Global ETF Market Facts: three things to know from Q1 2024

1. Assets in U.S.-listed exchange traded funds (ETFs) have grown over the last five years, but ETFs still represent a small fraction of overall U.S. financial markets, particularly in fixed income, where ETFs represent less than 2.8% of outstanding debt.¹
2. U.S.-listed ETF volumes increased from the prior quarter and 2023, led by an increase in equity ETF trading, while ETFs as a percentage of total equity volumes slightly dipped to 28.1% due to elevated single stock equity trading.²
3. Individual investors in the U.S. continued to participate in the ETF market, with individual investors’ trading volumes in ETFs and ETF options remaining in line with Q4 2023, while individual investor ETFs assets reached nearly $1.4 trillion and 19% of all U.S.-listed ETF assets, the most on record.³

As of Q1 2024, ETFs represent 13% of equity and 2.8% of fixed income assets in the U.S. (compared to 10.3% of equities and 2% of fixed income in 2019). Despite U.S. ETF assets nearly doubling from 2019 to the end of Q1 2024, ETFs are still just a fraction of financial markets (Figures 1 and 2).

In the first quarter of 2024, trading volumes for the U.S. equity market (including single stocks, ETFs, and depository receipts) and U.S. ETFs were $37.9 trillion and $10.6 trillion, respectively. This means that U.S. ETFs accounted for 28.1% of the total U.S. composite volume in the secondary market over the quarter. This was slightly lower than in Q4 2023 due to higher single stock equity volumes, likely driven by more micro-driven trading, as certain equity and bond correlations fell during the first quarter (Figure 3).¹²

Most ETF trading activity occurs in the secondary market, where ETF shares change hands between buyers and sellers. When demand cannot be met in the secondary market, large institutions (known as “authorized participants”) can transact with ETF issuers to create or redeem ETF shares in a separate, “primary” market.

Generally, the higher the ratio of secondary market activity to primary market activity, the better the market quality. This is because a high ratio suggests that ETF trading is being efficiently processed on exchange with minimal market impact (i.e., shares of underlying securities do not need to be bought or sold to adjust for changes in investor demand).

From 2019 to 2023, the ratio of secondary market activity to primary market activity in the U.S. remained above $7:1, peaking at $10:1 in 2022. This means that for every $7 of ETFs traded, only $1 resulted in trading activity in the underlying securities (Figure 4). In the first quarter of 2024, the ratio of secondary market activity to primary market activity in the U.S. was lower than the prior quarter at roughly $7:1 ($10.6 trillion in secondary activity and $1.5 trillion in primary activity) due to a greater than 10% increase in primary market activity over this period, primarily driven from equity ETFs.¹⁴

In the first quarter of 2024, average daily volumes (ADV) in U.S.-listed ETFs was $174.6 billion, up from $165.8 billion in Q4 2023. There was an uptick in equity ETF trading, which contributed over 80% of total ADV, while fixed income ETF volumes were slightly lower over the same period (Figure 5).

ADV for U.S.-listed iShares ETFs was $46.3 billion, up from an average of $43.8 billion in Q4 2023. This represented nearly 27% of total U.S.-listed ETF ADV. U.S.-listed iShares equity ETFs traded $27.8 billion in ADV, roughly 20% of total equity ETF ADV, while U.S.-listed iShares fixed income ETFs had an ADV of $16.5 billion and represented 65% of total fixed income ETF ADV.¹⁶

Bid-ask spreads (a component of trading costs for investors), are impacted by factors such as liquidity, volatility, and the efficiency of the ETF ecosystem, and tighter bid-ask spreads are generally indicative of strong ETF market quality.

In Q1 2024, bid-ask spreads in U.S.-listed ETFs were tighter across all ETFs at 22.3 basis points (bps) compared with 23.4 bps in Q4 2023. This was driven by spread tightening across both equity and fixed income ETFs. (Figure 6).

Bid-ask spreads for U.S.-listed iShares ETFs were tighter than the industry average in Q1 2024, with an average bid-ask spread of 11 bps (12.3 bps for iShares equity ETFs and 8.8 bps for iShares fixed income ETFs).¹⁷

Investors can assess the impact of equity ETFs’ primary market activity on the prices of underlying stocks through a metric called “imputed flow.” This metric estimates the proportion of all stock trading that results from ETF creations or redemptions; meaning, imputed flow is an approximation for how much stock trading is generated by ETF inflows and outflows.

The impact is typically modest. Between March 2023 and March 2024, on average, only 5.5% of monthly trading volume in U.S. equities, represented by the constituents included in the MSCI USA Investable Market Index, has been attributable to ETF primary activity (Figure 7).

Imputed flow can also be analyzed at an individual stock level, which is useful because there is often misconceptions that ETF trading activity has an outsized impact in single stocks. Even in stocks that are widely held across ETFs, ETF creation and redemption activity often represents only a small portion of that stock’s total trading volume. As an example, from March 2023 through March 2024, ETF creation and redemption activity accounted for just 1.3% of the total trading volume in NVIDIA—one of the largest ETF holdings, based on its representation and weight in various equity indexes—on average (Figure 8).

The number of individual investors—those who invest their own money to save for retirement or meet other financial goals—participating in financial markets has grown significantly in recent years.²² As a result, trading by individual investors in U.S.-listed ETFs has also increased, with trading volumes remaining elevated since 2020 (Figure 9).

We believe individual investors’ increased use of ETFs has been driven by a few key factors: an industry shift to commission-free trading, improved digital experiences on direct platforms, and investor empowerment stemming from greater access to financial education through social media and other forums.

Here are some notable takeaways around individual investors’ use of ETFs in Q1 2024 versus Q4 2023:

• Individual investors’ ETF investments are increasing. Individual investors’ assets in ETFs have steadily increased over the last five years, from under $500 billion in 2019 to nearly $1.4 trillion the first two months of 2024. At the same time, individual investors’ assets invested in ETFs as a percentage of total ETF AUM is the highest on record, at 19% of total ETF AUM in the U.S. (Figure 10).
• Trading in ETFs by individual investors remained steady. Trading activity in ETFs by individual investors represented 14% of all ETF trading in the first two months of Q1 2024, slightly below the 15% in Q4 2023.²⁴
• Individual investors increased their use of iShares ETFs. Trading activity in iShares and BlackRock ETFs by individual investors represented 20% of all ETF trading activity by individual investors in the first two months of Q1 2024, up from 19% in Q4 2023.²⁵
• Individual investors continue to trade ETF options. Individual investors drove 22% of all ETF options activity in Q1, a slightly lower percentage than in Q4 2023. Use of zero days to expiration (0DTE) options, which have become often-used investment tools among individual investors, continued over the period.²⁶

1. The size of exchange traded funds (ETFs) in European financial markets has grown over the last few years, particularly in equity where they now represent over 9% of European equities.²⁸
2. European ETF volumes increased in Q1 led by an increase in equity ETF volumes, from the prior quarter and 2023, and ETFs represented 13.3% of total equity trading.²⁹
3. Bid-ask spreads for European-listed ETFs continued to remain tighter than historical averages, with Q1 2024 averages at 26.5 bps which is 3.5 bps tighter than 2023 levels, while spreads on iShares ETFs were 50% tighter than the industry on average.³⁰

ETFs represented 9.3% of equity assets in Europe and 1.8% of fixed income assets in Europe in Q1 2024. These percentages have increased over the last five years (from 5.5% of equities and 1.4% of fixed income in 2019). European equity ETFs have been a notable driver of this growth, with AUM increasing over $600 billion in this timeframe led by growth products offering exposure to U.S. and broad equity markets (Figures 11-12).

In the first quarter of 2024, trading volumes for European equity markets (shares, ETFs, and depository receipts) and European ETFs were $5.9 trillion and $782.9 billion, respectively. European ETFs accounted for 13.3% of the total European composite volume in the secondary market over the quarter, slightly lower than 13.6% in Q4 2023.³⁹

European ETFs have increased as a percentage of total European equity volume over the past two years. Lowering barriers to access for ETF investing through digital distribution and market structure enhancements, like a consolidated tape, could further improve ETF usage in the region (Figure 13).

From 2019 to 2023, the ratio of ETF secondary market activity to primary market activity in Europe has remained at roughly 2:1. This means that for every $2 of ETFs traded, only $1 resulted in trading activity in the underlying securities. This figure is lower in Europe than in the U.S. as secondary market trading is fragmented in Europe, and there is therefore a higher dependency on primary market activity (Figure 14). In the first quarter of 2024, the ratio of secondary market activity to primary market activity in Europe was slightly over 2:1 ($782 billion in secondary market activity and $331 billion in primary market activity), slightly higher than the Q4 2023 levels, led by a pickup in secondary volumes related to equity ETFs.⁴¹

In the first quarter of 2024, ADV in European-listed ETFs was $11.3 billion, up from $10.3 billion in Q4 2023. Similar to the U.S., there was an elevated pick up in trading among equity ETFs, which contributed over 62% of total ADV, while fixed income ETF volumes were also slightly higher in Q1 2024 compared with Q4 2023 (Figure 15).

For Q1 2024, ADV for European-listed iShares ETFs was $5.3 billion, up from an average of $4.7 billion in Q4 2023, and represented 47% of total European-listed ETF trading. In addition, ADV for iShares equity ETFs was $2.8 billion, roughly 40% of total European-listed equity ETF ADV, while iShares fixed income ETFs had an ADV of $2.5 billion and represented 64% of total European-listed fixed income ETF ADV.⁴³

In Q1 2024, bid-ask spreads in European-listed ETFs were tighter than the prior quarter at 26.5 bps (compared with 28.2 bps in Q4 2023). This was driven by tightening spreads across both equity and fixed income ETFs (Figure 16).

Bid-ask spreads for European-listed iShares ETFs remained tighter than the industry average in Q1 2024. European-listed iShares ETFs had total average bid-ask spreads of 12.6 bps (12.9 bps for equity ETFs and 11.6 bps for fixed income ETFs).⁴⁴

We also assess the imputed flow on European markets, and compared to the U.S., the impact is even more modest for European equities. From March 2023 through March 2024, approximately 2.1% of trading volume in European equities, represented by the constituents included in the MSCI Europe Investable Market Index, was attributable to ETF activity (Figure 17).

The same industry shifts that are empowering individual investor access in the U.S., like the expansion of direct brokerage platforms and improved digital experiences, are starting to take hold across Europe as well.

A key area of focus for European individual investors is ETF savings plans. An ETF savings plan is a monthly regular investment of a fixed amount into a single ETF or selection of ETFs, purchased by individual investors through a brokerage’s online platform.

Industry estimates suggest European individual investors will increase their holdings of ETFs by more than three times by 2028, reaching €650 billion. Over this period, the total number of ETF savings plans are estimated to increase by over four times, with 32 million individuals investing up to $64 billion Euros combined.⁴⁸ We believe the revolution of ETF savings plans has just begun.

A key innovation facilitated by online banks and brokers in Europe is allowing investors the ability to buy and sell any amount of ETF shares in these savings plans, irrespective of the price of the ETF. With this development, individual investors can now transact in “fractional” shares and access the benefits of ETF markets at their chosen investment budget, for as low as €1.

1. Assets invested in ETFs in Asia-Pacific financial markets have grown over the last few years, with assets in equity and fixed income ETFs nearly doubling to 5% of equity assets and 0.5% of APAC debt outstanding, respectively.⁴⁹
2. APAC ETF volumes increased in Q12024 versus the prior quarter, led by a sharp uptick in equity ETF volumes; ETFs accounted for nearly 14% of total equity trading.⁵⁰
3. Bid-ask spreads for APAC-listed ETFs remained tighter than historical averages, with Q1 2024 averages narrowing to 21.3 bps, lower than Q4 2023.⁵¹

ETFs represented 5% of equity assets in Asia-Pacific and 0.5% of fixed income assets in Q1 2024. These percentages have increased over the last five years (compared to 2.8% of equities and 0.2% of fixed income in 2019) as ETF AUM in the region has nearly doubled due to market structure and regulatory reforms, along with more individual investor accessibility. APAC is now the fastest growing region for ETF assets (Figures 18-19).

In the first quarter of 2024, trading volumes for Asia-Pacific equity markets (shares, ETFs, and depository receipts) and Asia-Pacific ETFs were $9.6 trillion and $1.3 trillion, respectively. ETFs accounted for 13.7% of the total Asia-Pacific composite volume in the secondary market over the quarter, slightly higher than the Q4 2023 figure.⁶⁰

Like other regions, APAC-listed ETFs have become an increasingly larger percentage of the total Asia-Pacific equity market, with ETFs as a percentage of the total equity volume nearly doubling since 2019 (Figure 20).

From 2019 to 2023 the ratio of secondary market activity to primary market activity in Asia increased from roughly 2:1 to nearly 5:1. This means that for every $5 of ETFs traded, only $1 resulted in trading activity in the underlying securities. While primary market activity levels are similar for Europe and Asia-Pacific, there is now considerably more secondary market trading in APAC, which results in a higher ratio (Figure 21). In the first quarter of 2024, the ratio of secondary market activity to primary market activity in Asia-Pacific was 4:1 ($1.31 trillion in secondary market activity and $313 billion in primary market activity), slightly below Q4 2023 levels, due to a 29% increase in primary market activity over that period.⁶²

In the first quarter of 2024, average daily trading volumes in Asia-Pacific-listed ETFs was $22.7 billion, up from $19.2 billion in Q4 2023. Similar to both the U.S. and Europe, there was an elevated pick up in trading among equity ETFs, which contributed over 77% of total ADV, while fixed income ETF volumes were slightly lower in Q1 2024 compared with Q4 2023 (Figure 22).

The iShares APAC ETF franchise is smaller, and newer, than its U.S. and European counterparts, which means ADV of iShares ETFs only represents a smaller amount of total APAC ETF ADV ($0.1 billion). However, as our footprint expands in the region, we will seek to drive trading volumes in our products.⁶⁴

It’s also important to note that a significant portion (roughly 13% in Q1 2024) of APAC ETF ADV is driven by levered ETP trading, and BlackRock does not offer these products.⁶⁵

In Q1 2024, bid-ask spreads in Asia-Pacific-listed ETFs were tighter across all ETFs at 21.3 bps, compared with 21.9 bps in Q4 2023. This was driven by tightening across both equity and fixed income ETFs (Figure 23). Bid-ask spreads for Asia-Pacific-listed iShares ETFs also remained tighter than the industry in Q1 2024. Asia-Pacific-listed iShares ETFs had average bid-ask spreads of 16.5 bps (18.5 bps for equity ETFs and 12.6 bps for fixed income ETFs). While only representing a small fraction of ETF ADV, the iShares APAC ETF franchise did deliver strong market quality through bid-ask spreads.⁶⁶

Imputed flow in APAC is the lowest across all regions. From March 2023 through March 2024, approximately 1.4% of trading volume in APAC equities, represented by the constituents included in the MSCI All Country Asia Investable Market Index, was attributable to ETF activity (Figure 24).

Similar to Europe, individual investor participation in APAC remains lower than in the U.S., with adoption widely varying across countries, with certain countries like Korea offering investors access to more-liquid U.S. ETFs.⁷⁰ However, many efforts are being put forth by both policymakers and market participants to encourage ETF adoption and help investors achieve their financial goals.

In Japan, the Nippon Individual Savings Account (NISA) is a tax-exempt scheme for Japanese individual investors. The scheme exempts the 20% tax on income and capital gains from the sale of stocks and investment funds. The Japanese Government recently announced the expansion of NISA schemes, which aims to double the total number of NISA accounts from 17 million to 34 million and double the amount of NISA assets from $186 billion to $372 billion in five years. The expansion aims to accelerate the shift of individual investors using traditional savings accounts towards longer-term investments in Japan and presents an opportunity to create tailwinds for the ETF industry.⁷¹

In certain countries, like Taiwan, individual investor usage of ETFs is significant. For instance, Taiwanese individual investors are showing demand for dividend-paying products. Two new dividend ETFs in March 2024 have already raised over $7 billion in assets. This brings the year-to-date inflows to equity ETFs to almost $11 billion, more than half of last year’s total flows.⁷²