U.S. ETFs See Surge in Cash as Short-Term Treasury and Actively Managed Funds Gain Favor

TradingKey - Despite the turbulence in financial markets caused by tariffs and trade wars, U.S. investors' enthusiasm for exchange-traded funds (ETFs) has only grown stronger. 

This year, U.S. ETFs have absorbed $437.9 billion, with inflows poised to set the annual record for the second consecutive year. Publicly available data indicated that in 2024, ETF inflows surpassed the $1 trillion mark.

The biggest beneficiary of this year's ETF investment surge is the Vanguard Group's S&P 500 ETF (VOO), which has attracted $65 billion in net inflows. This has propelled it to become the world's largest ETF by asset size. Notably, in April of this year, when U.S. stock market volatility soared to a five-year high, this fund recorded the highest monthly inflow in its history, signaling a shift among investors towards ETFs.

While equity ETFs dominate, short-term Treasury ETFs have also gained favor due to market instability. The second most popular ETF after VOO this year is BlackRock’s 0-3 Month Treasury Fund, which has seen nearly $17 billion in inflows and offers a 12-month trailing yield of 4.7%. BlackRock CEO Larry Fink has remarked that in times of uncertainty, people tend to hold more cash.

Additionally, actively managed funds continue to command a significant share of new assets. This year, 30% of ETF inflows have gone to active funds, even though they represent less than 10% of total assets.

The long-term trend of shifting from mutual funds to ETFs is likely to accelerate further. Currently, dozens of fund management companies have submitted applications to the U.S. Securities and Exchange Commission seeking to offer new ETF classes for existing mutual funds.