Insight

ETF Snapshot

ETF Snapshot

Key takeaways – US ETF Industry

  • November saw strong ETF net flows of $162 billion, with a significant shift towards risk-on assets like US equities, bitcoin, and shorter-dated high yield. Equity ETF flows were driven by S&P 500 tracking ETFs and large growth ETFs.
  • The S&P 500 Equal Weight strategy is gaining traction as a solution to concentration risk in the S&P 500, which has reached multi-decade highs, with investors favoring its equal weight approach amid concerns over market concentration, valuations, and potential mean reversion.
  • Following the US election, the market anticipates less regulation and growth, which may benefit smaller companies and riskier assets like senior loans. Increased inflation expectations are creating uncertainty for long-duration assets and boosting demand for senior loans.
  • Bitcoin's adoption has continued from the launch of Bitcoin US ETPs in January 2024, making it more accessible to investors and now Trump's recent crypto-friendly proposals, including nominating Paul Atkins as SEC chair and creating a new position for AI and crypto. These events have further pointed towards Bitcoin's integration into society. In November crypto ETPs received $8B in net flows. 
  • With more wars occurring now than since the end of the Cold War, global defense spending is expected to rise, benefiting both traditional and non-traditional defense sectors like cybersecurity. The US FY 2025 budget reflects this shift, allocating significant funds to emerging technologies, while Trump proposes increased NATO defense spending, highlighting the need for robust defense strategies amidst global instability.

November US ETF Industry Flow Trends

November was a strong month for ETFs with $162B in net flows, an increase of $41B from last month’s $121B. ETF flows pivoted towards risk on with US equities, bitcoin, and shorter-dated high yield leading the way. Prior to November, investment grade, longer-dated segments within fixed income dominated flows.

Equity

Equity ETFs garnered $122 billion, accounting for 75% of total flows—a notable increase from their 61% year-to-date share. Leading the charge were S&P 500 tracking ETFs, which attracted $38 billion in net flows, representing nearly a third of equity activity and significantly surpassing their 23% share of equity assets. Large growth ETFs saw $21 billion in net flows, fueled by enthusiasm for the US economy and AI. Reflecting the positive economic outlook, ETFs targeting smaller capitalizations gained traction, with small-cap ETFs receiving $9.8 billion and S&P 500 Equal Weight ETFs drawing $3.9 billion in net flows. Conversely, ETFs focused on China ($4.8 billion) and Europe ($2.0 billion) experienced the highest equity outflows in November.

Fixed Income

This month, fixed income ETFs continued their growth, capturing 18% of flows (+$29 billion), slightly above their 17% market share. However, with a shift towards risk-on assets, these flows were significantly lower than the year-to-date trend of 27% of inflows. November's fixed income flows were heavily skewed towards below investment grade exposure and shorter-dated maturities, reflecting investors anticipation of fewer Fed rate cuts and the potential for higher inflation. Ultrashort ETFs led inflows, attracting $7.1 billion in net flows, accounting for a quarter of the asset class's flows—nearly double their market share. Bank loan ETFs, being below investment grade and low duration, impressively drew $3.5 billion in inflows, nine times their market share, Invesco’s ETF led in the space. Conversely, long government ETFs experienced the highest outflows, with $5.5 billion in net redemptions.

Alternatives

Alternative flows were dominated by crypto ETPs, which amassed $8 billion in flows during the month. Bitcoin has seen a surge in interest since President-elect Trump's victory, briefly crossing the $100,000 mark in early December. The new administration's support for cryptocurrencies, coupled with a favorable economic outlook, has provided a significant boost to the sector. 

 

Investment Risks

The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.

Fixed-income investments are subject to credit risk of the issuer and the effects of changing interest rates. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. An issuer may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating.

Commodities may subject an investor to greater volatility than traditional securities such as stocks and bonds and can fluctuate significantly based on weather, political, tax, and other regulatory and market developments.

There are risks involved with investing in ETFs, including possible loss of money. Shares are not actively managed and are subject to risks similar to those of stocks, including those regarding short selling and margin maintenance requirements. Ordinary brokerage commissions apply.

There are specific risks involved with investing in cryptocurrencies exchange-traded products. Investing in cryptocurrencies is high risk. Cryptocurrencies do not have any intrinsic value and may become worthless. Cryptocurrencies are subject to extreme price volatility and the price of cryptocurrency can be affected by factors such as global or regional political conditions and regulatory or judicial events.

Related articles