Portfolio construction

US ETFs set to top $10T in 3 years

June 27, 2024 - 2 min read

Senior Vice President, Head of Institutional Product and ETFs – Natixis Investment Managers – US Distribution

Exchange-traded funds (ETFs) were first created in the 1990s as a way to provide passive index exposure to investors. Over the years, they have grown increasingly popular due to their low costs, tax efficiency, and trading flexibility as compared to other investment vehicles. With interest in passive investment strategies rising over the last decade, many investors turned to ETFs. As a result, US ETF assets have grown exponentially, reaching $8.4T as of April 2024.¹

US domiciled ETF AUM 2002 - 2023 ($B USD)

Source: Statista, 2023

An incredible journey for ETFs: from $0 to $10T

Let’s put that $8.4T into context. If you add up the value of every professional football, basketball, baseball, soccer, and hockey team in the US, assets in ETFs are nearly 20x that value.²Additionally, ETF assets nearly eclipsed a third of the US GDP in 2023.

Today, the demand for ETFs continues to rise, with issuers persistently introducing innovative products to meet the needs and preferences of investors, while offering very competitive fees. Total ETF assets represented only 18% of mutual fund assets in 2015,³but have now climbed to 45%,¹ and are projected to surpass mutual fund AUM in the coming years.

Innovations have driven ETFs’ asset gains

While several innovations and trends have driven ETF asset gains, one of the most noteworthy is active ETFs. With the potential to outperform the market—compared to passive ETFs which seek to match it before fees—active ETFs have caught the attention of investors. In 2023, active ETF assets grew by 37%, compared to passive ETFs, which only grew 8%.⁴

The rise stems from a combination of product development and legislation – such as the SEC’s 2019 passage of Rule 6c-11 (also called the “ETF Rule”) which opened the ETF market to more active ETFs. In addition to active ETF launches, we have seen mutual fund firms converting mutual funds to ETFs to increase tax efficiency for investors and meet buyer preferences.

Next for US ETFs – Crossing $10T in assets in 2027

As mentioned, US ETFs currently hold $8.4T in assets, and have averaged inflows of about $585B for the past 4 years,¹ meaning assets are on track to reach $10T in 2027. 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. Additionally, ETF assets are said to be on track to pass mutual fund assets by 2038, according to published reports from Cerulli Associates.⁵

We believe the future is bright for ETFs, including active ETFs, and Natixis Investment Managers is pleased to have a diverse selection of these tax-efficient, cost-conscious investment vehicles available to our clients.

¹Institutional Shareholder Services, Inc.

² “The NFL’s Most Valuable Teams 2023: Dallas Cowboys Remain On Top At A Record $9 Billion,” Forbes, August 30, 2023.

³ “3 big reasons exchange-traded funds went ‘mainstream’ with investors, CNBC.com, November 6, 2023.

⁴“Actively Managed ETF Assets Soared 37% in 2023,” ETF.com, February 6, 2024.

⁵ “ETF Assets Will Overtake Mutual Funds in 15 Years, Cerulli Says,” Financial Advisor Online, August 10, 2023.

An exchange-traded fund, or ETF, is a marketable security that tracks an index, commodity, bond, or a basket of assets like an index fund. ETFs trade like common stock on a stock exchange and experience price fluctuations throughout the day as they are bought and sold. Short-term fixed income ETFs invest in fixed income securities with durations between one and five years.

All investing involves risk, including the risk of loss. Investment risk exists with equity, fixed income, money market, and alternative investments. There is no assurance that any investment will meet its performance objectives or that losses will be avoided.

The views and opinions expressed may change based on market and other conditions. This material is provided for informational purposes only and should not be construed as investment advice. There can be no assurance that developments will transpire as forecasted. Actual results may vary.

Unlike passive investments, there are no indexes that an active investment attempts to track or replicate. Thus, the ability of an active investment to achieve its objectives will depend on the effectiveness of the investment manager.

This material does not constitute legal or tax advice. Investors should consult with their legal or tax advisors.

Exchange-traded funds (ETFs) trade like stocks, are subject to investment risk, and will fluctuate in market value. Unlike mutual funds, ETF shares are bought and sold at market price, which may be higher or lower than the ETF’s net asset value. Transactions in shares of ETFs will result in brokerage commissions, which will reduce returns. Active ETFs: Unlike typical exchange-traded funds, there are no indexes that an active ETF attempts to track or replicate. Thus, the ability of an active ETF to achieve its objectives will depend on the effectiveness of the portfolio manager. Transactions in shares of ETFs will result in brokerage commissions, which will reduce returns.

Before investing, carefully consider the fund’s investment objectives, risk, charges, and expenses. Visit im.natixis.com for a prospectus or a summary prospectus containing this and other information. Read it carefully before investing.

ALPS Distributors, Inc. is the distributor for the Natixis Gateway Quality Income ETF, the Natixis Loomis Sayles Focused Growth ETF, and the Natixis Vaughan Nelson Select ETF. Natixis Distribution, LLC is a marketing agent. ALPS Distributors, Inc. is not affiliated with Natixis Distribution, LLC.

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