Wall Street sets new records with nearly $1 trillion ETF surge this year

This particular year of 2024, was already a historical year for exchange-traded funds (ETFs). Still, as of November 15, the ETF universe can add another crucial feather to its cap and that is the biggest annual inflows on record, according to a detailed report by Bloomberg.

US ETF's net inflows past $913 billion

The never-ending desire for an investor-friendly environment, an all-time high number of product launches, and a historic bull market fueled by Donald Trump’s presidential victory have all cumulatively helped push the total net inflows into US ETFs past $913 billion, according to data compiled by Bloomberg Intelligence. That beats 2021’s record registered in that year with still the December 2024 month to go, the Bloomberg report added.

More signs of stock market optimism can be seen as the total US ETF assets touched the $10 trillion mark for the first time in the month of September 2024. Further, more than 600 new products have been introduced since the start of the year and nearly all ETFs in the US have registered positive 12-month returns, up from 8 per cent just two years ago, according to Bloomberg Intelligence (BI) data. 

These achievements are evidence of the appeal of easy-to-trade and low-cost vehicles to traders of all levels. Investors are leaving more staid mutual funds in favour of ETFs to make the most of their more liquid, tax-friendly structures.

“In a year where stocks, bonds and commodities are all up, ETFs have record inflows while mutual funds are in net outflows,” said Matt Bartolini, head of Americas ETF Research at State Street Global Advisors. “Some investors are fine-tuning their asset allocations with low-cost building blocks while others are making more tactical portfolio changes, evidenced by the sizeable post-election flows" the Bloomberg report explained further. 

Escalation of ETF inflows was more pronounced in the second half of 2024

The escalation of inflows was more pronounced in the second half of the year when Trump’s decisive White House win unleashed investor euphoria. ETFs took in a record $53 billion in the three days after the election, outpacing the $16 billion of inflows that followed President Joe Biden’s victory four years ago, BI compiled data show. This might have happened as markets like clarity and dislike uncertainty.

“It seems that more people than not believe that what Trump will do for the economy is better than what the Democrats would have done,” Joe Ferrara, investment strategist at Gateway Investment Advisers, said in an interview. “That’s where the exuberance comes from.”

The rush into ETFs started well before Trump’s win though, with issuers offering up ever-more complex strategies in the wrapper. This year, actively managed funds and those that use derivatives or leverage to juice returns accounted for over 80 per cent of the new launches as issuers seek to capture market share in a highly saturated space. Adding to the frenzy of new products were the first cryptocurrency ETFs holding Bitcoin directly, which saw record-breaking demand, added the Bloomberg report further.

“Everybody and anybody is now in the ETF space,” said Eric Balchunas, senior ETF analyst at Bloomberg Intelligence. And while the main appeal of ETFs is rock-bottom fees and liquidity, he said it’s the new breed of products that have changed the industry.

Further, for now, active funds comprise nearly half of the 3,800 ETFs. Now they only make up roughly 10 per cent of the assets, projections by BI show that their share and count will increase beyond passive or indexed ETFs. “ETFs continue to be the preferred vehicle providing investors a way to express views in nearly every asset class,” said Jillian DelSignore, global head of investor distribution strategy at Nasdaq Global Index Group. “ETFs have democratized access to markets.”

Market participants and global investors will closely follow these developments on Wall Street and then make informed investment decisions based on the same.