Key Takeaways
- Investors are overwhelmingly favoring passive investment strategies like ETFs over actively managed funds.
- Crypto ETFs, particularly Bitcoin and Ethereum ETFs, have experienced unprecedented growth.
- The trend towards passive investing and the growth of crypto ETFs are expected to continue in 2025 and beyond.
Crypto exchange-traded funds (ETFs) stole the show in 2024, attracting record inflows and outpacing all other ETF launches.
BlackRock’s Bitcoin ETF emerged as a juggernaut, while Ethereum and MicroStrategy-linked funds also saw significant inflows.
Funds Shift to ETFs
Investors withdrew a record $450 billion from actively managed stock funds this year, surpassing last year’s $413 billion high, according to EPFR data.
The shift to cheaper index-tracking investments reflects the growing dominance of passive investing and exchange-traded funds (ETFs), which have steadily eroded the market for active mutual funds.
Active funds have struggled to justify their higher fees as performance lags behind Wall Street indices dominated by tech giants like Nvidia, Apple, and Microsoft.
These “Magnificent Seven” stocks drove most U.S. market gains this year, making it harder for active managers, who often underweight such companies, to compete.
The investor exodus has accelerated as older investors cash out and younger savers opt for cost-efficient passive strategies.
Actively managed U.S. large-cap funds have delivered 20% one-year returns, compared to 23% for similar passive funds, with fees averaging nine times higher.
ETFs, offering tax advantages and intraday trading flexibility, have attracted $1.7 trillion this year, boosting total assets by 30% to $15 trillion.
Crypto ETFs Attracted Most Money
Crypto ETFs dominated inflows in 2024, with the eight largest launches of the year all tied to the sector.
Among these are spot Bitcoin (BTC), Ethereum (ETH) ETFs, and MicroStrategy ETFs.
These funds outpaced around 740 other ETFs launched in the past year.
BlackRock spot Bitcoin ETF, IBIT, led the pack with $37 billion in net inflows and a historic debut. It amassed nearly $53 billion in assets under management within 11 months.
Fidelity’s FBTC followed with $12.2 billion in inflows, while BlackRock’s ETHA, the top Ethereum ETF, recorded $3.5 billion.
These figures highlight Bitcoin’s dominance in fund flows.
ARK 21shares‘ ARKB and Bitwise’s BITB brought in $2.6 billion and $2.2 billion, respectively.
YieldMax’s MSTY, linked to MicroStrategy, and Fidelity’s FETH, another Ethereum ETF, saw inflows of $1.8 billion and $1.5 billion, respectively.
Defiance’s MSTX rounded out the top eight with $1.4 billion.
Analysts predict strong growth for crypto ETFs in 2025, with Bitcoin ETFs alone expected to draw $35 billion in inflows.
Regulatory shifts may also pave the way for new offerings, including a Solana (SOL) ETF.
BlackRock’s Role
Shares of traditional stockpickers like Franklin Resources, T Rowe Price, Schroders, and Abrdn have underperformed compared to BlackRock, which thrives on its ETF and index fund dominance.
BlackRock is set for a record year, with over $360 billion in net inflows in the first three quarters of 2024, driven largely by its ETFs.
The third quarter alone contributed $220 billion, pushing total assets under management to $11.5 trillion.
The company’s active ETFs, such as the $13.7 billion iShares U.S. Equity Factor Rotation ETF and the $6.7 billion iShares Flexible Income ETF, attracted $11 billion and $5.5 billion, respectively.
Additionally, the iShares Bitcoin Trust amassed $50.8 billion in assets within just six months.
BlackRock success is bolstered by its own model portfolio platform, which integrates its ETFs and appeals to advisers who prioritize flexibility, cost control, and active exposure.
According to State Street Global Advisors, model portfolios have grown in popularity. They now represent 39% of advisers’ managed assets, up from 32% three years ago.
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