Investors piled into exchange-traded funds (ETFs) at a record rate in 2024 as the listed product structured continued its decade-long trend as the investment vehicle of choice.
According to new Morningstar data, global ETF net flows hit US$1.5 trillion – besting the previous high of US$1.2 trillion notched in 2021 – as soaring markets combined to pump total assets under management US$2.7 trillion to a peak of US$13.8 trillion by year-end.
“While a record year for flows on an absolute basis is noteworthy, just as impressive is the 13.6% annual organic growth rate in 2024,” the Morningstar report says. “The larger the asset base, the harder it is to maintain a high rate, yet ETFs delivered their highest growth rate since 2021.”
US-based ETFs captured about 75 per cent of global flows in a frenzy accelerated post the Trump election victory that saw net inflows total US$310 billion over the final two months of 2024.
But while broad-based passive vehicles in a market dominated by Vanguard and the BlackRock iShares brand proved most popular again, assets in actively managed ETFs topped US$1 trillion for the first time last year compared to almost US$670 billion at the end of 2023.
Nonetheless, just three products linked to the S&P 500 index managed by Vanguard, BlackRock and State Street collectively garnered more than US$290 billion – or almost 20 per cent – of global net ETF flows last year end 2024 on US$2.1 trillion: the Vanguard S&P 500 tracker alone attracted close to US$120 billion of net new money.
A Morningstar analysis of the US ETF market found active products “pulled in about $295 billion last year, good for an organic growth rate of 57% and more than double the annual record they set in 2023”.
“Framed differently: actively managed strategies represented 6% of the ETF market entering 2024 yet claimed 26% of all net flows,” Morningstar notes.
“… Active ETFs may well garner even more inflows in the year ahead. Fund providers have converted existing mutual funds or launched similar ETFs at a breakneck pace.”
The analysis suggests the ever-expanding product choice might also be sparking ETF demand in the US market.
“More than 4,000 ETFs traded in the US at the end of 2024, many of which launched last year and instantly met latent demand. Spot bitcoin ETFs are the best example,” Morningstar says. “Hundreds of active ETF launches expanded the choices available. And more products surfaced to meet niche desires like leveraged single-stock exposure or specific downside protection. The ETF market now offers something for everyone, and everyone wanted something in 2024.”
Vanguard bested BlackRock in the US ETF market, clocking up some US$308 billion of net flows compared to more than US$292 billion for the iShares range.
BlackRock still holds top spot by ETF assets under management in the US with a stash of almost US$3.2 trillion versus a tad under US$3 trillion for Vanguard.
“The two largest ETF providers, nearly 60% of the market combined, are in a league of their own,” Morningstar says. “IShares’ US ETF lineup is about $175 billion larger than Vanguard’s—about the same amount that Vanguard made up on it from 2022 to 2024.”
(In an aside: Vanguard copped a fine of US$106 million last week over allegations it mislead retail investors in its Target Retirement Funds over the tax impact of certain capital gains distributions.)
But while traditional unlisted funds still represent the bulk of the market, ETFs have steadily been taking market share for the better part of the last 10 years.
“More outflows from mutual funds boosted net flows into ETFs. Investors yanked $341 billion from US mutual funds from January through November 2024,” the Morningstar analysis says. “Mutual fund and ETF flows are hardly a zero-sum game, but some of the money that leaves the former flows into the latter.”