The global ETF industry will amass $15.1 trillion in assets and attract $1.6 trillion in flows by 2024. This is the strongest year on record for inflows, assets, fund launches and institutional ownership, according to a new report from Bank of America.
The explosive growth reflects that both retail and institutional investors are increasingly embracing ETFs for their tax efficiency and liquidity benefits, BofA ETF strategists Jared Woodard, John Glascock and Phoebe Block wrote in the report.
These benefits have saved investors about $250 billion over mutual funds since 2001, the analysis found.
Institutional investors in particular are fueling the expansion, with their holdings of ETFs rising 24 percentage points since 2016 to an average of 27% per fund, BofA data shows.
The shift comes as providers launch more advanced products that focus on specific themes and sectors rather than broad market exposure, the report found.
Active ETFs will outpace passive ETFs for the first time in 2024, with 121 mutual funds converting to active ETFs and reversing previous outflows, the analysis shows.
Global expansion fueled some of the growth, with funds listed outside the US raising $583 billion in 2024, representing 38% of total inflows, BofA found. For every US-listed ETF, there are now 2.1 funds based elsewhere.
Investors also embraced previously illiquid assets that were once offered in ETF form, especially in the credit markets. Collateralized Loan Obligation (CLO) ETFs saw their assets more than double by 2024. Investors also showed strong interest in remixed sector funds focused on areas such as industrials and defense.
In 2024, some issues have arisen that BofA expects to resolve this year. While banks, energy companies and gold posted strong returns, their related ETFs saw outflows, according to the analysis.
Looking ahead, BofA predicts that these positioning gaps will disappear as investors adapt to what analysts describe as an ongoing transition from a “2% world to a 5% world.” The company also expects continued growth in active strategies and expansion into new asset classes.
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