Last year’s flows into U.S.-domiciled ETFs of more than $900 billion were a record—they easily eclipsed the previous peak of $500 billion in 2020. Over the past 10 years, inflows totaled $3.7 trillion. In the same span open-end mutual funds attracted $764 billion, about a fifth of the ETF total.¹

In tandem with new inflows, market appreciation boosted total ETF assets under management to $7.3 trillion at the end of 2021, from about $1.4 trillion at the end of 2011.

What’s driving the success of ETFs?

We believe investors and financial advisors are recognizing the strengths of ETFs—namely their trading flexibility, diversification, lower costs, and potential tax benefits. In sum, they’re a powerful tool for constructing portfolios with relative ease. The shift in the prevailing compensation structure for financial advisors, away from commissions and toward asset-based fees, also has helped. In any case, three decades after the introduction of ETFs to the U.S. market, proof of their concept is here in that ETFs have survived in all kinds of market environments.

The 2,837 U.S.-listed ETFs at the end of 2021 reflect a wide variety of strategies, from factor-based ETFs to funds that consider environmental, social, and governance criteria to finely tuned thematic approaches, such as technology-focused strategies. Even actively managed ETFs are increasingly part of the ETF ecosystem, though investors have not fully embraced them.

But inflows are mostly going into low-cost, indexed, core exposures. In 2021, 40% of the flows into U.S.-domiciled ETFs went to funds tracking the Standard & Poor’s 500 Index or total market indexes. In other words, the rise of ETFs is closely tied to the rise of indexing.

In addition to U.S.-focused ETFs, investors are using ETFs to explore various pockets of the investment universe. For example, interest in international strategies blossomed in 2021—with inflows rising almost sixfold from 2020 levels, to $165 billion.

Flows last year into bond ETFs—including municipal bond ETFs—were about even with their 2020 inflows, but the accelerating rise of bond ETFs in recent years has become a powerful part of the overall ETF adoption story.

It’s worth noting that the introduction of bond ETFs in 2002 was accompanied by questions.  The thinking went like this: Because buying and selling individual bonds can be difficult at the best of times, a bond ETF composed of myriad individual bonds might become extremely difficult to trade when markets turn choppy.

But that hasn’t happened, and a pair of market dislocations loom large as proof points. Bond ETFs weathered the 2007–2009 global financial crisis. Perhaps most important, they also were crucial components of the investing landscape during the February/March 2020 COVID-19-related crash.

As bond market liquidity grew scarce in the early weeks of the pandemic, bond ETFs trading in the secondary market played a vital price discovery role. Although bid-ask spreads on bond ETFs widened, as one would expect in a volatile market, they widened far less than the spreads of individual bonds. And trading never froze. In the end, bond ETFs were a critical source of liquidity. The Federal Reserve folded corporate bond ETFs into its plans for expanded quantitative easing, signaling something more significant: ETFs are an integral element of contemporary financial markets.

The advantages of ETFs are clear—they include convenience and an improved investor experience featuring low costs, a breadth of choices, and potential tax efficiencies. ETFs give investors relatively easy access to swaths of the investment universe both broad and narrow, with plentiful liquidity. Many of these conveniences extend to fixed income, where ETFs have made the calibration of credit risk, duration, and inflation protection in portfolio construction easier than ever before.

As more assets flow into ETFs, Vanguard expects their advantages to grow, from improved liquidity to lower costs of ownership.

Explore our ETFs

• “Investors might be using more and more index funds, but they aren’t building truly passive portfolios.” Our head of investor research explains in A new form of active investing? (Published March 2022)
• In this two-minute webcast excerpt, Chief Investment Officer Greg Davis talks about How Vanguard views the trend toward ETF investing. (Published February 2022)
• How America Invests, a look at the personal investing behavior of Vanguard’s retail households with assets of $500,000 or more, includes additional data on ETF adoption over time. (Published October 2020)