The U.S. is on the way to setting a new record for ETF net inflows, with $473 billion surging into U.S.-listed ETFs through June, according to Todd Rosenbluth of investment reseach firm CFRA.

Broad market global equity and U.S. ETFs led the inflows in the first half of 2021, with iShares Core MSCI Emerging Markets ETF (IEMG) and Vanguard S&P 500 ETF (VOO) among the leaders, said Rosenbluth, who heads ETF and mutual fund research at the New York City-based firm.

“While some of the flows are driven by market enthusiasm, advisors growing comfort in using ETFs to support clients’ long-term goals helps explain the strong flows for broad market U.S. and international equity ETFs and bond ETFs,” Rosenbluth told Financial Advisor magazine.

A new record for bond ETFs could also be set, despite the fact that flows into equity ETFs dwarfed fixed-income products so far this year. On the fixed-income front, Vanguard Total Bond Market ETF (BND) has led the charge in 2021, the analyst reported.

“The S&P 500 was up 15% in the first half of the year, stronger than expected, but demand for equity and fixed-income ETFs has also been pretty consistent throughout the year, Rosenbluth said.

"While there will be an inevitable pullback in the stock market in the second half of the year, we think overall demand will remain strong as investors rotate to more defensive areas of the market, such as government bond ETFs,” he added.

The current full-year record for net ETF inflows was set in 2020, with $504 billion, “but a new milestone is likely to be set in July if not August given the current pace,” he said.

While 2020 flows were aided by fixed income and commodities, 2021 flows have been driven by record demand for equity ETFs, Rosenbluth said.

“In the first half of 2021, equity products gathered $363 billion of new money, over $100 billion more than all of 2020," he said. "Meanwhile, with an additional $106 billion, fixed-income ETFs are on pace to slightly beat 2020’s record inflows of $206 billion."

The outlier among the asset classes has been commodities, which have slight year-to-date outflows after pulling in more than $40 billion in 2020.

Broad and targeted equity exposure has also been in demand in 2021. In the first six months of 2021, investors piled into a wide range of equity ETFs, he said.

“Investors have also taken a more tactical approach, with sector ETFs providing U.S. equity exposure as well," he said, noting that Energy Select Sector SPDR (XLE 55) and Financial Select Sector SPDR (XLF 37) lead in this category.

The biggest shift in equities was investors focusing globally “as broad/regional global equity ETFs gathered $75 billion of new money in the first half of 2021, nearly four times last year’s $19 billion. IEMG and Vanguard FTSE Emerging Markets ETF (VWO 54) were the two most popular of these ETFs,” he said.

Some 180 new ETFs launched in the first half of 2021, and some have already crossed the $100 million in assets milestone, the firm found. Following 2020’s record-breaking asset gathering, asset managers lined up to either expand their existing lineups or join the ETF market.

“Dimensional Funds, which only began offering ETFs in 2020, converted part of their mutual fund suite into ETF wrappers in June, led by now $13 billion Dimensional US Core Equity 2 ETF (DFAC 27 NR) and $6 billion Dimensional US Targeted Value ETF (DFAT 45 NR),” Rosenbluth said.

“While flows might slow down if market volatility increases in the second half of the year, we think most investors will continue to build positions," he said. "Even with $6.5 trillion in U.S. listed ETF assets, we also expect more innovative and low-cost products to come to market in the second half of 2021 and new investors and advisors to discuss the benefits ETFs offer."