STAY A STEP AHEAD WITH OUR FAVORITE ETFs

The world of exchange-traded funds is evolving fast. Use our guide to build a lasting portfolio.

- BY NELLIE S. HUANG

THE U.S. stock market is just over 233 years old, but it's still learning new tricks. That much is evident in the ever-evolving world of exchange-traded funds, which invest in pooled baskets of securities but trade like individual stocks.

A wave of innovative exchange-traded products, from a bumper crop of new actively managed ETFs to funds that can track the price of bitcoin to a growing multitude of options-based strategies, has helped drive record asset inflows into exchange-traded funds. U.S. ETFs pulled in $1.1 trillion in net inflows in 2024, exceeding the previous high of $901 billion in 2021. The number of ETFs, according to the Investment Company Institute, swelled in 2024 to 3,637 from 3,119 the previous year, a 17% jump.

Through June 30 of this year, asset inflows are on track to be even larger. “Even in times of market volatility and uncertainty, investors are turning more to ETFs to deploy cash as opposed to sitting on the sidelines,” says Cinthia Murphy, an investment strategist at TMX VettaFi.

Interestingly, many investors are choosing broad-based index funds. Last year, for instance, the Vanguard S&P 500 ETF took in a record inflow of $115 billion; this year, the fund already has $66 billion in fresh net assets through the end of June. “That's an insane amount of money,” says Murphy. “This isn't tactical trading. It's long-term, buy-and-hold investing.”