Markets have weathered a flurry of catalysts in 2024. These include a surprisingly strong U.S. economy, global election super-cycle, major pivot in rate policy, and continued geopolitical unrest. But ETFs continue to emerge as the vehicle of choice whenever and wherever investors decide to place their bets. The ETF market has swelled to $10 trillion, as the industry’s endless innovative strides rise to satisfy various investor palates. Now, the race to $1 trillion in annual net inflows proceeds apace.
There are the more obvious and oft-celebrated success stories from index giants like Vanguard, BlackRock and State Street Global Advisors – not to mention, thunderous inflows into crypto ETFs. However, there have been plenty of more under-the-radar winners this year. Below are a few strategies that have brought in billions of dollars in new money in 2024.
Getting More Active
It’s been a breakout year for active strategies. Actively managed ETFs make up roughly a third of all ETF inflows despite still being just 7% of the total ETF market. Capital Group is a latecomer to the ETF game. However, the LA-based firm is among the world’s oldest and largest investment management firms, having managed mutual funds since 1931.
And if flows are any indication, they appear to have gotten the active equity ETF formula down pat. Out of 21 U.S.-listed ETFs, 10 have seen north of $1 billion in inflows this year. The Capital Group Dividend Value ETF (CGDV ) has been the standout performer, with more than $4 billion in new money. But the Capital Group Dividend Growers ETF (CGDG ) has hauled in $1.1 billion in flows – accounting for more than 80% of the fund’s total assets. Both funds take a unique multi-management approach that have led Capital Group’s total ETF assets to cross the $40 billion threshold in September.
Income Strategies
Investors have been starved for income, paving the way for enhanced income strategies to take flight in 2024. Advisors have grown more comfortable with and curious about options-based strategies to replace or complement traditional equity offerings. To that end, NEOS has seen success with its S&P 500 High Income ETF (SPYI ), which uses covered calls to provide strong consistent income in a tax-efficient manner. Options have been the company’s bread and butter. SPYI has managed to achieve a consistent 12% yield and relative outperformance since day one. NEOS also launched the Nasdaq High Income ETF (QQQI ), which just crossed the $500 million mark a month ago after launching in late January.
Beyond equities, active fixed income ETFs have stormed the scene this year. Senior loans, CLOs and other floating-rate strategies have caught fire ever since the first rate hike back in 2022. They have remained resilient even as the Federal Reserve enters full-on rate-cut mode. Morgan Stanley launched the Eaton Vance Floating-Rate ETF (EVLN ) in early February, and in fewer than eight months, the fund has already crossed the $1 billion mark in total assets. Its diversified approach to a broad array of floating-rate pockets of credit have allowed investors to chase yield without taking on too much risk. As of Nov. 19, EVLN offers a 30-day SEC yield of 7.62%.
Smart Beta and Free Cash Flow in 2024
Investors have also shown strong interest in smart-beta strategies, which combine both active and passive approaches to investing. For instance, the VictoryShares Free Cash Flow ETF (VFLO ) just passed $1 billion in assets, in fewer than 16 months since launching last year. The smart-beta ETF takes a forward-looking approach to free cash flow investing. It has ample flexibility and mobility to rotate in and out of sectors based on a proprietary index supported by VettaFi. VFLO relies on a growth filter that screens out companies boasting the highest free cash flow yield. In doing so, it strips out the concentration risk that comes with owning the Magnificent Seven.
Michael Mack, Associate Portfolio Manager at Victory Capital, said the key value add for advisors has been the attention to detail in their products and their ability to offer timely strategic solutions under varying market conditions.
Active Expertise in 2024
Avantis, owned by American Century, has also successfully leveraged its legacy of active expertise. The firm’s total ETF assets have grown past the $50 billion mark in under five years. All 28 U.S.-listed ETFs have enjoyed net inflows this year, with value funds like the Avantis U.S. Small Cap Value ETF (AVUV ) and the Avantis U.S. Large Cap Value ETF (AVLV ) proving the two most popular on the flows front, reflecting a a rising reticence around the mega-cap growth trade. Both funds use market-cap weighting as a foundation but actively screen for higher profitability, quality and value characteristics. AVUV has garnered nearly $5 billion in inflows. Meanwhile AVLV has raked in $2.2 billion this year – nearly half of its total AUM.
Bottom line: The ETF landscape is often dominated by the industry giants, but 2024 has brought in a vibrant array of smaller, innovative players looking to change the game. Strong inflows into active strategies and income-focused ETFs have shown investors are increasingly seeking out tailored solutions that align with their financial goals in a complex, ever-changing market environment.
Where there’s a will, ETFs will find a way.
VettaFi LLC (“VettaFi”) is the index provider for VFLO, for which it receives an index licensing fee. However, VFLO is not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of VFLO.
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