MW These ETF strategies were big winners last year. What to expect in 2025.
By Isabel Wang
Investors piled more than $1.1 trillion into the U.S. ETF universe in 2024
Happy New Year! This is MarketWatch reporter Isabel Wang bringing you this week's ETF Wrap. In this edition, we look at fund flows and some of the top performers in 2024. We also explore the rise of CLO ETFs and why they might be a compelling opportunity for investors in 2025.
Please send tips or feedback to isabel.wang@marketwatch.com or to christine.idzelis@marketwatch.com. You can also follow me on X at @Isabelxwang and find Christine at @CIdzelis.
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2024 was a lucrative year for the U.S.-listed exchange-traded funds.
Investors piled more than $1.1 trillion into the U.S. ETF universe last year, with total assets reaching a record of at least $10 trillion as investors rushed into ETFs to gain liquidity, tax efficiency and market access sometimes not found in other investment vehicles.
ETFs tracking the large-cap benchmark S&P 500 index SPX, which surged 23.3% last year, saw the strongest net inflows in 2024, according to FactSet data.
The fund that enjoyed the biggest demand was the Vanguard S&P 500 ETF VOO, which attracted over $116 billion in net inflows last year, followed by the iShares Core S&P 500 ETF IVV and the Vanguard Total Stock Market ETF VTI, according to FactSet data.
"Those are tremendous milestones that set the stage for future ETF growth in 2025," said Todd Rosenbluth, head of research at VettaFi. "Investors tend to start with low-cost, broadly diversified ETFs, and then build from there and broaden the lineup."
U.S. stocks on Tuesday closed out another remarkable year on Wall Street, as rising demand for artificial intelligence, a surprisingly resilient U.S. economy and the Federal Reserve's interest-rate cuts propelled the major stock indexes to multiple record highs.
At least seven of the top 10 ETFs for 2024 by fund flows track the S&P 500 or the tech-heavy Nasdaq 100 index NDX.
See: Here are the big trades that flat-footed ETF investors missed in 2024. What's next.
Tech funds still led the way
At the heart of the stock-market rally were the so-called Magnificent Seven group of technology companies that benefited from the AI boom. Nvidia Corp. $(NVDA)$ scored a spectacular 171% annual gain, while Apple Inc. $(AAPL)$, Google-parent Alphabet Inc. $(GOOG)$ $(GOOGL)$, Amazon.com $(AMZN)$, Meta Platforms $(META)$ and Tesla Inc. $(TSLA)$ all posted gains of at least 30%. Shares of Microsoft Corp. $(MSFT)$ rose a modest 12.9% last year, according to FactSet.
As a result, the funds tracking technology and growth stocks were among the top ETF performers in 2024. The Roundhill Magnificent Seven ETF MAGS advanced over 62.7% last year, making it the second-best-performing fund among the 1,000 ETFs that MarketWatch tracked in the same period, according to FactSet data.
The Defiance Quantum ETF QTUM - which invests in a number of mature and developing companies involved in quantum computing and machine learning - gained nearly 50% in 2024, ranking as the No. 4 best-performing ETF of the year.
See: Quantum-computing stocks are soaring as investors place bets on 'the next big thing' in tech
Rosenbluth told MarketWatch that QTUM has started to gain investors' interest over the past month as "a more thematic ETF with a narrow technology and semiconductor focus." Launched in 2018, the previously little-known quantum ETF didn't get much inflows until Alphabet last month announced a big breakthrough in quantum computing. QTUM saw net inflows of $365 million in December alone and jumped 16.3% for the month, according to FactSet data.
Bitcoin ETFs boomed in 2024
Of course, one of the fastest-growing ETF categories in 2024 was crypto. The first-ever spot bitcoin ETFs started trading in the U.S. in early January in a landmark moment for Wall Street and beyond.
The iShares Bitcoin Trust ETF IBIT attracted more than $37 billion in net inflows in 2024. The Grayscale Bitcoin Trust ETF GBTC jumped over 134% in 2024, making it one of the best-performing funds of the year, according to FactSet data.
Bitcoin (BTCUSD) more than doubled in 2024 amid optimism over the easing regulatory environment under Donald Trump's second administration and a favorable macroeconomic setup to support gains for risk assets.
But MarketWatch's Frances Yue reported that for crypto's bull run to continue, investors should closely watch for regulatory changes in 2025 and whether Trump's promises to the crypto industry will materialize, as he repeatedly vowed support for the industry during his campaign and received endorsements from several key figures in the crypto industry.
More on bitcoin: Bitcoin may reach cycle peak in 3 weeks if history repeats itself - but watch for these barriers
CLO ETFs are on the rise
In the credit ETF space, one of the biggest trends in 2024 was the rise of CLO ETFs - funds that invest in collateralized loan obligations, analysts told MarketWatch.
The Janus Henderson AAA CLO ETF JAAA saw total net inflows of $11 billion in 2024, making it one of the most popular fixed-income ETFs, only behind the broader iShares Core U.S. Aggregate Bond ETF AGG, the Vanguard Total Market Bond ETF BND and the iShares 0-3 Month Treasury Bond ETF SGOV.
Aniket Ullal, head of ETF research and analytics at CFRA Research, said the popularity of JAAA highlights investors' interest in the alternative credit ETF space.
BlackRock Inc. $(BLK)$, the world's largest asset manager, has recently filed to launch a new CLO ETF that invests in CLOs rated between BBB+ and B-, while BondBloxx in December launched a new actively-managed private credit CLO ETF PCMM.
"I think investors are looking at some of these alternative credit ETFs for higher yields as interest rates decline," Ullal told MarketWatch via phone on Thursday.
To be sure, investors have often embraced previously illiquid assets once they are offered in ETF form, a team of strategists from BofA Global Research wrote in a recent client note. "CLO ETFs have been a huge success practically overnight, with their assets under management growing over 245% in 2024," they said.
From the WSJ: CLOs Are So Hot Right Now, They're Getting ETF'd
Looking ahead, the CLO ETF is an attractive opportunity for both investors and asset managers in 2025, the ETF analysts told MarketWatch.
"Market expectations are that the gains for the S&P 500 [in 2024] can't be duplicated again, so investors are going to look for alternatives. Alternatives in 2024 primarily were focused on bitcoin, but they are going to involve other categories as well," Rosenbluth said.
Also from the ETF providers' point of view, Ullal said ETFs tracking some of the more traditional asset classes are "already very competitive and well-established," so fund issuers are looking at new categories that are "less mature with more growth opportunities, and particularly those asset classes that are large but not accessible in the ETF format."
As usual, here's your look at the top- and bottom-performing ETFs over the past week through Tuesday, according to FactSet data, as markets were closed in observance of the New Year's Day on Wednesday.
The good...
Top performers %Performance United States Natural Gas Fund LP 9.4 United States Oil Fund LP 3.3 SPDR S&P Oil & Gas Exploration & Production ETF 3.1 iShares U.S. Oil & Gas Exploration & Production ETF 2.7 iShares U.S. Treasury Bond ETF 2.4 Source: FactSet data through Tuesday, Dec. 31. Start date Dec. 26. Excludes ETNs and leveraged products. Includes NYSE-, Nasdaq- and Cboe-traded ETFs of $500 million or greater.
... and the bad
Bottom performers %Performance YieldMax TSLA Option Income Strategy ETF -16.3 YieldMax MSTR Option Income Strategy ETF -12.8 Amplify Transformational Data Sharing ETF -10.4 Amplify Junior Silver Miners ETF -9.2 YieldMax COIN Option Income Strategy ETF -7.8 Source: FactSet data
New ETFs
-- PGIM on Thursday launched the PGIM S&P 500 Max Buffer ETF series, the PGIM Nasdaq-100 Buffer 12 ETF series and the PGIM Laddered Nasdaq-100 Buffer 12 ETF.
-- Calamos Investments LLC on Thursday announced the launch of the Calamos S&P 500 Structured Alt Protection ETF - January and the Calamos Russell 2000 Structured Alt Protection ETF - January, with each providing 100% downside-protected exposure to their respective indexes over a one-year outcome period, according to a press release.
Weekly ETF Reads
-- Assets in U.S. exchange-traded funds topped $10 trillion. Here are trends for investors to watch, experts say (CNBC)
-- Will 2025 be the year for plain vanilla ETFs or private assets? (Financial Times)
-- Investors sell gold ETFs for fourth year even with Fed easing (Bloomberg)
-- Market for ESG, sustainable investing still massive (ETF Trends)
-Isabel Wang
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January 02, 2025 18:14 ET (23:14 GMT)
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