In this edition of ETF Prime, Kirsten Chang, senior industry analyst at VettaFi, talked milestones in ETFs this year with host Nate Geraci. The podcast also included a discussion with James St. Aubin, CIO at Ocean Park Asset Management.
$10 Trillion in ETFs: Records in 2024?
Geraci and Chang initially discussed their own takes on $10 trillion in ETF assets in the United States. Chang pointed out that, on a flows basis, ETFs are still chasing records, with more than $680 billion in flows so far this year. While the ETF market is maturing according to observers, she said, there are not yet signs it’s slowing down.
Geraci added that inflows to ETFs in the third quarter were unmatched, historically, outpacing the record set in Q4 last year. Chang pointed out that bond ETFs have played an important role in flows, therein.
“I would say bond ETFs are the stars of the show,” she noted. “I think there’s a general consensus on Fed easing, but ongoing debate about where the terminal rate will ultimately end up. And then there’s this unquenchable thirst for income, sort of beyond your standard dividend-oriented portfolio.
“So active strategies overall, they continue to do well in stretches of high volatility,” Chang added, pointing for example to the popularity of funds like the JPMorgan Equity Premium Income Fund (JEPI).
Geraci shared his continued amazement at investor interest in what he called “plain vanilla ETFs.” What’s more, he asked Chang for her thoughts on three specific areas, starting with gold ETFs. She shared that gold ETFs are “back in the game,” with prices back to record highs. That has taken gold outflows back down to just $1 billion overall, with GLD, SPDR Gold Shares on the top 20 most popular ETF list for the first time this year. Central banks and lower interest rates also speak to the case for gold, Chang added.
“Plus, if you’re still a believer that gold is a safe haven play, there’s still plenty of geopolitical uncertainty to wade through in 2025,” she said.
Crypto Strategies & Spot ETFs
Turning to Geraci’s second area of interest, crypto, the host pointed out that crypto ETFs saw their own milestone. The iShares Ethereum Trust ETF (ETHA) passed $1 billion in assets in just two months. Chang explained that crypto hasn’t had a great quarter. IBIT, the iShares Bitcoin Trust ETF, has been a bright spot, she said. It has seen “the bulk of the gains” for spot bitcoin for the quarter.
“We’ve seen much of that initial gusto and fervor over spot bitcoin ETFs die down over the past few months, and much of that is tied to the price action,” she noted.
Geraci responded that the year has still seen significant flows since spot bitcoin ETFs arrived in January. He added that he still feels optimistic because advisors and institutional investors often have lengthy due diligences processes. Many haven’t yet reached a level of comfort to invest in spot bitcoin ETFs. He also added that many wire houses still haven’t approved spot bitcoin ETFs to be listed on their sites.
China ETFs
China ETFs took the third slot for Geraci’s questions on flows. After years of underperformance, Geraci noted, he asked whether Chang has seen much of note therein. She explained that strategies like the KraneShares CSI China Internet ETF (KWEB) has benefited from the Chinese government’s “policy bazooka.”
“I think asset allocators might start to think about the need to neutralize their exposure. They’ve been dramatically underway for so long,” Chang said. “So even if they’re not buying them, I think they still have to kind of neutralize their shorts.”
Chang noted that given that past stimulus efforts failed to make a sustainable impact, questions remain about China equities. In any case, even with some degree of sustained China interest, it could boost emerging markets equities, she said. Chang noted the recent media coverage, too, of Appaloosa Management leader David Tepper. Tepper recently made a big call in favor of China investing.
ETF Launches Take the Stage
To round out the conversation, the pair also discussed ETF launch rates. September saw more than 100 new launches, with most of those mutual-fund-to-ETF conversions.
“I would say bond products make up nearly half of all these ETFs debuts as we continue to ride out this sort of higher golden age for bond investing. State Street alone had a big handful of new launches to add to the tally, including these 14 sort of target maturity bond ETFs,” Chang said.
Asked by Geraci to suggest new standout ETF, Chang suggested MMKT amid significant interest in money markets. She also underlined the first ETF from Rob Arnott, the Research Affiliates Deletions ETF (NIXT), what she called a “huge contrarian play” that focuses on stock index rejects. She also touted a few CLO ETFs including one from Palmer Square, the Palmer Square CLO Senior Debt ETF (PSQA).
“So, more and more advisors are seeking access to loans in these liquid formats, and [CLO ETFs] are just kind of a natural extension of investor search for yield,” Chang added.
Geraci mentioned that his next episode would actually see Palmer Square CEO Chris Long join him to discuss that. Rob Arnott would also make an appearance in November.
Listen to the entire episode of ETF Prime, featuring Kirsten Chang and James St. Aubin:
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