Key Takeaways
- U.S. investors are increasingly gravitating to exchange-traded fund (ETF) investing rather than single stocks, data from analysts at Bank of America (BofA) Securities and Brown Brothers Harriman show.
- In March, the ETF industry reached a new milestone of $12.7 billion in assets.
- Investors are keen on increasing their exposure to actively managed funds, cryptocurrencies, and commodities, among ETF options.
Exchange-traded funds (ETFs) continue to grow in popularity among investors, with the industry reaching a record $12.7 billion in assets under management (AUM) in March, according to a Brown Brothers Harriman (BBH) report. In line with this trend, there are increasing signs that U.S. investors are starting to favor ETFs over single-stock investing.
ETF Investment Outpacing Individual Stocks
In its latest weekly report on equity client flow trends Tuesday, BofA Securities said that year-to-date inflows into ETFs have outpaced those of single stocks.
BofA said its clients bought ETFs for a fourth consecutive week across all major strategy styles: growth investing, value investing, and blended. Investors were active across a range of sectors, recording net buying of ETFs in eight of 11 industry sectors, led by Discretionary ETFs, which marked the fifth-largest inflow since 2017, when BofA began collecting such data. Meanwhile, Energy ETFs posted the largest outflows for a second consecutive week, perhaps a cue that investors were actively managing their ETF portfolios.
Communication Services has been one of the most popular sectors for ETFs, with net inflows for 28 of the last 29 weeks, alongside Technology, with inflows for nine out of 11 weeks. Investors are also using ETFs to access a Chinese stock market rebound, with recent data showing strong inflows beginning in February this year.
The launch of spot bitcoin ETFs in January allowed money managers to gain access to the top digital currency in a vehicle approved by the Securities and Exchange Commission. Investors poured $12 billion into a mix of spot bitcoin ETFs in the first quarter.
ETF Investors Plan To Increase Their ETF Exposure
The 2024 Global ETF Survey by BBH said that actively managed ETFs are becoming a hot avenue for investment.
The company surveyed 325 ETF investors in the U.S., Europe, and Greater China, 40% of which manage more than $1 billion in assets and 24% of which have more than 50% of their portfolio in ETFs.
The survey showed that 82% of global investors planned to increase their allocation to ETFs over the next 12 months. However, the trend was more pronounced among U.S. investors, with 97% seeking to increase their ETF investments over the same period. The majority also said they expect to boost their exposure to actively managed ETFs and to increase the number of issuers they use.
Over the next year, investors said they were most bullish about cryptocurrencies, alternatives, and equities. When asked about the minimum level of AUM that U.S. investors require in an ETF, larger funds won out: Nearly a third said $51 million to $100 million, while 43% said $101 million to $250 million.
Mutual funds also showed evidence of losing ground in the study, as 37% of ETF investors surveyed said they plan to use the actively managed ETFs in their portfolios as a substitute or replacement for active mutual funds—and they already have shifted allocations accordingly.
In another sign that ETFs are hot, the SPDR S&P 500 ETF Trust (SPY) hit a record high for AUM in late February as the artificial intelligence (AI)-driven stock rally in Nvidia (NVDA) and other Big Tech companies creates a desire for exposure to the so-called Magnificent Seven, of which Nvidia is a component.