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Adapting to the new normal
If you’ve had to clear some cobwebs to come up with the answers, you’re not alone. Wall Street Horizon data shows there is a relative dearth of activity across a range of Corporate actions, recent divisive announcements from Walmart (And die), Chipotle (CMG), and Nvidia (NVDA) in spite of. the reason? Although it may take a deep dive, it’s hard to ignore the elephant in the room. The Federal Reserve’s historic campaign to raise interest rates, which began shortly after one of the most euphoric periods in US market history, may have negatively impacted capital market activity.
2024: ETF boom
But leave it to Wall Street to produce new tools to attract investors and traders alike. With approximately five months of data on the books, our team has noticed a total number of new data US ETFs are tracking materially higher this year than in 2023.
Rise in US ETFs coming to market in 2024
Source: Wall Street Horizon
Investors have “options” and are active
What could be responsible for the bulk of the jump is the surge in popularity of income-focused funds. ETFs that sell options to generate additional return are widely targeted at investors who prefer income rather than growth. It’s an interesting bifurcation, given the continuing interest (including ours) in Magnificent Seven or Fab Five stocks.
Investors are also active with their ETF interests. Data from VettaFi reveals that tight credit spreads and uncertainty over Fed interest rate policy have helped attract more than $11 billion in net inflows domestically and $27 billion globally into active bond ETFs. Financial advisors use these funds to manage their clients’ fixed income allocations. Moreover, the bond bear market that began about four years ago led to a major shift from fixed-income mutual funds to ETFs.1
“Advisers and investors are increasingly turning to ETFs to gain exposure. While most assets are low-cost, broad market ETFs, in 2024, asset managers have shifted to offering more targeted strategies that charge higher fees and can benefit from Education,” explained Todd Rosenbluth, Head of Research at VettaFi.
Ways to benefit from technical toys
Last week’s earnings report from NVIDIA (NVDA), the poster child for artificial intelligence, appears to have been the focus of financial media attention ahead of the long weekend. And with Alphabet (GOOGL), Microsoft (MSFT), and Apple (AAPL) all holding major product events this month and next, it’s easy to look beyond the spread of hybrid ETFs mentioned above.
There is another emerging niche for exchange-traded funds (ETFs). Individual equity funds designed to either provide increased return or increased exposure to individual large caps are another thriving corner of the ETF space.
Enter: Ethereum
But, oh, that’s not all. Cryptocurrency investors are having a day. In January, 11 Bitcoin ETFs were approved and began trading.2 The world’s largest cryptocurrency initially rose, but then retreated and remained within a volatile trading range. Bitcoin hit a new all-time high shortly before the end of the first quarter, rewarding early buyers of ETFs.
Then just last week, the US Securities and Exchange Commission (SEC) approved eight applications for an Ethereum spot ETF — and regulators had asked exchanges to get their fund deposits together just days before Thursday night’s announcement.3 This could be the next wave of investor interest in ETFs.
Bottom line
While corporate dealmaking remains generally tepid so far in 2024, there has been a notable jump in the number of new US ETFs coming to the market. There is still an increase in hedged ETFs and other stock options, but expect more headlines in the cryptocurrency ETF arena as the summer heats up.
1 The Golden Age of Active Bond ETFs?, VettaFi, Kirsten Zhang, May 22, 2024
2 11 Newly Approved Bitcoin ETFs Begin Trading Today — But Experts Say They Should ‘Treat With Caution’, CNBC, Mike Winters, January 10, 2024
3 US Securities and Exchange Commission Approves Exchange Requests to List Ethereum ETFs, Reuters, Hannah Lange, Susan McGee, May 23, 2024
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