In 2023, investors showed a strong preference for U.S. equities, particularly the S&P 500 index, despite the advice of financial advisors to diversify their portfolios. The Vanguard Group’s ETF Perspectives report revealed that the top four S&P 500 ETFs received 47% of all equity ETF flows, the highest percentage in over a decade. This trend was driven by a fear of missing out on the market rally of 2023.
The report cautioned against deviating from long-term allocations in pursuit of short-term gains, emphasizing the importance of staying invested even during market downturns to avoid missing out on potential rallies. In the fourth quarter of 2023, U.S. equity ETFs accounted for 86% of total equity ETF inflows, with funds tracking the S&P 500 index attracting nearly $80 billion.
Large-cap value, large-growth, and large growth-value blend ETFs were the top performers in terms of inflows, while mid-cap and small-cap ETFs also saw positive flows. On the fixed income side, U.S. bond ETFs received the majority of inflows, reflecting a domestic bias among investors.
Overall, the ETF industry saw a 13.2% increase in assets in the fourth quarter of 2023, reaching $8.1 trillion. This growth was driven by $266 billion worth of inflows and $682 billion worth of market appreciation. Despite the strong performance of U.S. equities, investors are advised to maintain a diversified portfolio and avoid making hasty decisions based on short-term market trends.