The ETF Market Is Growing At a Record Pace, And Is Showing No Signs Of Slowing Down

Don’t look now, but money is flooding into U.S. ETFs.

Assets invested in U.S. ETFs crossed the $4 trillion threshold for the first time on July 5, a new record for the soaring asset class.

To give you an idea of how fast the ETF industry has grown, it took 17 years from the launch of the first ETF, the SPDR S&P 500 ETF (SPY) in 1993, for U.S. ETFs to accumulate $1 trillion in assets. It only took four more years from there for assets to reach $2 trillion, and in 2017 assets reached $3 trillion after just three additional years.

Now, a mere two years later, another $1 trillion has flown into the asset.

Large inflows into fixed-income ETFs in the first half (and specifically at the end of June) likely provided the push over the $4 trillion mark. As noted, investors poured $75 billion into fixed income ETFs in the first half, $24.8 billion in June alone.

Overall, U.S. ETFs experienced $63.8 billion of inflows in June, just shy of the monthly record of $68.1 billion from January 2018.

This graphic from Vanguard shows just how quickly the rate of growth in both ETF assets and the number of ETFs has accelerated in the past several years.

Source: Vanguard

What’s Behind This Growth?

Part of the reason for that growth is the market’s rise to new all-time highs, but the rising number of low-cost ETFs entering the marketplace is likely a big driver of inflows as well.

According to fund analysis firm XTF, nearly 75% of all ETF assets at the end of 2018 were invested in funds with expense ratios of less than 0.2%. The boutique ETF issuer Salt Financial took the fee war even further in May, when it announced SEC approval to offer a rebate to investors in its Salt Low truBeta US Market Fund (LSLT), which debuted in March.

That’s right: Salt will pay you for owning its ETF.

So, where do we go from here?

There are approximately 2,000 ETFs traded in the U.S., the largest among them being the SPY with $272 billion in assets.

However, it’s worth noting that the ETF market is still dwarfed by mutual funds. As of the end of 2018, there were more than 8,000 mutual funds in the U.S. with combined total assets of $14.7 trillion, according to ICI.

ETFs may be skyrocketing in popularity, but they have a long way to go to catch up to other asset classes.

The author has no positions in any of the funds mentioned

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