ETFs & Markets with Todd Sohn: 2024 Trends, Insights, and Key Takeaways

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Welcome to our last video of 2024. I hope you had a great year and are looking forward to the holiday season. In this week's video, we’re going to update you on the influence of the ten largest weights, which have reached a new high, as well as a few other charts I think you should be aware of heading into 2025.

This has been one of my favorite charts of the year—showing the influence of the top five and ten largest weights within the S&P 500 index.

As of mid-December, the top ten have reached a new high, surpassing 38%. What’s curious, though, is a slight divergence between the top ten and the top five. The top five have not yet hit a new high, which suggests there’s more strength coming from the bottom half of the top ten. Nonetheless, after a brief respite, these mega-cap heavyweights are reasserting their leadership.

There are solutions within the ETF space focusing on super-concentrated exposures, which I think are interesting. But at the end of the day, this represents a different form of investing compared to the indexing strategies investors have been accustomed to over the past 40 to 50 years.

How does this translate to flows? We continue to see a substantial amount of money flowing into equity ETFs.

There’s some rebalancing noise over the last few days, which is typical during the middle to end of each quarter. Equities have seen about $300 billion in inflows over the last 65 days—a record in our data set. This suggests significant enthusiasm heading into 2025.

If there’s one major risk for the market as we approach the inauguration of a new year and president, it’s that sentiment seems to be running hot. It’s not just the flows; you can see it in survey data, call volumes skewed toward the call side, and plenty of anecdotal observations—whether from strong equity returns or activity in the crypto space. This is something to keep in mind. As we always say, flows are not a signal, but they do reflect investor psychology.

One area we didn’t mention outside of crypto and equities is fixed income.

We are now three months past the first Fed rate cut on September 18, 2024. What this scatterplot highlights is that fixed income hasn’t necessarily benefited from the 75 basis points of rate cuts. Only cash and high yield have offered positive returns over the last three months. Extending duration has not been a winning bet yet.

Even in this environment of normalization compared to the QE era, it doesn’t mean you should automatically buy long-duration products. The good news in the ETF space is that there are over 700 fixed income ETFs, offering a mix of active and passive strategies. There are plenty of solutions beyond standard index vehicles. Still, considering that the average post-Fed rate cut environment is typically positive for fixed income products, we are now seeing negative returns three months into this cycle.

To wrap up, 2024 has truly been the year of the ETF. Of course, there are plenty of other noteworthy items depending on where you focus your attention. But we’re a bit biased here, and we feel strongly when you consider a few key milestones:

• ETFs surpassed $10 trillion in assets.
• Over $1 trillion in net flows.
• More than 700 new products, including 500+ new active products.
• The first spot crypto ETFs launched in January.
• The debut of Private Credit ETFs.

There’s likely more to add to this list, but these examples underscore how ETFs continue to dominate the asset management industry. 2024 was certainly one for the record books.

That’s all we have for today. I hope this was helpful. Happy New Year, and let us know if you have any questions!

This communication was prepared by Strategas (“we,” “us,” or “our”), a brand that offers investment advisory services through Strategas Asset Management, LLC, an SEC Registered Investment Adviser, and provides research to institutional investors through Strategas Securities, LLC, a broker-dealer and FINRA member firm and an SEC Registered Investment Adviser.  This communication represents our views as of 10/08/2024, which are subject to change, and presented for illustrative purposes only. The information contained herein has been obtained from sources we believe to be reliable, but no guarantee of accuracy can be made. This communication is provided for informational purposes only and should not be construed as an offer, recommendation, nor solicitation to buy or sell any specific security, strategy, or investment product.  This communication does not constitute, nor should it be regarded as, investment research or a research report or securities recommendation and it does not provide information reasonably sufficient upon which to base an investment decision. This is not a complete analysis of every material fact regarding any company, industry, or security. Additional analysis would be required to make an investment decision. This communication is not based on the investment objectives, strategies, goals, financial circumstances, needs or risk tolerance of any particular client and is not presented as suitable to any other particular client. Past performance does not guarantee future results. All investments carry some level of risk, including loss of principal.

Strategas Asset Management, LLC and Strategas Securities, LLC are affiliated with Robert W. Baird & Co. Incorporated ("Baird"), a broker-dealer and FINRA member firm, and an SEC Registered Investment Adviser, although the firms conduct separate and distinct businesses.

The ETFs described herein are referenced solely for illustrative purposes and should not be construed as an investment recommendation. An investment in exchange traded funds involves risk, including the possible loss of principal. For important disclosures and risks relating to each ETF referenced herein, see each respective funds’ prospectus or contact your financial professional