ETF Inflows Hit Record High in 2024: What to Expect from 2025

As we approach the end of 2024, it's clear that exchange-traded funds (ETFs) have had another stellar year, with record-breaking inflows, assets, fund launches, and institutional usage. In this article, we'll take a look at the trends that drove ETF adoption and inflows in 2024 and explore what investors can expect in 2025.

Record Year for ETF Growth

The global ETF market grew at a robust 19% annualized rate over the last five years, amassing more than $15 trillion in assets under management (AUM). In 2024 alone, 1,485 new ETFs were launched, setting an all-time high for both active and U.S.-listed ETFs. Institutional investors, retail traders, and even cash-strapped mutual funds are gravitating toward ETFs for their liquidity, tax efficiency, and cost advantages.

The Rise of Active ETFs

While passive ETFs have historically dominated, active ETFs are making their presence known. In 2024, active funds accounted for 18% of total inflows, signaling a growing appetite for alpha strategies. The allure of active management is pushing innovation, with investors seeking more active strategies in passive funds and mutual funds converting to ETFs.

SPY vs. VOO: New ETF Champion in the Making?

The SPDR S&P 500 ETF (SPY) remains the largest and most actively traded ETF since its inception in 1993. However, its throne is being challenged by the Vanguard S&P 500 ETF (VOO), which has a 6.5-basis-point lower expense ratio and could potentially surpass SPY in AUM by 2026. In 2024, VOO registered more than six times the inflows obtained by SPY.

Top Fund Flows of 2024

ETF fund flows in 2024 were dominated by broad-based exposure ETFs, with the Vanguard S&P 500 ETF (VOO) and the iShares Core S&P 500 ETF (IVV) topping the flow charts. The VOO notched a milestone of its own, as the first-ever ETF to bring in more than $100 billion in net inflows in a single year. Investors also exhibited a growing cost-consciousness by flocking to cheaper products, such as the SPDR Portfolio S&P 500 ETF (SPLG).

What to Expect in 2025

As we look ahead to 2025, several trends are likely to continue driving ETF adoption and inflows:

1. Increased Democratization of Asset Classes: ETFs will continue to make various asset classes more accessible to investors. In 2024, we saw the growth of collateralized loan obligations (CLOs) ETFs, and this trend is likely to continue in 2025.
2. Growth of Active ETFs: The 2023 expiration of Vanguard's share class patent protection and more moves by issuers to convert active mutual funds to the ETF wrapper will likely accelerate the growth of actively managed ETFs.
3. Adoption of "Quirky" and Thematic ETFs: Investors will continue to seek out ETFs that provide exposure to specific sectors, themes, or strategies that align with their investment goals. This trend is likely to drive inflows into more niche and thematic ETFs.

In conclusion, 2024 was a record-breaking year for the global ETF industry, with inflows, assets, fund launches, and institutional usage all reaching new highs. As we look ahead to 2025, investors can expect continued growth and innovation in the ETF space, driven by trends such as the democratization of asset classes, the growth of active ETFs, and the adoption of quirky and thematic ETFs. By staying informed about these trends and the underlying market dynamics, investors can position themselves to take advantage of the opportunities that lie ahead.