“ETFs are going gangbusters,” said Syl Flood, senior product manager at Morningstar. “Inflation-adjusted returns on short-term bond products, especially for US investors, are back to where they were before rates started rising, so it’s back to Tina [there is no alternative] to equities.”
“ETFs seem to have a bit of a halo around them,” Flood added. “People want the ETF version of a strategy, if they can get it. The halo has been earned. ETFs have been great tools for helping investors reach their goals.”
Flows peaked at the end of the year with November and December the two biggest months - totalling $310b in the US alone - after Trump’s re-election sparked hopes in some quarters of further stock market gains.
“Investors’ ‘risk on’ posture was evident throughout the year and was further amplified by the US presidential election in November,” Flood said.
“While markets closed the year with a whimper, ETF flows did not,” said Scott Chronert, global head of ETF research at Citi. “December marked the second-best flow month ever for US-listed ETFs. This was an impressive follow-up to the record-setting flow data we saw in November.”
The rise of ETFs was not purely a US phenomenon, however, with net inflows in the rest of the world hitting $377b, according to Morningstar’s figures, comfortably above the previous peak of $292b in 2021, with every major domicile reporting record numbers.
“South Korea had a blowout year, growing at a torrid 33% rate for the second straight calendar year,” Flood said. Ireland, Europe’s largest ETF hub, grabbed the lion’s share of these non-US flows, however, at some $226b.
The ETF industry also accelerated its transition away from its traditional focus on passive, index-tracking funds in 2024.
Assets held by actively managed ETFs topped $1t for the first time, rising 61% during the year, even as US-domiciled active mutual funds continued to bleed money.
Net flows more than doubled from 2023’s previous record, hitting $339b.
Actively managed ETFs now account for 7.8% of industry assets, up from 6.2% 12 months ago.
For once, JPMorgan’s wildly popular $37.1b Equity Premium Income Fund (JEPI) was eclipsed in the active space, with iShares’ US Equity Factor Rotation Active ETF (DYNF) heading the leaderboard with $11.7b of net inflows, taking its total assets to $13.7b.
Matthew Bartolini, head of SPDR Americas research at SSGA, who only covers US ETF flows, counted record inflows in no less than 19 categories last year, ranging from growth and small cap ETFs to those focused on derivative income and collateralised loan obligations.
In another sense the industry is becoming more concentrated, however. At a time when the US share of global stock market capitalisation has risen to its highest level since the early 1970s, just three ETFs focused on the same index - BlackRock’s iShares Core S&P 500 ETF (IVV), State Street Global Advisors’ SPDR S&P 500 ETF Trust (SPY) and Vanguard’s S&P 500 ETF (VOO) - accounted for $292bn, 19.5% of the global flows, as they took their combined assets to an unprecedented $2.1t.
VOO alone took in an “astounding” $117b, Flood said, a record single-year tally for any ETF, as investors chased the index’s 25% annual gain.
The other winner from this trend was S&P Global Ratings, which “dominated flows among benchmark index providers”, with the $475b of net new money subsumed by ETFs that track its indices taking its market share to 28%, up five percentage points in five years.
Despite this, Invesco outshone BlackRock, Vanguard and SSGA in relative terms, with its assets rising 21% during 2024. The Atlanta house largely piggybacked on enthusiasm for the tech-heavy Nasdaq index, with its QQQ Trust (QQQ) and Nasdaq 100 (QQQM) ETFs proving popular, alongside the S&P 500 Equal Weight ETF (RSP), its own take on the blue-chip index.
There were some losers amid the oceans of winners, however. Some niches were out of favour on the fixed income side, including inflation-protected bond funds and emerging market bond ETFs. The latter was tipped into the red by outflows in December “as fears of a more protectionist US fiscal framework led to a stronger dollar and weighed returns”, Bartolini said.
In equities, defensive sectors suffered $6.7b of outflows from US-listed ETFs, the second-worst figure ever, he added, led by healthcare, which shipped $7.4b.
This pessimism was in complete contrast to the technology sector, where $33b of inflows accounted for 76% of US sector flows in 2024, well above tech’s 37% share of assets, something Bartolini attributed to “broad-based fervour” for artificial intelligence.
- The Financial Times
