ETF trends 2024
ETFs, or exchange-traded funds, continue to grow in popularity among U.S. and global investors. These products allow investors to put their money into a collection of stocks or other securities, much like a mutual fund. However, unlike mutual funds, ETFs are traded on stock exchanges, meaning they can be purchased throughout the trading day just like regular stocks. This has helped to boost the popularity of ETFs, although ownership of mutual funds is still significantly higher in the U.S. than ownership of ETFs.
Approximately 15 million households held ETFs in 2023, compared with nearly 69 million households possessing mutual funds.
Jump to insightThe combined assets of ETFs in the U.S. reached $8.47 trillion in February of 2024.
Jump to insightThe number of ETFs worldwide has grown by more than 3,000% since 2003. The total value of assets of ETFs based in the U.S. has increased by more than 6,200% since 2002.
Jump to insightNinety-seven of the largest 100 ETFs by assets under management (AUM) are index-based.
Jump to insightGeneral ETF statistics
The cumulative assets of ETFs in the U.S. reached almost $8.5 trillion during the first quarter of 2024. That represents a 26% increase from the same period in 2023.
As of the first quarter of 2024, there were 3,141 ETFs domiciled in the U.S. — representing a 9.4% increase from the first quarter of 2023.
According to a survey conducted by the Investment Company Institute, approximately 15 million U.S. households held ETFs in 2023. That number pales in comparison to the 68.7 million households that own mutual funds.
Types of ETFs
ETFs can be broken down into two broad categories: actively managed ETFs and index-based ETFs. Generally speaking, index-based ETFs are designed to be representative of the overall market and to match its returns. For example, the largest ETF in the world as of 2024 is the SPDR S&P 500 ETF Trust, a collection of securities that “correspond generally to the price and yield performance of the S&P 500 Index.” Actively managed ETFs are designed to “beat” the market by incorporating a collection of securities that will perform better than the broader market.
| Actively managed | Index-based | |
|---|---|---|
| Investing strategy | Portfolio managers choose securities to include in the fund and can change the composition of the portfolio as market conditions change | Composition of the fund is defined based on the index it is set up to track. |
| Market share | Represents 6.6% of the U.S. ETF market | Ninety-seven of the largest 100 ETFs are index-based |
| Purpose | Designed to outperform index-based funds | Designed to track a particular index, such as the S&P 500 |
| Trading frequency | Component assets are traded regularly | Component assets traded less frequently |
| Expense ratio | Generally slightly higher than index-based ETFs | Typically lower than actively managed mutual funds or ETFs |
Among the 50 largest ETFs, index-based funds, only one is an actively managed fund (JPMorgan Equity Premium Income Fund).
Largest ETFs globally
The AUM (assets under management) of an ETF refers to the total market value of all of its assets — including cash and investments in various securities. The AUM can fluctuate based on investors putting more cash into the ETF or via changes in the value of the securities within the ETF’s portfolio.
Notably, all of the funds on this list represent index funds — none are actively managed funds seeking to beat the market. Additionally, only four separate ETF issuers are present on the list: State Street (SPDR), BlackRock (iShares), Vanguard and Invesco. Even if the list were expanded to include the largest 25 ETFs, such would remain the case.
Number of ETFs by year
The first ETF traded on a U.S. stock exchange was created in the 1990s. Since then, they have proven to be extremely popular investment products among both individual and institutional investors, as evidenced by their growing numbers. Without exception, the total number of ETFs has grown every year since 2003.
Net assets of ETFs in the U.S.
The popularity of ETFs has skyrocketed over the past two decades, as has the total AUM of this type of fund. The AUM of ETFs in the U.S. stood at just $102 billion in 2002 — a total that grew to approximately $6.44 trillion by 2022.
Although 2022’s stock market declines decreased the cumulative amount of assets held by ETFs by nearly $745 billion, the percentage increase between 2002 and 2022 is a staggering 6,214%.
ETF pros and cons
As with any investment vehicle, ETFs come with both advantages and disadvantages that investors need to weigh when considering adding them to a portfolio.
Pros:
- Trading flexibility: ETFs can be traded like stocks, perhaps the biggest differentiator between an ETF and a mutual fund. Investors can buy and sell shares in ETFs throughout the trading day.
- Tax efficiency: ETFs are designed with tax efficiency in mind. Index-based ETFs in particular tend to have a low number of taxable transactions, and capital gains distributions are minimized.
- Lower fees: Expense ratios refer to the overhead costs investors pay when putting money into a managed investment vehicle. ETFs tend to have lower expense ratios when compared to mutual funds.
- Diversification and risk management: ETFs offer a relatively easy way for an investor to diversify their portfolio without having to purchase individual stocks. Diversification lowers risk by spreading investment across different assets and sectors, ensuring that all of one’s eggs aren’t in a single basket.
Cons:
- Volatility: While intraday trading can be a benefit, it also opens ETFs up to price swings. Watching your investment move up and down can encourage a desire for more hands-on management, which isn’t always beneficial for the average investor.
- Lack of precision: You’re not in control of the components of the ETF, meaning that you can’t easily target or avoid specific stocks when you’re investing through these funds.
- Lower dividends: When companies issue dividends, stock owners make money. ETF owners generally won’t receive such dividends from the ETF itself (although they may still see some dividends from the stocks that comprise the ETF).
Should I invest in ETFs?
ETFs are similar to mutual funds in that they offer investors the opportunity to put their money into a larger pool of funds that makes investments in a collection of different securities, such as stocks and bonds. An investor receives the benefit of being able to put their money into a diversified asset rather than having to purchase different securities individually. The difference between ETFs and mutual funds is that ETFs themselves are tradable on stock exchanges.
The market value of an ETF share is not always equal to the net asset value (NAV) of that same share (although discrepancies are not likely to be major). This is because demand for the ETF’s shares can outpace or lag the underlying value of its assets.
Anyone considering investing in an ETF (or any other asset) should take time to understand the asset. For an ETF, this means understanding the investment objective (for example, the stated investment of the SPDR S&P 500 ETF Trust is to match the performance of the S&P 500 Index). If that goal matches your personal investment objectives, then a particular ETF could be a good fit for you.
FAQ
What is the difference between an ETF and a mutual fund?
Both ETFs and mutual funds allow investors to pool their money with other investors into a collection of stocks and other assets. ETFs can be bought and sold throughout the trading day like stocks, while mutual funds can only be purchased at the end of a trading day. ETFs tend to have lower overhead fees, while mutual funds typically offer more active management.
Are ETFs a good investment?
As with any other investment, the answer is: It depends. The appropriateness of a particular type of investment vehicle depends heavily on an individual investor’s financial situation, investment time horizon, attitude toward risk and a variety of other factors.
Should a beginning investor buy ETFs?
ETFs can be effective investment vehicles for beginner investors because they generally help diversify your portfolio. ETFs also tend to have low overhead fees. However, the best investments for any individual investor will vary from person to person.
References
- “Investor Bulletin: Exchange-Traded Funds (ETFs).” Office of Investor Education and Advocacy. Evaluated April 8, 2024.Link Here
- Statista Research Department. “Total net asset under management (AUM) of exchange traded funds (ETFs) in the United States from 2002 to 2022.” Statista. Evaluated April 8, 2024.Link Here
- Statista Research Department. “Number of exchange traded funds worldwide from 2003 to 2022.” Statista. Evaluated April 8, 2024.Link Here
- “Largest ETFs: Top 100 ETFs by Assets. ETF Database.” VettaFi. Evaluated April 8, 2024.Link Here
- “Exchange-Traded Funds (ETFs).” U.S. Securities and Exchange Commission. Evaluated April 9, 2024.Link Here
- “SPDR S&P 500 ETF Trust.” State Street Global Advisors. Evaluated April 9, 2024.Link Here
- Brewster, L. “Actively Managed ETF Assets Soared 37% in 2023.” ETF.com. Evaluated April 9, 2024.Link Here
- Holden, S., et al. “Ownership of Mutual Funds and Shareholder Sentiment, 2023.” Investment Company Institute. Evaluated April 9, 2024.Link Here
- “ETF Assets and Net Issuance - February 2024.” Investment Company Institute. Evaluated April 9, 2024.Link Here
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