The ETF Flowdown: Q3 2024

Talk about closing out the quarter with a bang. Stocks rode a sizzling summer rally punctuated by record highs in all three major averages and record assets in ETFs to boot. Total assets across the U.S. ETF market topped $10 trillion for the first time ever, with global assets topping $14 trillion.ETFs are also having their biggest year ever on a flows basis, seeing north of $680 billion in inflows, comfortably chasing records from 2021. Flows will likely get a turbo-charged boost in the fourth quarter, which tends to be seasonally strong.Post-Rate Cut: Bulls on ParadeThe recent half-point rate cut spurred a surge in broad-based equity ETFs. Both the Vanguard S&P 500 ETF (VOO A) and the SPDR S&P 500 ETF (SPY A) saw daily inflows of $3 billion and $5 billion, respectively, in a single day post-decision. Both funds accrued $20-30 billion in net inflows for the quarter. But SPY has still seen net negative flows for the year, as many investors opted for cheaper products earlier in the year, like the SPDR Portfolio S&P 500 ETF (SPLG A), which continues to do well with a quarterly haul of $4.3 billion. Mega-cap concentration risks continue to drive inflows into equal-weighted products, such as the Invesco S&P 500 Equal Weight ETF (RSP A-), which took in $5 billion. Meanwhile the decisive rotation into small- and mid-cap value has also proceeded apace, with $4 billion in net inflows in the iShares Russell 2000 ETF (IWM A-). The Avantis U.S. Small Cap Value ETF (AVUV ) and the Vanguard Russell 2000 ETF (VTWO A-) both accrued more than $1 billion each. From a sector standpoint, semis, utilities and real estate did well, as evidenced by strong flows into the VanEck Semiconductor ETF (SMH A-), the iShares Semiconductor ETF (SOXX A-), the Utilities Select Sector SPDR Fund (XLU A) and the iShares U.S. Real Estate ETF (IYR B+).Investors also continue to display an unquenchable thirst for income via strong inflows into the Schwab U.S. Equity Dividend ETF (SCHD B+) and Capital Group’s Dividend Value ETF (CGDV A-). Beyond standard dividend-oriented portfolios, more niche active equity strategies, like those of the JPMorgan Equity Premium Income ETF (JEPI A) and the JPMorgan Nasdaq Equity Premium Income ETF (JEPQ A+), continued to thrive amid third-quarter volatility. Both funds now have more than $50 billion in assets combined.Going for Gold in the ETF MarketGold ETFs are finally regaining their glimmer — this time for real — coming off bullion’s best quarter since 2020. Feverish buying from global central banks, coupled with lower interest rates and geopolitical flareups in the Middle East have all led the Street to up their forecasts for the precious metal, currently hovering just shy of $2,700 an ounce. Physical gold-backed ETFs are now riding a five-month win streak of inflows, as investors looked to get ahead of Fed rate cuts. Overall year-to-date gold ETF outflows have now fallen to just $1 billion after hemorrhaging $7 billion in the first half. The SPDR Gold Shares Trust (GLD A-) notched a spot on the top 20 most popular ETFs in the third quarter, taking in $1.4 billion in September and nearly $4 billion for the quarter. In fact, the top commodity ETFs in September all offer exposure to gold, with GLD easily leading the charge. The fund’s cheaper counterpart, the SPDR Gold MiniShares Trust (GLDM ) also steadily amassed strong inflows, though once again, investors took a less price-sensitive approach with GLD for the sake of liquidity. The abrdn Physical Gold Shares ETF (SGOL A) and the VanEck Merk Gold ETF (OUNZ ) also saw positive inflows, with total returns of 30% apiece.Active Fixed Income on FireThere’s simply no stopping the bond ETF boom. Fixed income ETFs are headed for a record year of net inflows—collectively hauling in more than $218 billion—with active bond ETFs making up roughly 40% of those flows. The Federal Reserve just set the stage for a lower rate regime, although Fed Chair Jay Powell did signal a cautious approach to further cuts. Rather than trying to guess where the terminal rate will end up, many advisors and investors are deploying active strategies to take on more duration but in smaller increments as the yield curve starts to re-steepen. The iShares 7-10 Year Treasury Bond ETF (IEF B) took in $3.6 billion in new money, with net inflows outpacing those of the iShares 20+ Year Treasury Bond ETF (TLT B-) in recent weeks. Active fixed income ETFs have now overtaken passive bond ETFs in terms of overall product count despite representing just 14% of total assets in the bond ETF space.BlackRock’s Flexible Income ETF (BINC A), Fidelity’s Total Bond ETF (FBND B) and the Janus Henderson AAA CLO ETF (JAAA A-) were the most popular active bond funds for the quarter, all boasting net inflows of around $2 billion. The JPMorgan Ultra-Short Income ETF (JPST A) followed closely behind, as investors continue to embrace short duration funds and other money market-like products.Crypto Clinging OnDespite another challenging quarter for crypto, one spot bitcoin ETF continues to top the charts: the iShares Bitcoin Trust ETF (IBIT C+) led the way with $3.7 billion in net inflows. That’s pretty much the bulk of the gains for spot bitcoin and brings total assets under management to $24 billion for the behemoth fund. Much of the malaise among spot ETF flows stems from the price action in bitcoin itself. The digital currency topped out above $73,000 in March and has since fallen 16% from its high. Spot bitcoin ETFs have shed roughly $10 billion from their peak. But all 11 spot bitcoin funds just suffered their single worst day of outflows in four months, bleeding $300 million, though they’re still seeing net inflows for the year. Spot ether ETF flows have so far been tepid: $580 million in net outflows for the quarter, as ether prices also tumbled. The lone exception, once again, was the iShares Ethereum Trust (ETHA ), which has seen total assets rise to $1 billion since launching in late June.Tide Turning in China?China ETFs have had a tough slog, with outflows of roughly $3 billion in the third quarter. Meanwhile, ex-China ETFs have seen pretty much the opposite: $3 billion in net inflows for the quarter, with about $8 billion in inflows for the year. But major fiscal and monetary policy announcements from the People’s Bank of China have sparked a sea change among China ETFs in just the past week, which have seen notably strong inflows. The KraneShares CSI China Internet ETF (KWEB B) attracted inflows of nearly $500 million, with shares rallying 30% for September. The Xtrackers China A-shares ETF (ASHR B+) took in nearly $200 million. Meanwhile, both the iShares China Large-Cap ETF (FXI A), which invests in 50 of China’s largest companies, and the iShares MSCI China ETF (MCHI A), which offers more diversified exposure to the Chinese market, continue to suffer outflows. Nevertheless, with Chinese stocks coming off their best day of trading since 2008, asset allocators may well feel pressured to neutralize exposure after being dramatically underweight for so long. Bottom line: The ETF market continues to evolve, offering infinite opportunities for investors seeking growth, income, and diversification. As the fourth quarter kicks off, ETFs’ resilience and adaptability are set to attract both seasoned investors and newcomers, paving the way for a record-breaking year. For more news, information, and analysis, visit VettaFi | ETFDB.