The record-breaking flow to funds traded on exchanges could be restructuring markets in ways that even the Federal Reserve cannot control.
New data shows that listed US ETFs are becoming the dominant force in the capital market. Assets invested in US ETFs rose from $10.35 trillion at the end of August, up from $10.35 trillion at the end of 2024, according to a press release Friday from independent consultancy ETFGI.
Investors poured $12.065 billion into ETFs in August alone, increasing the annual inflow to $799 billion. This is the highest on record. In comparison, the previous full-year record was $643 billion in 2024.
Growth is concentrated among the largest providers. Ishares led with $3.64 trillion assets, with Vanguard closely leading the SPDR family on State Street at $3.52 trillion.
Together, these three companies manage almost three-quarters of the US ETF market. Equity ETF increased its largest share of August's inflow to $42 billion, while the fixed income fund added $32 billion and the commodity ETF added nearly $5 billion.
Cryptolink ETFs are now meaningful photos.
SOSOVALUE data shows that US registered Spot Bitcoin and Ether ETFS manage a total of over $120 billion, led by BlackRock's iShares Bitcoin Trust (IBIT) and Fidelity's Wise Origin Bitcoin Trust (FBTC). Bitcoin ETFs alone account for more than $100 billion, equivalent to about 4% of Bitcoin's $2.1 trillion market capitalization. The Ether ETF adds another $20 billion, despite it being launched earlier this year.
Surge highlights ETFs (the way in which both traditional and cryptography have become a means of choice for investors of all sizes). For many people, flow is automatic.
In the US, much of the cash comes from a retirement account known as the 401(k)S, where workers put aside a portion of all their pay.
The increased share of that money will be “target and date funds.” These funds automatically shift investments as savers approach retirement age – gradually shifting from stocks to bonds. Model portfolios and robo-advisors follow similar rules and automatically direct flows to ETFs without investor making daily choices.
Bloomberg described this as the “autopilot” effect. Every two weeks, the contributions of millions of workers are poured into index funds that buy the same stock, regardless of valuation, headlines or Fed policy. Analysts cited by Bloomberg say this stable demand will help explain why the U.S. stock index continues to climb, despite data on employment and inflation showing signs of tension.
This trend raises questions about the impact of the Fed.
Traditionally, interest rate reductions or hiking have sent strong signals that ripple through stocks, bonds, and commodities. Lower rates typically promoted risk take, while higher rates suppressed it. However, the market is not sensitive to central bank queues as ETFs absorb hundreds of billions of dollars on set schedules.
The tension is particularly clear this month. Stocks are nearing record highs as the Fed is expected to cut by the quarter on September 17th, with gold trading above $3,600 per ounce.
Meanwhile, Bitcoin is trading at around $116,000, not far from its all-time high of $124,000 in mid-August.
Stocks, bonds and crypto ETFs are seeing a strong inflow, suggesting that investors are positioned for easier money, but also reflecting the structural flow of passive allocations.
Supporters told Bloomberg that the rise of ETFs has reduced costs and increased access to the market. However, critics cited in the same report warn that as ETFs move an entire basket of securities at once, the enormous scale of influx could amplify volatility if redemptions cluster clusters in a recession.
As Bloomberg said, this “permanent machine” of passive investment could be restructuring the market in a way that even central banks struggle to counter.
