So far, 2024 has been an extraordinarily strong year for equity markets. When the markets are thriving, the path to gains become remarkably straightforward: Exchange-Traded Funds (ETFs). These funds are not only transparent and usually cost-effective, but also easy to purchase via mobile phones, laptops, or other digital channels. Unsurprisingly, the figures up to the end of October show that 2024 has already become a record year for the ETF industry.

Fueled primarily by rising stock prices, ETFs are booming. According to research firm ETFGI, European Ucits ETFs alone saw inflows of 32 billion dollars in October, pushing year-to-date inflows beyond 208 billion dollars – a new annual record. Several providers also confirmed strong ETF purchases in November. ETFGI highlights October as the 25th consecutive month of inflows into UCITS ETFs. This year, assets under management in these products have surged by 21.9% to 2.2 trillion dollars.

ETFs have also flourished globally this year. While the approval of Bitcoin ETFs in the US early in the year contributed to this growth, the industry would have set new records even without them, thanks to substantial inflows into equity ETFs. Products tracking the S&P 500, in particular, have attracted the highest inflows, driven by the booming US equity markets. Bitcoin adds an extra layer of growth.

Globally, ETF inflows rose to 211 billion dollars in October, with November also showing strong performance. By the end of October, net new assets had already reached 1.5 trillion dollars dollars, marking another annual record. ETFGI reports that total global assets in ETFs now stand at an impressive 14.4 trillion dollars.

The ETF boom isn’t solely a result of rising markets. The fund industry is undergoing a profound structural shift. Actively managed funds, typically burdened with higher fees, are losing market share, while ETFs continue to gain. In the US, tax advantages for ETFs have pushed their share of the total fund market to 60%. In Europe, ETFs represent about 20% of the market, with a growth trend. As per Morningstar, ETFs recently captured 30% of all new fund inflows.

Most analysts agree that ETFs will continue to post above average growth in the coming years. While there are some good active funds, the higher fees associated with active management make them less viable compared to ETFs over the long term. Research consistently supports this. A recent S&P Dow Jones study found that over a ten-year horizon, 90% of active equity funds underperform their benchmarks.

The ETF industry has also expanded into new territories, offering an ever-increasing range of products. Nearly everything once available as an active fund is now offered in a low-cost ETF format. More providers are entering the market, including established active managers. Additionally, the industry has successfully tapped into digital distribution channels, making it easier for both professionals and individual investors to access ETFs.

2024 might be an exceptional year for ETFs due to surging stock markets. But the above-average growth will continue, as ETFs now meet almost every customer need at extremely low cost.