The popularity of exchange-traded funds remains undiminished nearly 35 years after their introduction. Now, U.S. ETFs appear on a course to reach $10 trillion in AUM by 2027, according to Natixis Investment Managers.
Initially launched in Canada in 1990, the exchange-traded fund (ETF) was first created to provide investors with access to index investing. Since then, the fund type exploded in the number of asset classes and strategy types it covers. From humble index beginnings, ETFs now offer investors exposure to spot bitcoin, carbon markets, call options strategies, and more.
Long appreciated for the tax efficiency they provide, ETFs also provide other portfolio benefits. Unlike their mutual fund counterparts, ETFs trade throughout the trading day. This creates flexibility for advisors and investors who don’t have to wait for the close to settle their trades. They also generally carry lower management fees than mutual funds and other fund types.
Image source: Natixis Investment Managers
U.S. ETFs held $8.4 trillion in AUM as of April 2024, Natixis reported. “Let’s put that $8.4T into context,” the authors wrote. “If you add up the value of every professional football, basketball, baseball, soccer, and hockey team in the U.S., assets in ETFs are nearly 20x that value.”
They continue to grow their market share. In 2015, ETFs comprised only 18% of all mutual fund assets, but as of this year, they currently account for 45%. What’s more, mutual fund-to-ETF conversions picked up steam this year.
Natixis attributes much of the popularity and growth to actively managed ETFs, which was made possible in 2019 with the passage of Rule 6c-11. Dubbed the “ETF Rule,” it broadened the potential scope of active strategies within the ETF wrapper.
The U.S. ETF market has seen an average annual inflow of around $585 billion for the past four years. If this average continues, it will result in over $10 trillion in AUM for the U.S. ETF industry in the next three years.
“While predictions are never an exact science, it is encouraging to know that ETFs could eclipse this psychological, monetary factor of acceptance in short order,” Natixis wrote.
The firm currently offers a bevy of funds for investors, including the Natixis Gateway Quality Income ETF (GQI) and the Natixis Loomis Sayles Focused Growth ETF (LSGR). Also offered are the Natixis Loomis Sayles Short Duration Income ETF (LSST) and the Natixis Vaughan Nelson Select ETF (VNSE).
For more news, information, and analysis, visit the Portfolio Construction Channel.