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ETFs are coming off a year of record growth, with inflows totaling over $1 trillion for the first time.
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The funds have remained popular as investors continue to swap mutual funds for ETFs' tax efficiency and ease of trading.
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ETF experts say they expect the massive growth to continue, particularly within actively managed funds.
Exchange traded funds are coming off a banner year as investors continue to cash in mutual funds for better tax efficiency and ease of trading from ETFs.
Annual inflows into US ETFs totaled over $1 trillion for the first time ever in 2024, breaking previous records by a landslide to bring the total market to $10.4 trillion as measured by total assets under management.
Once again, funds tracking the S&P 500 saw the biggest inflows, helped by a sweeping preference for US stocks as the market entered the third year of its bull run, closing 2024 with a 23% gain on for the benchmark index.
US stocks, and the ETFs that track them, got a further boost Donald Trumppresidential election victory in November as investors priced in corporate tax cuts and a looser regulatory environment. ETF flows surged to a monthly record of $164 billion in November, according to data from ETFGIan ETF research and consulting firm.
In addition to popular index funds, the first place in 2024 was also created Bitcoin ETFs and prosperity in leveraged funds catering to risk-averse investors seeking to maximize returns in single stocks.
Now, investors and ETF managers are hoping the party continues in 2025, and they're largely looking to actively managed funds rather than traditional fixed-income or index-tracking ETFs, sources said.
Active funds surged in popularity last year, taking in $276 billion through November, according to ETFGI data. That accounts for nearly a third of all flows for the year and marks a 71% surge from 2023.
Active funds have also dominated new issuance as regulation around ETFs has eased in recent years, accounting for about 80% of all new ETF launches in the past year, JPMorgan's chief ETF strategist Jon Maier said.
The trend is likely to continue in 2025, especially as market breadth continues to widen and more stocks participate in the market rally, he said.
“You have a lot of leading active providers coming into the space. The market has been dominated by leading names like the Mag Seven which have been really driving performance, and you see the breadth of the market is expanding. That provides other opportunities, especially in the operational space,” he said.
Maier says that within the huge opportunity for active money in the coming year, he sees particularly ripe potential within fixed income.