By Year-end, ETF Flows Are Expected to Top $1 Trillion, According to Vettafi Data

Investors have already funneled over $915 billion into exchange-traded funds (ETFs) in 2024, marking a new record as of this week, according to VettaFi. The pace of ETF inflows is on track to reach $1 trillion by the end of the year, with the recent election providing a significant boost to demand.

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“We’ve noticed a recent acceleration in the demand for and use of ETFs,” commented Todd Rosenbluth, head of research at VettaFi. He noted that “most of the inflows remain focused on index-based ETFs,” highlighting how ETFs are increasingly favored as a convenient method to access the stock market. Unlike single stocks, ETFs offer diversification benefits, making them a more appealing choice for many investors.

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This surge in ETF inflows aligns with a strong performance for U.S. stocks in recent days. The S&P 500 rose nearly 1% over the last five trading sessions ending Wednesday, boosted by investor excitement following President-elect Donald Trump’s recent victory. This enthusiasm led the three main indexes to reach new highs on Monday, though the market rally has lost some momentum in recent days.

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Since Election Day, investors have shown considerable interest in ETFs, leading to over $58 billion in inflows, according to data from State Street Global Advisors. Of this amount, more than $48 billion has been directed toward U.S. equities, showing a strong preference for domestic assets. State Street’s SPDR S&P 500 ETF Trust (SPY), one of the most popular ETFs, saw an impressive influx of over $12 billion following the November 5 election. Additionally, the Invesco QQQ ETF (QQQ), which follows the tech-heavy Nasdaq 100 index, recorded more than $8 billion in inflows since Election Day.

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According to Ryan McCormack, a senior strategist for factor and core equity at Invesco’s ETF division, the demographic of ETF users has broadened significantly. “ETF users now include not only institutional investors but also financial advisors, registered investment advisors, and individual investors,” McCormack noted, illustrating a widespread adoption of ETFs across different investor types.

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Diverse Types of ETFs Drive Investment Growth

While index-based ETFs continue to receive the most significant portion of inflows, McCormack pointed out a growing interest in “factor ETFs.” These funds follow specific rules or strategies designed to enhance portfolio performance. For instance, the Invesco S&P 500 Momentum ETF (SPMO), which consists of 100 stocks with the highest “momentum score” in the S&P 500, saw its inflows surge by 25% after the election, marking an impressive increase of over 1,100% year-to-date.

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Another example is the Invesco S&P 500 Equal Weight ETF, which diversifies exposure across the S&P 500 by using an equal weighting approach rather than the standard market-cap weighting. This ETF has seen inflows rise by more than 24% since the beginning of the year.

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McCormack explained, “This type of alternative weighting strategy is an effective way to gain some exposure to small-cap stocks and achieve diversification from a factor investment perspective.” Factor-based ETFs provide investors with unique strategies tailored to specific investment goals, which may enhance their portfolios’ resilience and growth.

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Leveraging ETFs for “Trump Trades” and Cryptocurrency Opportunities

ETFs have also attracted attention from investors eager to capitalize on so-called “Trump Trades,” such as investments related to Bitcoin. Bitcoin-focused ETFs, in particular, have seen large inflows as optimism grows in the cryptocurrency space. Anna Paglia, chief business officer at State Street Global Advisors, attributed this surge to the market’s expectations of a crypto-friendly administration and an easing regulatory environment. Paglia observed, “The strong inflows into Bitcoin ETFs reflect high confidence in the sector, with positive sentiment extending across the entire crypto ecosystem.”

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State Street reported that its SPDR Galaxy Digital Asset Ecosystem ETF (DECO), which includes a mix of cryptocurrency-related stocks, experienced a 26% increase in inflows following Election Day. The DECO ETF’s top holdings include companies such as Cipher Mining, Riot Platforms, and Terawulf, each positioned to benefit from the expansion of the cryptocurrency industry.

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The ETF Industry’s Positive Outlook

Looking ahead, Rosenbluth anticipates that the post-election surge and the potential to cross the $1 trillion inflow milestone by year-end will act as a long-term growth driver for the ETF industry. “The momentum could increase further if we hit this key milestone,” Rosenbluth stated. He added that as asset managers observe this adoption trend, they will likely continue to introduce new ETF products to meet growing investor demand.

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In conclusion, the rapid growth in ETF investments reflects a strong preference for these vehicles as a flexible and diversified investment option. With the election fueling renewed market enthusiasm and the wide range of ETF types available, from index-based funds to factor and cryptocurrency-linked ETFs, the ETF industry appears poised for sustained expansion. As demand for ETFs continues to rise, asset managers are expected to keep introducing innovative products to serve an increasingly broad investor base.

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