ETFs Could Hit One Trillion Dollars This Year, Where The Money Is Going
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Exchange-traded funds (ETFs) are appealing to more investors. For those not interested in selecting individual stocks to build a portfolio, ETFs provide diversification and can be a path to exposure to a wider variety of asset classes.
According to ETF.com, inflows hit $125.5 billion in July, not a record but definitely high. Year-to-date inflows are over $531 billion, which means that ETFs could hit a record for inflows by the end of the year. If that happens, it will beat the record hit in 2021 when ETFs received more than $900 billion in inflows.
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What’s driving the gain? Investors are interested in equity and fixed-income ETFs and show continued faith in the stock market’s increases. There’s also a strong interest in cryptocurrency. The iShares Bitcoin Trust (IBIT) didn’t crack the top five gainers for July but is the third-highest gainer for the entire year. On the other hand, the Grayscale Bitcoin Trust ETF (GBTC) has been the biggest loser so far this year with massive outflows. So far, ethereum ETFs haven't taken off, but they are relatively new and the cryptocurrency market has been volatile recently. The Grayscale ethereum Trust (ETHE) lost $1.8 billion in assets after being converted into an ETF.
Moving Toward Old Reliable
The top-gaining ETF for July was the SPDR® S&P 500 ETF Trust (SPY). This massive ETF, the first of its kind, has been around since 1993 and is one of the most frequently relied upon in investor portfolios. It benchmarks the performance of the S&P 500 Index. With an expense ratio of 0.09%, it’s inexpensive and reliable. Its trailing annualized performance since inception is 10.38% and 14.91% for the last five years. While it dominated the July top gainers list, it didn't crack the top 10 for the year-to-date gainers. The second and third in July were the Vanguard 500 Index Fund (VOO) and the iShares Core S&P 500 ETF (IVV).
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Another ETF that was hot in July was the iShares Russell 2000 ETF (IWM), which had inflows of $6.9 billion. There has been renewed interest in the stocks of the Russell 2000 index lately. In July, the iShares Russell 2000 ETF had its best monthly performance against the Nasdaq 100 since April 2002. People have been watching small-cap companies very closely lately. As the massive tech companies start to fall out of favor, money flows in different directions toward mega caps outside of technology and small-cap companies. These companies may also do well in a lower interest rate environment. However, this strategy has some uncertainty because these smaller companies may be harder hit if a recession occurs.
Only one bond ETF hit the top 10 gainers list for July: the iShares Broad USD High Yield Corporate Bond ETF (USHY). This ETF may be attractive because as interest rates fall, these types of riskier bonds will become more attractive because they can offer higher yields. The iShares Broad USD High Yield Corporate Bond ETF has posted gains for four consecutive weeks, which it hasn’t done since 2022.
A look at the top ETF inflows gives us an overview of investor behavior, revealing a mix of income-seeking and the desire for safety. As the market digests recent economic indicators and the ramifications of interest rate cuts, the landscape for ETF demand could shift quickly.
Better Than ETFs?
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