flow of $47 billion for the month.

Month-End September 2008

Data Compiled by National Stock Exchange. Click here to view product list of ETFs/ETNs.