In 2024, exchange-traded fund inflows have already surpassed monthly records, with managers believing that there could be an impact from the money market fund boom before the year ends. Nate Geraci, president of The ETF Store, expressed his view that the over $6 trillion parked in money market funds could serve as a potential catalyst for flows into REIT ETFs and the broader ETF market. Total assets in money market funds reached a new high of $6.24 trillion, as investors anticipate a Federal Reserve rate cut which may result in a decrease in yield for money market funds, prompting some capital to move back into the marketplace.
Matt Bartolini, Head of SPDR Americas Research at State Street Global Advisors, highlighted that as rates fall, some of the money held in cash will likely be redirected into stocks, other higher-yielding areas of the fixed income market, and certain parts of the ETF market. He specifically mentioned that gold ETFs have seen significant inflows over the last three months and anticipates continued growth in the future. Geraci believes that large megacap ETFs will benefit from this trend and he is optimistic that ETF inflow levels could break the 2021 record of $909 billion, assuming there is no significant stock market pullback.
The potential impact of the money market fund boom on ETF inflows is a significant factor to watch for the remainder of the year. With the possibility of a Federal Reserve rate cut and the consequent expected decrease in money market fund yields, investors may choose to reallocate their capital into different asset classes, including ETFs. As a result, areas such as REIT ETFs, gold ETFs, and megacap ETFs could see increased inflows as investors seek higher returns in a low-interest rate environment.
According to experts like Matt Bartolini, the movement of capital from money market funds into stocks, higher-yielding fixed income products, and various ETFs is likely to continue as interest rates decline. Gold ETFs, in particular, have experienced strong inflows recently and are expected to perform well in the future. Such trends indicate a potential shift in investor behavior away from cash holdings towards more risk-on assets, which could benefit different sectors of the ETF market.
The prospect of beating the 2021 record for ETF inflows of $909 billion is promising, according to Nate Geraci, who believes that continued investor allocation into ETFs is likely, barring a significant market downturn. With the current environment of low-interest rates and abundant liquidity in money market funds, ETFs may continue to attract substantial inflows as investors seek higher returns and diversification.Overall, the outlook for ETF inflows remains positive, with the money market fund boom expected to play a significant role in shaping investor preferences and driving capital into various asset classes, including stocks, fixed income, and ETFs. As interest rates decline and the yield on money market funds decreases, investors are likely to reallocate capital into more lucrative investment opportunities, potentially leading to record-breaking inflows into ETFs in the near future.
