Wall Street eyes another blockbuster year for ETFs after inflows jumped to a record $1 trillion in 2024

• ETFs are coming off a year of record growth, with inflows totaling over $1 trillion for the first time.
• The funds have remained popular as investors continue to swap mutual funds for ETFs' tax efficiency and ease of trading.
• ETF experts say they expect the massive growth to continue, particularly within actively managed funds.

Exchange-traded funds are coming off a banner year as investors continue to swap mutual funds for better tax efficiency and the ease of trading of ETFs.

Annual inflows into US-based ETFs totaled over $1 trillion for the first time ever in 2024, breaking previous records by a landslide to bring the total market to $10.4 trillion as measured by total assets managed.

Funds that track the S&P 500 once again saw the biggest inflows, helped by a sweeping preference for US stocks as the market enters the third year of its bull run, closing out 2024 with a 23% gain for the benchmark index.

US equities, and the ETFs that track them, got a further boost from Donald Trump's presidential election victory in November as investors priced in corporate tax cuts and a looser regulatory environment. ETF flows swelled to a monthly record of $164 billion in November, according to data from ETFGI, an ETF research and consulting firm.

In addition to popular index funds, 2024 also saw the creation of the first spot bitcoin ETFs and a boom in leveraged funds catering to risk-on investors looking to amplify the gains in single stocks.

Now, ETF investors and managers hope the party will continue in 2025, and they're largely looking to actively managed funds rather than traditional fixed-income or index-tracking ETFs, sources said.

Active funds surged in popularity last year, taking in $276 billion through November, according to ETFGI data. That makes up nearly a third of all flows for the year and marks a 71% surge from 2023.

Active funds have also dominated new issuance as regulation around ETFs has eased in recent years, accounting fot around 80% of all ETF new launches in the last year, JPMorgan's chief ETF strategist Jon Maier said.

The trend will likely continue in 2025, especially as market breadth continues to widen and more stocks participate in the market rally, he says.

"You have a lot of leading active providers coming into the space. The market has been dominated by top names like the Mag Seven that have been really driving performance, and you are seeing market breadth widen out. That provides other opportunities, particularly in the active space," he said.

Maier says that within the massive opportunity for active funds in the coming year, he sees particularly ripe potential within fixed income.

He says that with just 9,000 securities in the global equity market, versus around 3 million unique bonds in the fixed income market, it becomes very difficult for an individual or team of financial advisors to effectively manage on their own within fixed income.

Active funds can fill that gap, since they can effectively navigate factors like interest rate sensitivity, credit risk, and liquidity, unlike passive fixed income strategies, he said.

That's especially true as interest rates remain high, he added.

"We think that with active management, there's just so much opportunity there, particularly where we are with the rate cycle," he said. "Rates are still relatively high, so locking in higher yields, I think, makes a lot of sense. And having someone help you do it also makes a lot of sense, so I think you'll see a good amount of growth there."