ETFs Went Bananas in 2024

U.S. ETFs broke everything in 2024. We saw record-high flows and new launches. AUM crossed the $10 trillion threshold. Crypto burst onto the scene. Active management exploded in popularity. Leveraged single-stock ETFs captured a shocking level of flows, and the ones focused on MicroStrategy actually stopped functioning properly. An ETF that profits off the volatility of an erstwhile software company that has become a leveraged play on Bitcoin? Peak 2024.

While the growth came primarily from the usual suspects—cheap beta and a handful of tactical products—newer and often riskier products captured a sizeable chunk of flows and an oversized portion of headlines. The result: overwhelm and confusion for investors and their advisors.

Meanwhile, fee compression accelerated, except where it reversed, creating additional confusion for asset managers.

I’m still trying to make sense of it. ETF nerd that I am, I will start with an analytical dive into the full dataset. But 2024 was too crazy to capture in charts alone. Conveying the zeitgeist requires some discussion about the top 10 ETFs in each asset class.

Record Industry Growth

In 2024, investors poured $1.12 trillion into U.S. ETFs, pushing AUM up to $10.4 trillion. It was the first time that flows reached the trillions.

The chart below contextualizes industry asset levels (orange boxes) in light of AUM growth rates (blue bars) and organic growth rates, i.e. flow rates (green bars). Of course, ETF AUM growth is largely a function of market performance, though flows certainly contribute.

ETF growth has been both fast and steady, a tribute to the utility and flexibility of the ETF wrapper.

As shown in the chart below, 2024 was a banner year for ETF launches as 757 new ETFs hit the marketplace and drove the fund count to 3,934. The closure rate hovered at the low end of normal.

No matter how you measure—by number of ETFs, flows, or AUM—the U.S. ETF industry is hot.

2024 U.S. ETF Flows

The largest asset classes of equity and fixed income also had a record year, and it was also the year that currency ETFs hit the charts. (FactSet classifies crypto in the currency asset class.)

Equity flows reached their highest-ever dollar level but ceded flows share to fixed income and currency as investors continued to gain comfort with bond ETFs and as cryptocurrency ETFs received SEC approval. And just like that, currency ETFs drew over $38 billion, or 3.4%, of all 2024 flows. That’s a substantial jump compared to the $1.5 billion in total currency ETF flows between 2016 to 2023.

Note: Throughout this article, flows values exclude assets converted from other funds.

Fixed income ETFs captured 26% of the full-year flows while representing less than 19% of the assets at the start of the year. All else equal, we would have expected bond ETFs’ overall market share to tick up, but strong equity markets were a countervailing force.

Flows Analysis by Strategy Group

ETF competition operates on multiple levels, both among and within asset classes, geographies, categories, and specific market segments, which are FactSet’s basic competitive units. With the growing interest in active management, it’s useful to look at investor interest within each segment through the lens of investment strategy.

FactSet Funds defines four general types of investment strategies.

• Plain vanilla aims to replicate a swath of the market, broad or narrow.

• Strategic, sometimes tagged as “smart beta”, uses academically grounded research elements to select and/or weight securities. Strategics include value, growth, dividends, fundamental, and factor investing.

• Idiosyncratic ETFs share the complexity of strategics but lack the academic rigor. They can be simple equal weighting, single-exchange selection, or ESG, which aims to correct for economic externalities.

• And then there’s active, in which humans select and weight the portfolio securities.

In 2024, active took in significantly more flows than its initial market share suggested. The difference is called the flows gap. The chart below depicts the aggregate flows gap in both the equity and fixed income asset classes, on a percentage basis.

Translated into dollars, active equity ETFs pulled in $145 billion, which is $114 billion more than its starting market share would have predicted. Active bond ETFs drew $110 billion, an excess of $16 billion.

The magnitude of active management’s momentum in the ETF industry becomes clear in the following series of charts, which illustrate equity and bond ETF flows and AUM in each of the strategy groups.

Strong flows into active equity ETFs pushed its relative market share higher, to 6%.

While active equity AUM has grown steadily by gaining about 1% of equity ETF market share per year,…