ETF Inflows on Cusp of Annual Record

Steep Run-Up Unlikely to Persist

Exchange-traded funds (ETFs) are on track to see their biggest annual inflow ever, as investors flock to these low-cost, diversified investment vehicles. Through November, ETFs have taken in $540 billion, just shy of the record $561 billion they took in all of 2020.

The inflows have been driven by a number of factors, including the Federal Reserve's ultra-low interest rates, which have made bonds less attractive. Investors have also been drawn to ETFs' low fees and ability to track a variety of asset classes, from stocks to bonds to commodities.

While ETF inflows are expected to continue in 2022, they are unlikely to match the torrid pace of 2021. The Federal Reserve is expected to begin raising interest rates, albeit gradually, which could make bonds more attractive to investors.

Equity Funds Lead the Way

Equity ETFs have been the biggest beneficiaries of the inflows, accounting for $330 billion of the total. Investors have been drawn to the potential for higher returns in stocks, despite the recent volatility in the market.

Fixed income ETFs have also seen strong inflows, taking in $170 billion. Investors have been flocking to these ETFs as a way to protect their portfolios from rising interest rates.

International ETFs Gain Traction

International ETFs have also been popular, with investors seeking to diversify their portfolios and take advantage of growth opportunities in emerging markets. These ETFs have taken in $40 billion so far this year.

Conclusion

ETF inflows are on track to set an annual record in 2021, driven by a number of factors including low interest rates and the appeal of ETFs' low fees and diversification. While inflows are expected to continue in 2022, they are unlikely to match the torrid pace of this year.