A near-$1 trillion ETF rush this year breaks Wall Street records

“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 pick up in flows was especially 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.

“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% 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.

“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 revolutionized the industry.

“The traditional active, buffers and hot sauce types — those are what took ETFs to the next level,” Balchunas said.

At the same time, issuer enthusiasm for launches, especially when it comes to the high-octane leveraged products, has led to an increase in closures. There were over 250 ETFs shuttered in 2023 while this year has seen around 180 closures and counting. And as the economics of launching ETFs gets cheaper, running them — with enough assets at that — has gotten harder in a highly saturated market.

For now, active funds comprise nearly half of the 3,800 ETFs. And while they only make up roughly 10% 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.”