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The ETF Space Expands
Investors are craving ever more diverse products in the universe of ETFs . By Christopher C . Williams
AFTER RECENTLY TURNING 31 , THE EXCHANGEtraded fund is enjoying vast popularity in its maturity , enjoying record inflows of assets and a seemingly unending flow of appealing , innovative products . Lured by the product ’ s tax efficiency , low cost , liquidity and flexibility , investors poured a whopping $ 118 billion into U . S . listed ETFs in October , bringing year-to-date inflows to $ 812 billion , according to Etf . com . That hefty haul puts the space on track to surpass $ 1 trillion in net inflows for the full year . The net inflows into the space were $ 604 billion in 2023 , which is its third-highest annual intake .
And ETFs ’ attraction is global . Since 2008 , the funds have grown globally at an annualized rate of almost 20 %, reaching $ 11.1 trillion in assets under management at the end of 2023 , according to State Street Global Advisors . The number of ETFs rose to more than 9,000 globally .
Those U . S . funds indexed to the major equity benchmarks posted strong returns , following the record-setting rallies of the
Standard & Poor ’ s 500 and the Dow Jones Industrial Average . U . S . equity ETFs returned 15 % for the year ended November 6 and pulled in $ 441 billion in assets through September 30 , according to Morningstar , which is higher than the $ 196 billion reported for the same period last year . Seeking higher yields in a high-interest-rate environment , investors poured $ 216 billion into fixed-income ETFs , which have returned 3.41 % year to date .
Most analysts expect the two-year stock rally to continue rolling into 2025 amid accelerating corporate earnings and a solid economy . So it ’ s not surprising that they also predict ETFs to continue pushing fund flows above 2024 ’ s level .
“ The issuance of 700 ETFs over the past year is equivalent to the highest level of issuance for mutual funds since 1985 ,” says David Waddell , CEO and chief investment strategist at Waddell & Associates , which manages $ 1.7 billion in mostly active ETFs . “ This is the best year ever for ETFs , and it only gets better from here .”
Investors ’ continuing appetite for options-based buffer ETFs , actively managed ETFs and digital assets such as bitcoins has further animated the exchange-traded fund ecosystem this year . Despite their underperformance , thematic strategies are also considered a sound strategy by many long-term investors amid a strong market rally . All these factors will continue to increase inflows , according to market watchers .
Market analysts say ETF investors should find rewarding opportunities in areas such as defense technology , infrastructure and healthcare going into next year . Other sectors of the ETF world that should perform well into 2025 include REITs , which will benefit from the Federal Reserve ’ s rate-cutting regime .
The Year Of Actively Managed ETFs
Some market watchers regard 2024 as the “ year of active ETFs ,” and for good reason . Inflows into these ETFs grew 30 % this year to $ 783 billion , outpacing the 15 % pace in passive index-tracking funds . Actively managed funds are generally clones of existing mutual funds , though they cost less . Morningstar noted that active bond ETFs pulled in $ 30 billion in the third quarter alone , outpacing the inflows for equity active ETFs . There are 2,149 index-tracking ETFs , says
DECEMBER 2024 | FINANCIAL ADVISOR MAGAZINE | 39