The ETF Flowdown: Wrapping Up 2024

The yield on the 10-year Treasury note shot up 100 basis points from its early September low. The sizable move reflects stickier inflation, a more resilient economy than expected and a fresh dose of uncertainty surrounding fiscal and economic policy — not to mention the Fed’s latest hawkish cut. Excluding leveraged and single-stock products, here are some standout trends of 2024.

The S&P 500 is up 27% — just a stone’s throw away from record highs. Markets have comfortably ridden the coattails of the “Magnificent Seven” mega-cap tech rally, which accounted for 50% of the S&P’s gains in 2024. Beloved broad-based ETFs like the Vanguard S&P 500 ETF (VOO A) and the iShares Core S&P 500 ETF (IVV A) also topped the flow charts. The VOO notched a milestone of its own, as the first-ever ETF to bring in more than $100 billion in net inflows in a single year. Investors also exhibited a growing cost-consciousness by flocking to cheaper products, such as the SPDR Portfolio S&P 500 ETF (SPLG) — the cheapest plain-vanilla product on the market.

The Schwab U.S. Dividend Equity ETF (SCHD B+) has also put on a strong showing. There’s been less love for ETFs across the pond, however, amid a struggling economy and looming threat of potential tariffs. The JPMorgan BetaBuilders Europe ETF (BBEU A) has suffered $3 billion year-to-date.

Equal-weight ETFs have been on fire, picking up the pace considerably over the last three months. In the fourth quarter, the Invesco S&P 500 Equal Weight ETF (RSP B+) saw $9 billion in net inflows. That’s more than half of the year’s nearly $17 billion in total flows. That ETF is up 13% this year after hitting a new high.

Small caps have been a similarly strong story. The iShares Russell 2000 ETF (IWM A-) raked in $6 billion quarter-to-date after suffering net outflows earlier in the year. Mid caps have also had their time in the sun, with the iShares Core S&P Mid-Cap ETF (IJH A-) taking in almost half of the full year’s $8 billion in the fourth quarter alone. And while growth dominated for much of 2024, a decisive rotation midway through the year has brought value plays like the Russell 1000 Value ETF RUI back into the limelight. RUI saw more than $3 billion in inflows in December, after suffering outflows earlier this year.

Financials have been the main standout on the sector front — with the Financial Select Sector SPDR Fund ETF (XLF A) taking in the bulk of its $4 billion in net inflows in the fourth quarter. And with the Fed’s pace of rate cuts likely slowing to a crawl next year, it’s easy to see why.

Active ETFs continue to take the world by storm. Advisors have looked to stock-picking success via products like the iShares U.S. Equity Factor Rotation Active ETF (DYNF A-), which employs an active rotation of style factors, such as quality, momentum, volatility and value. Other active standouts include the Dimensional U.S. Equity ETF (DFUS B+), the Capital Group Dividend Value ETF (CGDV A), the Avantis U.S. Small Cap Value ETF (AVUV ) and the Capital Group Growth ETF (CGGR B+) — all of which have seen north of $3 billion in net inflows.

All year long, advisors have embraced a broad swath of derivative strategies to enhance returns. The ETF universe has grown increasingly complex, and derivatives and options-based strategies have permeated the scene. JPMorgan has seen enormous success with its JPMorgan Equity Premium Income Fund (JEPI A), the largest derivative income ETF in the world, which has taken in $5 billion in net inflows. Global X has the second-largest with the Global X NASDAQ 100 Covered Call ETF (QYLD A-), and NEOS has also done well with its S&P 500 High Income ETF (SPYI A) and Nasdaq High Income ETF (QQQI A).

Equities have been on cruise control, riding a broad index-based rally. Bonds, however, have really been the stars of the ETF show — with a record haul of more than $290 billion in 2024. Active bond ETFs have accounted for roughly a third of that haul, offering investors endless ways to sharpen their tools and fine-tune exposure across the duration and credit quality spectrum. Advisors are still plenty interested in high yield and investment-grade corporate bond ETFs. However, floating-rate securitized debt has garnered huge interest.

Senior bank loans like the SPDR Blackstone Senior Bank Loan ETF (SRLN A+) and the Invesco Senior Loan ETF (BKLN A), along with CLO ETFs, like the Janus Henderson AAA CLO ETF (JAAA ), have enjoyed monster inflows. Consistently healthy inflows have also poured into the PIMCO Enhanced Short Maturity Active ETF (MINT A+) and the Fidelity Total Bond ETF (FBND B) — for investors who simply want to stay exposed to the bond market, no matter which direction interest rates are headed in 2025.

The Fed’s latest comments have sparked some trepidation over longer duration. After a banner year of inflows for the iShares 20+ Year Treasury Bond ETF (TLT B-), the fund saw $6 billion in outflows month-to-date, while the Vanguard Long-Term Treasury ETF (VGLT B+) lost $4 billion. Market expectations for the frequency of future rate cuts have now dropped from quarterly (or more) to now biannually (or less — about 1.5 cuts next year). Shorter duration bond ETFs, such as the iShares 0-3 Month Treasury Bond ETF (SGOV A+), which has brought in $4 billion quarter-to-date and $12 billion this year, has attracted strong inflows as a result.

After a rip-roaring start to 2024 for spot bitcoin ETFs, followed by a slightly more lackluster spot ethereum ETF rollout, crypto ETFs are officially here to stay. The crypto bulls have been on parade leading up to and following the presidential election. Many remain optimistic that productive crypto regulatory policy changes are in the works for 2025. The iShares Bitcoin Trust ETF (IBIT ) has managed to consistently top the flow charts — now with $37 billion in net inflows this year — while the Fidelity Wise Origin Bitcoin Fund (FBTC ) has hauled in more than $12 billion in inflows. Spot bitcoin ETFs now hold more of the digital currency than bitcoin founder Satoshi Nakamoto himself, as institutional demand swells (though has quieted down during the holiday season).

The precious metal has perhaps been one of the most underappreciated asset classes this year, but finally played catchup in the second half. Many have underestimated demand for gold among emerging markets and the global central banks’ buying binge. Gold ETFs had enjoyed a six-month streak of positive inflows, though European selling led to outflows in November on the back of a stronger U.S. dollar. Still, after shedding $7 billion in the first half, flows have remained net positive at $2 billion.

Bottom line: As the year draws to a close, 2024 stands as a testament to the adaptability and innovation across the ETF universe. This year set the stage for yet another exciting and transformative year ahead.

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