Navigating the ETF Data Landscape: Trends, Triumphs and Transformations

The last few years have reshaped the exchange-traded fund landscape. It was just a handful of quarters ago when environmental, social and corporate governance ETFs were all the rage, drawing in billions of dollars around the world into both equity and fixed-income funds.¹

But a soaring Energy sector, led by big and small oil and gas exploration and production companies, diverted new money. Then, two years ago, Russia’s invasion of Ukraine caused investors to rethink what ESG truly meant since then the once-popular theme has taken a backseat to trends of reshoring and friendshoring, though the S and G factors remain top of mind for values-focused asset allocators.²

Investors sought safety in short-term bond ETFs

As all that was happening, inflation reared its head. The U.S. Consumer Price Index (CPI) rate rose above 9% by June of 2022, the highest in four decades.³ The U.S. Federal Reserve was soon forced to raise interest rates aggressively – short-term rates spiked, catching many bond investors flat-footed. Bond ETFs, particularly those with long durations, were hammered. The traditional 60/40 stock/bond portfolio sunk in 2022 amid both falling equity and fixed-income prices a much different market environment than most of today’s investors had ever seen.⁴

The period rekindled memories of the 1970s when bonds provided little in the way of diversification. There was a beneficiary in the ETF space, however. Short-term fixed-income funds, those that were relatively less sensitive to rising interest rates, captured significant inflows.⁵ They remain popular today as short-term yields are around 5%. Critics may suggest short-term Treasury ETFs have had their day in the sun, but the rise in covered call strategies and other yield ETF plays appears as strong as ever.⁶

A new bitcoin boom: ETFs in the spotlight

Of course, maybe the most exciting ETF trend thus far in 2024 is the approval and apparent popularity of spot bitcoin funds. Upon the SEC’s approval of 11 such ETFs, cryptocurrency has once again come back into the mainstream after a tumultuous two years.⁷ Recall that spot bitcoin rallied to $69,000 in late 2021 before a deep bear market.

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By November of 2022, the largest cryptocurrency by market value had plummeted. Spot bitcoin ETF holders who bought within the first few weeks of their inceptions have been rewarded bitcoin, as of late February, traded above $60,000.⁸ Rumors now swirl about the next wave of crypto funds, perhaps related to spot ether.⁹

ETFs: A gauge of investor risk appetite

There are more stories to tell and trends to sift through in the ETF universe, but the bottom line is that investors should monitor what’s in and what may be on the way out to get a sense of the marketplace. ETFs have shown themselves to be a decent barometer of both risk sentiment and macro themes. A slew of AI-related ETFs has come about while actively managed funds have seen a resurgence.

ETF growth is solid, but not through the roof

At Wall Street Horizon, in addition to corporate event coverage, we track U.S. ETF distributions, splits and new ETFs. Among the most revealing trends we found is that while new ETF themes have emerged over recent quarters, overall growth in the domestic ETF marketplace has been roughly flat since late 2021. The cause? It’s tough to pin down precisely, but we can take a few stabs at it.

It’s reasonable to assume that higher interest rates today have quelled financing activity broadly. Notice in the chart below that the growth in ETFs surged from early 2020 through late 2021 a period of intense market speculation that included an initial public offering and special purpose acquisition company boom and the rapid rise in cryptocurrency interest. While many new ETFs hit the ticker each quarter, the overall growth rate is steady for now.

Total new U.S. ETFs by quarter

Source: Wall Street Horizon, based on 230+ ETF providers

Analyzing trends in ETF splits

Another gauge of market excitement is the ratio of traditional to reverse ETF splits. It has been rather quiet on this front. An ETF may undergo a traditional split to reduce the share price in order to attract more investors or to keep the price in a desired dollar range. Given that many major market indices have jumped to record highs, one would conclude that more traditional splits would be on the docket, but we are not seeing that yet.

There has also been a lull in reverse split activity. Often, reverse splits come about among inverse or leveraged ETFs since they are susceptible to negatively compounded returns during periods of volatility. Also, inverse funds, those that move opposite a market index, may see their share prices dwindle, causing the issuer to engineer a…