Big First-Half ETF Inflows
Let’s take a look at investor interest in different ETF segments last month and consider what it indicates about expectations for this month.
US Tech exceptionalism is the market’s A, B, and C plot this year. Like #Scandavol dominating recent Vanderpump Rules storylines or the Teresa-Melissa feud this season in Real Housewives of New Jersey.
Without the US, global equity markets are up just 4% this year, instead of the 10% return1 when US stocks’ 15% returns are included. That mid-teen return from US equities is driven by:
- One style — Growth is up 23% versus 4.6% for Value2
- Two sectors — Communication Services and Information Technology stocks have contributed 70% of the S&P 500 Index’s return this year3
Investor buying behavior in 2024 has had consistent storylines as well, powering fund flows to over $400 billion in the first half. And amid these flows, there are few standout stars driving the headline numbers.
Let’s dive deeper into the asset classes making waves heading into the summer months.
Strong First-Half Flows Set the Table for a Record Year
ETFs gathered more than $80 billion last month, pushing their first-half total to $411 billion — second only to the record $460 billion in the first half of 2021. A simple proration of these first-half inflows equates to a potential $823 billion for all of 2024.
Of course, that projection doesn’t account for the historical second-half bump for ETF flows — a trend driven by tax-related motivations, window dressing into year end, and seasonal relative attractiveness for highly liquid ETFs versus derivatives.
Add the usual 31% bump for second-half ETF flows, and 2024’s flows could be the most ever at $950 billion (Figure 1), with a chance of hitting $1 trillion if the market’s rally continues.
Beneath those potential record-setting numbers, fund flow trends reflect the same central storylines as they have all season:
- Low-cost ETFs garnered $39 billion in June, pushing their year-to-date total to $220 billion — 54% of all inflows, as investors seek out transparent cost efficient exposure to key asset allocation building blocks.
- Active ETFs added $23 billion, and with $130 billion of inflows so far in 2024 they are now just $3 billion away from breaking their calendar year record set in 2023. With 51 consecutive months with inflows, sustaining this momentum seems likely. Active ETFs could take in a record $260 billion for 2024.
Active ETFs’ $130 billion accounts for 32% of all ETF inflows this year. Combined with low-cost ETFs’ $220 billion, these two mutually exclusive groups have accounted for 85% of all flows this year. Well above their combined 55% share of assets (Figure 2).
Flows Favor the US, Growth, and Tech
Given the strength in US returns, US equity ETFs drove geographic flows. Their $39 billion represents 72% of all equity flows, and they have taken in more than $100 billion over the past three months. But there is still some interest to express risk overseas, as international-developed ex-US funds’ $9 billion in June was their record 48th month in a row with inflows.
Figure 3: Geographic Equity Flows
| In Millions ($) | June | Year to Date | Trailing 3 Mth | Trailing 12 Mth | Year to Date (% of AUM) |
| U.S. | 38,882 | 212,309 | 103,500 | 462,806 | 4.17% |
| Global | 3,668 | 5,981 | 4,087 | 11,148 | 3.13% |
| International-developed | 9,206 | 30,384 | 18,357 | 53,913 | 4.44% |
| International-emerging Markets | 68 | 5,143 | 875 | 8,949 | 2.12% |
| International-region | 1,501 | 4,957 | 2,677 | 7 | 6.65% |
| International-single Country | 441 | 6,481 | 2,959 | 11,006 | 6.14% |
| Currency Hedged | -68 | 5,692 | 1,569 | 7,087 | 32.51% |
Source: Bloomberg Finance, L.P., State Street Global Advisors, as of June 30, 2024. Top two/bottom two categories per period are highlighted. Past performance is not a reliable indicator of future performance.
Within the US, Sectors had $1.4 billion of net inflows — boosted by the $1.8 billion of inflows into the Tech sector, right as that sector went through a sizable rebalance. The 9% return in June and 28% return year to date support the sector remaining the primary benefactor of ETF sector flows this year — leading the pack with $11 billion.4
Financials took in the second-most in June, with $1.5 billion. Followed by Utilities, which had almost $1 billion of inflows in June and have now taken in $1.6 billion over the past three months. Tech, Financials, and Utilities are all in the top four based on a price momentum screen.5
Figure 4: Sector Flows
| In Millions ($) | June | Year to Date | Trailing 3 Mth | Trailing 12 Mth | Year to Date (% of AUM) |
| Technology | 1,750 | 10,730 | 2,254 | 17,082 | 4.57% |
| Financial | 1,537 | 1,197 | 3,045 | -552 | 1.77% |
| Health Care | -422 | -3,295 | -3,530 | -10,023 | -3.51% |
| Consumer Discretionary | -416 | 197 | -977 | 2,558 | 0.52% |
| Consumer Staples | 291 | -1,209 | -273 | -5,654 | -4.61% |
| Energy | -1,719 | -472 | 94 | 3,235 | -0.61% |
| Materials | -69 | -93 | -726 | -1,413 | -0.26% |
| Industrials | -603 | 2,262 | 1,099 | 3,230 | 5.47% |
| Real Estate | 234 | 449 | -1,608 | 3,649 | 0.60% |
| Utilities | 976 | -657 | 1,673 | -2,295 | -3.00% |
| Communications | -160 | -165 | -54 | 1,883 | -0.77% |
Source: Bloomberg Finance, L.P., State Street Global Advisors, as of June 30, 2024. Top two/bottom two categories per period are highlighted. Past performance is not a reliable indicator of future performance.
Growth ETF flows stole the market cap size and style flow show in June. They took in a record $15 billion last month and have now had a record 16 consecutive months of inflows. They are the Ayan of the Real Housewives of Dubai right now.
During this 16-month stretch, growth ETFs have outpaced Value ETFs by nearly $50 billion (Figure 5), matching the performance deviation in returns as well. Growth is up 61% versus Value’s 17% over this time frame, with Growth’s recent monthly excess return to Value plotting in the 99th percentile.6
The case against Growth hinges on valuations. As Growth stocks are trading 33% above their historical next-12-month-price-to-earnings ratios and at a 34% premium to the market compared to an average 21% premium, this growth is not cheap.7
Bond Flows Signal Risk On with Credit Favored
While inflows into government bond ETFs (+$9.5 billion) may indicate defensiveness, the flows into credit-related strategies signal an appetite for risk. Investment-grade, high yield, and bank loan & CLO ETFs took in a combined $7.6 billion in June.
On the year, those three segments now have a collective $35 billion of inflows, or 30% of all bond ETF flows in 2024. This is above their share of assets (22%), a clear sign investors are overweighting credit and risk.
Figure 6: Bond Sector Flows
| In Millions ($) | June | Year to Date | Trailing 3 Mth | Trailing 12 Mth | Year to Date (% of AUM) |
| Aggregate | 5,974 | 49,701 | 26,446 | 85,962 | 9.80% |
| Government | 9,562 | 27,811 | 20,212 | 71,6327.31% | 7.31% |
| Short Term | 2,144 | 661 | 6,415 | 11,810 | 0.32% |
| Intermediate | 1,401 | 15,883 | 6,439 | 27,231 | 15.18% |
| Long Term (>10 yr) | 6,017 | 11,266 | 7,358 | 32,591 | 13.24% |
| Inflation Protected | -352 | -3,448 | -1,366 | -12,528 | -5.74% |
| Mortgage Backed | 987 | 5,789 | 4,031 | 11,970 | 9.40% |
| IG Corporate | 5,043 | 17,515 | 3,647 | 24,985 | 7.44% |
| High Yield Corp. | 947 | 5,069 | 3,532 | 13,436 | 6.94% |
| Bank Loans and CLOs | 1,628 | 11,988 | 7,026 | 17,910 | 57.27% |
| EM Bond | 144 | -59 | 1,964 | 1,025 | -0.20% |
| Preferred | 103 | 846 | -56 | 1,511 | 2.49% |
| Convertible | -135 | 93 | -84 | -346 | 1.71% |
| 847 | 3,503 | 2,790 | 17,402 | 2.83% |
Source: Bloomberg Finance, L.P., State Street Global Advisors, as of June 30, 2024. Top two/bottom two categories per period are highlighted. Past performance is not a reliable indicator of future performance.
Within that grouping of credit-related sectors, bank loan and CLO ETFs have been the driver of flow momentum. Those funds have now had 13 consecutive months with inflows, taking in over $18 billion during that time frame as investors seek out exposures with limited rate volatility amid elevated rate risks from evolving monetary policy.
Beyond the rate backdrop, these allocations are also justified by recent returns, as both high yield and bank loans have outperformed broader Agg bonds over the past three months and this year.8 And with positive rating trends, supportive fundamental growth, and a growing economy, investors may continue to take on credit risk — even with spreads tight.
Market Rally and Buying Behavior May Have More Support in Second Half
High growth Tech’s run will likely be put to the test over the next few months. Big Tech isn’t at risk of repeating the dotcom drawdown, but earnings growth is projected to broaden out, potentially bringing the market’s supporting cast into the limelight.
While the top ten stocks are projected to contribute 60% of Q2 growth,9 the balance could shift to the rest of the S&P 500 over the next two quarters. The other 490 stocks are expected to represent 65% of the market’s growth in the second half.10 And this potential for more widespread growth could result in sector and style leadership changes.
Even if the market’s supporting cast gets more airtime in the second half, like Sutton’s arc in Real Housewives of Beverly Hills this past season, AI-related Tech growth is likely to be the secular star for multiple seasons, based on robust AI research and development trends.11 So investors might consider diversifying beyond mega-cap Tech, as we outlined in our Midyear Outlook.
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