As of the end of May, there’s a staggering $15.7 trillion in US-traded ETFs -- a number supported by year-to-date inflows of $837 billion. It’s safe to say that when the June data revealed, both numbers will be higher.
Obviously, an asset class doesn’t arrive $15.7 trillion without significant participation from institutional investors. Endowments, insurance companies and pension plans, among others, are devoted ETF users with data suggesting the largest institutions are among those most widely embracing ETFs. Liquidity, precise exposures, ability to maintain continuous exposure and the ability to put on large exposures without disrupting markets are among the reasons so many institutional investors use ETFs.
Don’t sleep on retail investors’ embrace of ETFs. In fact, it’s accurate to say “little guys” (and gals) are playing integral roles in ETF growth. Data confirm as much. As State Street Investment Management points out, just 900,000 U.S. households owned ETFs in 2005, but that number swelled to nearly 17 million in 2024. It’s likely higher today.
Understanding Retail’s ETF Proclivities
It’s been more than 33 years since the State Street® SPDR® S&P 500® ETF Trust (SPY) debuted, meaning ETFs are no longer new or foreign to the bulk of investors. State Street makes a good point: Many investors basically grew up with ETFs.
“In the US, retail investors are emerging as a primary force behind ETF adoption, supported by easier access to markets, digital-first investing platforms, and lower barriers to entry,” notes the ETF giant. “At the same time, ETFs have been around long enough that many newer investors have grown up with them already embedded in their portfolios—making them a familiar and intuitive starting point for building long-term wealth.”
For many retail investors, ETFs are ideal tools. There’s clearly appetite, particularly among younger market participants, to access high-octane, thematic exposures without the need to stock pick. ETFs answer that bell.
Likewise, there’s a broad swath of non-professional market participants that see value in ETFs as long-term portfolio lynchpins. They don’t want to fiddle with stock-picking. Rather, they simply want low-cost broad market exposure in set-and-forget fashion. That sentiment goes a long way toward explaining why the Vanguard S&P 500 ETF (VOO) recently became the first ETF with $1 trillion in assets under management. The point is retail’s affinity for ETFs is durable and it’s supportive of long-term growth for the industry.
Speaking of ETF Growth…
Although ETF growth continues unabated and in indomitable fashion, these instruments represent just 14% of global investable investments. Translation: There’s ample room for more growth and that’s likely what’s in store in the years ahead. State Street forecasts global ETF assets will more than triple over the next decade.
(Image: State Street)
“As we look to the future, we predict that ETF assets will reach nearly $64 trillion by 2035,” adds State Street. “And as product innovation accelerates and access expands, investors can gain exposure to a wide range of markets, strategies, and outcomes through these highly liquid, cost-effective, and highly transparent portfolio building blocks.”
With cost efficiencies, diversification and access to innovation paramount to so many retail investors, those market participants will continue playing leading roles in ETF industry growth.