Exchange-traded funds attracted a record $95 billion in net inflows during January, as passive investment strategies continue to gain favor among both retail and institutional investors seeking diversification and lower fees.
U.S. equity ETFs led the inflows, followed by international developed markets and fixed income funds. The strong start to the year extends a multi-year trend of assets shifting from active to passive management.
Cost Advantages Drive Growth
The persistent fee advantage of ETFs over actively managed mutual funds remains a primary driver of the shift. The average equity ETF expense ratio has fallen to just 0.16%, compared to 0.68% for actively managed equity funds.
"Investors are increasingly recognizing that fees compound over time and significantly impact long-term returns," said ETF analyst Christine Moore. "The math strongly favors low-cost passive strategies for most investors."
Thematic and Active ETFs Gain Ground
While traditional index funds captured the majority of flows, thematic ETFs focused on AI, clean energy, and other megatrends also attracted significant interest. The active ETF category, though smaller, grew at the fastest rate.
Fixed income ETFs benefited from investors seeking yield as expectations for Fed rate cuts increased. Treasury and investment-grade corporate bond funds were particularly popular.