The ETF Market Is Exploding

By: Spencer Israel

SPACs may be getting all the attention, but ETFs are in the midst of an explosion of their own right now.

According to a Bloomberg analysis, more than 100 new ETFs were launched in the first quarter of 2021, the highest number of new fund launches to start a year in at least 10 years.

Interestingly enough, Bloomberg pointed this trend out on April 13- the 103rd day of the year.

In other words, there’s an average of one new ETF launching per day in 2021.

At the same time, ETFs are attracting a flood of assets. U.S.-listed ETFs pulled in a record amount of new assets in the first quarter—about $245 billion according to Factset.

Not only is that figure is more than triple the flows seen in Q1 2020, but if the pace of money pouring in keeps up through the end of the year, it would more than double the previous record of annual inflows set in 2017.

If you zoom out to the global market and look at the last 12 months, more than $1 trillion has flowed into ETFs.

In particular, investors appear especially interested in U.S. equity ETFs, which accounted for more than half of all inflows into U.S.-listed ETFs last quarter.

Even ESG-focused ETFs—maligned by some for their inability to attract assets relative to media attention—appeared to catch on last year. According to TrackInsight, assets in ESG ETFs grew 223% in 2020, bringing the class to nearly $200 billion AUM at the end of the year.

It’s important to note that some of this growth is simply due to rising asset prices. But at the same time, there is clearly a lot of underlying demand for ETFs.

What’s driving the interest?

Part of it has to do with a number of high-profile fund launches in the first quarter. The latest ETF from star manager Cathie Wood, the ARK Space Exploration & Innovation ETF (ARKX), launched with much fanfare on March 30th and gathered over $530M in assets in the first week alone.

Three weeks earlier, the VanEck Vectors Social Sentiment ETF (BUZZ), made headlines by launching in conjunction with Barstool Sports founder Dave Portnoy. Portnoy’s role as an influence helped BUZZ reached the $500 million AUM threshold in two weeks.

In February, the Purpose Bitcoin ETF (BTCC) launched in Canada, marking North America’s first bitcoin ETF. BTCC promptly accumulated $421 million in assets in its first two days. The success of BTCC is another signal to investors that a bitcoin ETF may soon be coming to the U.S. (Grayscale has already announced its intent to convert the Grayscale Bitcoin Trust (GBTC) into an ETF once the SEC gives approval).

Another factor to consider is that the ETF market is simply rising along with (almost) every other asset. With interest rates near zero around the world and consumers seemingly flush with cash, investors are hungry for risk-on assets, and ETFs are a tax-efficient alternative to mutual funds.

The author has no position in any of the funds mentioned

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