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Three Catalysts Are Driving ‘Off the Charts' Inflows Into ETFs This Year, Schwab Says

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Three trends are driving 2021's "off the charts" flows in exchange-traded funds, Charles Schwab's head of strategy and product David Botset says.

Total net flows are on pace to set yet another record this year, with U.S. ETFs raking in nearly $750 billion by mid-November, according to Schwab. Total U.S. ETF assets under management are north of $7 trillion.

"By all accounts, we will be over $1 trillion in total ETF flows in 2021," Botset told CNBC's "ETF Edge" on Monday.

That's due in large part to interest in environmental, social and governance investing, income-focused strategies and low-cost offerings, Botset said.

"We've talked about the growth in ESG investments and we're seeing that category take off, with flows over 50% greater in 2022 than we saw last year," he said.

Schwab launched its first-ever ESG ETF last week. It will focus on small and mid-cap companies, which Botset said will set it apart from large cap-heavy peer offerings.

"At the same time, you've got a huge number of individuals that need income, that are transitioning to retirement," he said, "and in a low interest rate environment it's challenging to find that income."

Dividend and income-oriented products have captured some $30 billion in flows this year as a result, Botset said.

As for low cost, it's "the trend that never goes out of style," he said.

"Sixty percent of the flows in 2021 so far have gone to ETFs with expense ratios of 10 basis points or less," he said.

As the stock market churns on renewed Covid-19 fears and concerns around rising inflation, ETF Trends CEO Tom Lydon sees it as "healthy pessimism," even if the declines are "a little bit overdone."

"Last year we saw an equal-weight S&P 500 do better than the cap-weighted S&P 500, but it's back to the old story," Lydon said in the same interview.

"We continue to see these FAANG and Microsoft and Tesla stocks continue to do well," he said. "The ones that have suffered are those go-go work-from-home stocks that did so well last year."

FAANG refers to Facebook parent Meta Platforms, Amazon, Apple, Netflix and Google parent Alphabet.

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