Jay Jacobs, U.S. Head of Equity ETFs at BlackRock, says ETFs are seeing record global momentum, driven by demand for active strategies, digital assets, tax efficiency, and investor liquidity.

Wall Street

Exchange-traded funds (ETFs) are experiencing a global surge in popularity, with record-breaking inflows reported by major issuers such as BlackRock. This growth is not limited to a single asset class, as investors are allocating funds across digital assets, active strategies, and index products. Actively-managed ETFs have seen a notable increase in inflows, driven by investor demand for alpha, tax efficiency, and liquidity. Digital asset ETFs and income-focused strategies are also attracting significant interest, while short-term treasury ETFs are being used by investors seeking yield and liquidity. The trend suggests that more capital could move from money market funds into ETFs as investors look to participate in broader markets.

ETFs are gaining global momentum

All right, so you're the head of the ETF business over there again at BlackRock, the top ETF issuer. What does it mean to cross a trillion dollars for the second consecutive year? What does that say about how investors want to invest and what they're looking for? Well, I think a few things here. First is this is a global trend. We have seen a tremendous amount of ETF flows across the iShares business globally. We had a record-breaking first half of the year, record-breaking Q3 of this year. So this is happening globally. I think, secondly, you mentioned so many of the different tickers where we're seeing flows. There's a tremendous amount of breadth. This isn't just about one asset class or one strategy. We are seeing flows going across the platform into things like digital assets, active strategies, and index. And then finally, it's just been consistent throughout the year. And so if you add that consistency, the breadth of offering, the global nature of this, it really shows how powerful ETFs are as a trend. This is happening with a tremendous amount of conviction and momentum in the industry. All right. Actively-managed ETFs are seeing tremendous growth. About 37 percent of inflows this year. Last year, it was just over a quarter. What do you think investors are looking for in these actively-managed ETFs? One of your top ones, the DYNF, it's a large-cap, actively-managed fund. It has tech in there. I think NVIDIA is the top holding, but also financials and things like that. Why go to these actively-managed funds that kind of jumble things as opposed to more focused ETFs? Well, investors are looking for a couple of things. First, they're looking for alpha. If you're buying an actively-managed ETF, oftentimes you want to beat the benchmark. DYNF has done a tremendous job of that over the last few years. But secondly, investors are looking for tax efficiency. So one of the big advantages of an ETF, particularly versus a mutual fund, is that even in very dynamic strategies like DYNF that have a lot of turnover, it can still deliver that in a very tax-efficient way, unlikely to pay out capital gains to investors. And then finally, investors are looking for liquidity. You see so many model portfolios allocating to active ETFs these days. They have money coming in and out of those portfolios throughout the day. They want to make tactical decisions. ETFs really allow for that flexibility with that liquidity component. All right. Where do you see inflows going in Q4? As I mentioned, among your top five, two are crypto ETFs. One's tied to Bitcoin, one's tied to Ether, as well as an actively-managed ETF. And more broadly, it seems like investors are moving away from index funds. The SPY, for example, very popular S&P 500 ETF, actually seeing net outflows this year above $6 billion. Where do you think the money's going in ETFs going forward this quarter? Well, I think we're going to continue to see tremendous momentum in digital asset ETFs. They're growing at a tremendous rate, and we're seeing a lot more accessibility to them through the approvals on certain financial platforms in the United States that open access to financial advisors to buy them. But secondly, we're seeing a lot of flows, and I would anticipate this to accelerate in growth and income strategies. Think about outcome ETFs that are delivering upside potential to the S&P 500 with a significant amount of income, like our Bali ETF. In the context of falling rates, we're seeing a lot of investors both want to participate in the markets as well as get more yield from equities. One of your also top inflows is the SGOV. It's a short-term treasury ETF. What does that say about investors that they're looking to invest in short-term treasuries but through the bond market? I would assume that would be to get more liquidity. Well, a lot of investors are looking to get yield, and they're not necessarily getting that through holding cash in a brokerage account. So you've seen a lot of investors move into SGOV, our short-term government bond ETF, just to capture that yield that government bonds are paying. There's still $7 trillion sitting on the sidelines in money market funds, and I think a lot of that could come into the ETF industry over the next several months and years as investors want to participate in continuing markets.

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