The launch of spot bitcoin exchange-traded funds (ETFs) and the quest for new ways to invest in artificial intelligence overshadowed other trends in the broader ETF market in the first quarter. However, analysts suggest that themes like single-country ETFs and bond ETFs are likely to gain prominence through 2024.
Japan ETFs in Spotlight
As the Nikkei 225 benchmark index hit a record high since 1989, investors flocked to single-country ETFs focused on Japan. In the final days of Q1, this group of ETFs saw $3.3 billion in inflows – more than half the $6.2 billion they attracted throughout 2023. The WisdomTree Japan Hedged Equity Fund, which strips out currency risk, was particularly appealing, drawing $996 million as the yen tumbled to a 34-year low.
Moving Beyond Megacap Tech
Data from State Street Global Advisors shows that U.S. stock market leadership is broadening beyond megacap technology stocks. While tech-focused ETFs pulled in $9 billion in Q1, only $500 million came in March. In contrast, energy ETFs took in $1.2 billion, industrial funds $1 billion, and real estate $2 billion.
Bond ETF Resurgence
Actively managed bond ETFs continue to gather assets and expand in number and focus, even as the focus shifts to different slices of that universe as the Federal Reserve nears interest rate cuts. Corporate bond ETFs, in particular, have benefited from a “risk on” rotation, though some caution against excessive risk-taking in this space.
New Players Making Their Mark
While BlackRock, Vanguard, and State Street still account for around 75% of the $8.2 trillion U.S. ETF market, newer arrivals like Fidelity, Invesco, Capital Group, and Dimensional Fund Advisors are growing more rapidly. The debut of the Fidelity Wise Origin Bitcoin Fund, with $10 billion in assets, triggered a 16% surge in Fidelity’s overall ETF assets.
Emerging Risks, New Strategies
As geopolitical anxieties and market volatility increase, analysts expect investors to turn to more specific, targeted ETFs, such as sector funds, to mitigate emerging risks.
While the bitcoin ETFs and AI investing captivated the market in Q1, the broadening of the US ETF landscape across various themes and strategies is expected to gain momentum as the year progresses.
