U.S. listed ETF net inflows are approaching $500 billion at this year’s halfway mark. There has been unprecedented demand for ETFs in the first half of 2021, with industrywide net inflows of $473 billion, according to CFRA’s ETF database. The current calendar year record was set in 2020, with $504 billion, but a new milestone is likely to be set in July or August, given the current pace.
While 2020 flows were aided as fixed income and commodities ETFs punched above their weight, 2021 flows have been driven by already record demand for equity ETFs. In the first half of 2021, equity products gathered $363 billion of new money, over $100 billion more than all of 2020. Meanwhile, with an additional $106 billion, fixed income ETFs are on pace to slightly beat 2020’s record inflows of $206 billion. The outlier among the asset classes has been commodities, which have slight year-to-date outflows after pulling in more than $40 billion in 2020.
Broad and targeted equity exposure has been in demand in 2021. In the first six months of 2021, investors piled into a wide range of equity ETFs. Broad market U.S. equity ETFs, such as iShares Core S&P 500 ETF (IVV), Vanguard Total Stock Market ETF (VTI) and Vanguard 500 Index Fund ETF (VOO), have year-to-date net inflows of $100 billion, exceeding 2020’s strong $80 billion cash haul.
Investors have also taken a more tactical approach with sector ETFs providing U.S. equity exposure as well. Energy Select Sector SPDR (XLE) and Financial Select Sector SPDR (XLF) led the subcategory to pass last year’s $38 billion of subcategory net inflows, with the two ETFs generating $14 billion of the $39 billion of net inflows. Yet the biggest shift in equities was investors focusing globally, as broad/regional global equity ETFs gathered $75 billion of new money in the first half of 2021, nearly four times last year’s $19 billion. IEMG and Vanguard FTSE Emerging Markets ETF (VWO) were the two most popular of these ETFs.
Despite limited demand for corporate bond ETFs, investors continued to use fixed income products. In 2020, corporate bond ETFs gathered $83 billion, aided by Federal Reserve–inspired confidence in the credit markets following the government’s willingness to support bond market liquidity with ETFs like iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD). While the corporate subcategory had just $14 billion of net inflows at the halfway point in 2021, ETFs in other subcategories were widely adopted. Indeed, broad market bond ETFs BND and iShares Core Total USD Bond Market ETF (IUSB) had a combined $21 billion in net inflows, supporting the subcategory’s $51 billion of net inflows. This is on pace to exceed the $73 billion gathered by broad market bond ETFs in 2020. Meanwhile, inflation-protected bond ETFs reeled in $17 billion in the first six months of 2021, already passing last year’s $13 billion.
Over 180 new ETFs launched in the first half of 2021, and some already crossed the $100 million in assets milestone. Following 2020’s record-breaking asset gathering, asset managers lined up to either expand their existing lineups or join the ETF market. Dimensional Funds, which only began offering ETFs in 2020, converted part of their mutual fund suite into ETF wrappers in June, led by now $13 billion Dimensional US Core Equity 2 ETF (DFAC) and $6 billion Dimensional US Targeted Value ETF (DFAT). It is too soon for CRFA to begin rating these ETFs from a forward-looking star perspective. Yet, we do cover BlackRock U.S. Carbon Transition Readiness ETF (LCTU), which launched in April 2021 with more than $1 billion of institutional assets.
We also rate Horizon Kinetics Inflation Beneficiaries ETF (INFL), which gathered more than $600 million, pulling in new money each month. This is the firm’s first ETF, but investors have rightly found its diversified exposure to attractive stocks like Archer-Daniels Midland (ADM) and Wheaton Precious Metals (WPM) of interest. Bitwise, Engine No. 1 and Mairs & Power were among the firms that also entered the ETF space. We do not use assets under management as a metric for analysis as others do, but we note at the end of June there were 16 ETFs that first launched in 2021 with more than $100 million in assets.
Investors’ comfort with ETFs for strategic and tactical purposes continued to climb in the first half of 2021. While flows might slow down if market volatility increases in the second half of the year, we think most investors will continue to build positions. Even with $6.5 trillion in U.S.-listed ETF assets, we also expect more innovative and low-cost products to come to market in the second half of 2021 and new investors and advisors to discuss the benefits ETFs offer.
Todd Rosenbluth is the director of ETF and mutual fund research at CFRA. Learn more about CFRA's ETF research here.