The US exchange-traded fund market reached new heights in 2024, with investors contributing $1.15 trillion in record inflows amid strong market performance across asset classes.
That's according to the latest US ETF Flash Flows report from State Street Global Advisors, which analyzed data for the year ended on December 31.
The surge came as US equities climbed 23 percent, marking their best two-year stretch since 1998, while bonds, commodities, and the dollar also gained.
Matthew Bartolini, head of Americas ETF research, said the numbers show a historically remarkable alignment in asset class returns. “Only twice in the past 50 years have stocks, bonds, commodities, and the dollar all delivered gains for two consecutive years,” Bartolini wrote in his analysis.
Equity ETFs notched an all-time high of $782 billion in inflows, with US equity-focused funds accounting for 86 percent of that total. In what could be a display of strong domestic bias, the $672 billion inflow into US equities – also a record – exceeded cumulative inflows for non-US equity ETFs going back October 2017.
Sector-wise, technology sector ETFs asserted their dominance by attracting $33 billion, while cyclicals outpaced defensive sectors by $23 billion, reflecting a risk-on sentiment among investors.
Fixed-income ETFs also reached a new high in inflows, pulling in $303 billion. Active bond strategies gained significant traction, particularly in credit sectors, with $87 billion in inflows. Senior loan and CLO ETFs also saw revived demand, raking in $26 billion.
Investors appear to be gearing up for a repeat of 2024 this year, Bartolini said, going full tilt into US stocks as the country enjoys strong economic and fundamental tailwinds relative to other countries. But that positioning, he argued, could leave them with overly concentrated portfolios.
"[N]umerous macro risks and an uncertain path for US fiscal policy could present challenges. And investors’ full tilt extrapolation of past return trends into the future, as opposed to being appropriately diversified, will be nothing more than tilting at windmills," he said.
Sharing a bullish outlook, fixed income strategists say they're "not terribly concerned" over a proposal to scrap the muni bond tax exemption.
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