Why ETFs Are Pulling In Record Cash From Investors

SPEAKER_1 (0:00)

It's time now for the ETF Watchlist. Joining me right now, Todd Rosenbluth, Head of Research at TMX Vetify. Thank you so much for being with us.

So again and again, I keep saying it, record inflows into ETFs. Why is this happening?

Todd Rosenbluth (0:18)

You're right, so $1.5 trillion has already gone in as we're nine months to the end of the year.

Three months ago, the fourth quarter typically is a strong time period for ETFs. We're seeing a few trends. We're seeing just low-cost index-based products tied to the S&P 500, VU, VLO being the most popular. We're seeing the Investo-related products, QQQ and QQM being very popular. Investors are increasingly gravitating towards ETFs to be their default way of getting exposure to the stock or bond market.

SPEAKER_1 (0:52)

So when we think about free cash flow, we just said VFLO, quality growth ETF is QGRO.

So when we think about thematic investing, this helps, right? And you just named some of the themes that we're seeing. What else in here are you seeing when people are doing the inflows? I mean, you definitely mentioned the indices, right? People want to mimic maybe the triple Qs.

Todd Rosenbluth (1:16)

Right, we are also seeing that investors are turning towards more fundamentally focused index-based products. So you mentioned V-Flow, that's the Victory Shares Free Cash Flow ETF. It just went through a rebalance. It added Micron and IBM as part of its rebalance. So these are not static portfolios. American Centuries, Q-Gro, QGRO, also went through a rebalance and it added Amazon.

So what's interesting to me is these are products that rebalance on a quarterly basis. So you get the benefits of fundamental reassessments of the companies. You move things out, I'm sorry, you move things in, you move things out and you have a sense of active management without having to have that human skill be a part of the mix.

SPEAKER_1 (2:00)

You brought to us the BlackRock Large Cap Core ETF of BLCR. This as Russell 2000 has dropped about 5 percent in this last one month, though it's still, the small caps are still doing well. A large cap, is that still the demand, the place of demand?

Todd Rosenbluth (2:17)

Well, we're seeing strong inflows into that and particularly some actively managed products. So the BlackRock ETF BLCR saw over $2 billion flow in last week alone. That's quite strong.

We've seen interest in fundamentally focused active ETFs. T. Rowe Price has an ETF, the ticker is TCAF. That's their Capital Appreciation Equity ETF. We've seen fidelity with their fundamental suite of active ETFs. We are seeing investors increasingly turn to active ETFs, not just index-based products, to get exposure to the equity markets.

SPEAKER_1 (2:52)

What happened to all mutual funds, right? You talk about how money managers are now making some changes. Traditional asset managers are converting. Tell me about that.

Todd Rosenbluth (3:02)

You're right. So we've seen firms that have had a presence in ETF marketplace, increased that presence. Northern Trust is what caught our eye. They announced that over $30 billion is going to be converted from a mutual fund into ETFs probably in early 2027 So they've had a presence, Northern Trust, for a while with index-based products like GUNR, that's a natural resources product. But Northern Trust is increasingly turning towards ETFs. We saw today Jensen, which is a long-time mutual fund manager, launch a quality index ETF.

JQTY is the product. It's just great to see more firms embrace the ETF wrapper.

SPEAKER_1 (3:46)

There's still so much money sitting in money markets, just sitting there waiting to do something. You have also, there was interest in fixed income, particularly on maybe shorter duration, that's something, right?

Todd Rosenbluth (3:59)

Correct. We've seen some people are moving some of their money out from the money markets into short-term fixed income products. So we've seen products like Escove, which is an iShares ETF, be very popular. We've seen BIL, which is a state-street ETF. You take on almost no interest rate risk in an environment where the Fed has and might continue to raise interest rates. So we are seeing taking on less interest rate risk to be rewarded for the ETF investor.

SPEAKER_1 (4:26)

How did we get this far and not talk about AI or cybersecurity? There are ETFs for that as well.

Todd Rosenbluth (4:33)

You're right. So we are increasingly seeing thematic ETFs gain in popularity. So there's a robo global artificial intelligence ETF, THNQ, which is one of those products that's been gaining traction. GlobalX has a product, BUG, that is tied to that cybersecurity that you were talking about, BUG. It just hit $2 billion as a milestone. So we are increasingly seeing investors turn towards thematic ETFs to get a more targeted exposure to the equity marketplace.