The stock market’s rebound to record highs and the launch of new Bitcoin funds set up notable milestones for the ETF industry in the first half of 2024. There were some snags in the second half that affected the possibility of a repeat performance. The best-performing ETFs in the second half of the year will likely depend on broader changes in markets and the economy. With signs that economic growth has begun to slow, Wall Street is waiting to see when the Federal Reserve will start cutting interest rates. “The biggest obvious risk to this rally is whether the Fed will maintain restrictions that are too stringent for too long,” said Michael Arone, chief investment strategist for State Street Global Advisors’ U.S. SPDR business. , even as uncertainty continues to grow, there are still some types of ETFs that could emerge as winners. In the first half of the year, a few stocks became big winners, and some ETFs with a narrow focus were also able to ride the wave. For example, the Roundhill Magnificent 7 ETF (MAGS) has grown to over $500 million in assets. Single stock funds tied to Nvidia are also seeing strong interest, including the GraniteShares 2x Long Nvidia ETF (NVDL). MAGS YTD mountain The success of large-cap tech stocks, including ETFs, has been a key factor in this market rally. The Magnificent 7 ETF is up more than 40% in 2024. “We would like to have a presence there, but a lot of portfolios are already heavily exposed to Mag 7, or it has now become Fab 5,” Arone said. “Ultimately, we encourage them to think that there are other companies beyond that that will benefit from the cross-border Companies across sectors and industries are making huge investments in artificial intelligence. I think in some ways we want to have our cake and eat it too.” ETF companies have struggled to find effective artificial intelligence-themed ETF funds, but there are some options that allow investors to invest in companies in the field without having to invest only in Nvidia and Microsoft. For example, the SPDR NYSE Technology ETF (XNTK)’s largest holding right now is Nvidia, but it only accounts for about 5% of the entire fund. The fund’s annual rebalancing weights are the same. Jay Jacobs, head of U.S. thematic and active ETFs at BlackRock’s iShares unit, is also bullish on AI-related funds in his mid-year outlook. “In the short term, we believe that two huge forces in particular have the potential to reshape the global economy and potentially reach a critical inflection point: 1) the transformative potential of artificial intelligence (AI) and its catalytic effect on historic cycles. Capital expenditures; 2) Amid the global election wave, geopolitics increasingly impacts trade and technology,” Jacobs wrote. Equity funds focused on iShares include the company’s own U.S. Digital Infrastructure and Real Estate ETF (IDGT) and the U.S. Technology Independent Focus ETF (IETC). Fixed-income bond funds have been a growth area in the ETF industry, especially actively managed funds such as the BlackRock Flexible Income ETF (BINC) and the Pimco Multi-Sector Bond Active ETF (PYLD). But Todd Sohn, ETF strategist at Strategas, said the new offerings haven’t had much of an impact on cash sitting on the sidelines. “While we are bullish on the growth prospects of fixed income ETFs, we are surprised to find that retail money market AUM now exceeds the AUM of retail mutual fund + ETF products combined – until the last time it was observed in 2008 in the aftermath of the financial crisis, it was 5% cash. [yields are] “It certainly helps, but we tend to wonder whether investors may be overlooking opportunities elsewhere, whether in stocks or bonds,” Sohn wrote in a note to clients on July 2. Aron said there is a lack of interest in trying to capture The trend of interest rates is cautious. “Many investors are still obsessed with extending duration to take advantage of falling interest rates. I think they underestimate the volatility and risk of this situation.” Arone recommended that investors instead consider increasing physical assets such as gold. or floating rate exposure, including the SPDR Blackstone Senior Loan ETF (SRLN) or the First Trust Senior Loan Fund (FTSL). Net flows, next in demand remains the Ethereum ETF, which industry experts expect to receive approval. Matt Hougan, chief investment officer of Bitwise Asset Management, predicts that based on the market size of Ethereum and examples from other countries, the size of the Ethereum ETF will eventually be less than one-third the size of the Bitcoin ETF. Nonetheless, Hougan expects ETH funds to see net flows of $15 billion in the first 18 months, which would make it one of the most successful new fund categories ever. Another problem with ETH funds is that they do not allow for staking, a process used by some cryptocurrency investors to generate additional income from Ethereum and other cryptocurrencies. However, Hougan said he doesn’t think this omission will be a big hurdle for ETF investors. “I think ETFs just solve a problem for traditional investors, and if they can achieve 99 percent of their goals, then they will be successful,” Hougan said.
