August Flows Stay Hot
Let’s take a look at investor interest in different ETF segments last month and consider what it indicates about expectations for this month.
The term “flash in the pan” dates back to the late 17th century, referring to gunpowder flaring up without a ball firing from a flintlock musket. Today, the Cambridge Dictionary defines it as something happening once or for a short time.
The sudden spike in market volatility at the start of August can certainly be described as a flash in the pan. The CBOE VIX Index (VIX) jumped above 60- and 5-day realized volatility on the S&P 500 Index and soared to 37% (up from 12% at the start of the month), while the S&P 500 Index fell 6% through the first five trading days.1
But fast forward 24 days, and the blazing flame of cross-asset volatility was nothing more than a smoldering ember with the S&P 500 Index ending August up 2.3% — just 0.33% away from its all-time high.2
And ETF flows reflected this upbeat end to the month.
ETF Flows Maintain Record Pace
August has historically been the worst month for ETF inflows, averaging just $32 billion over the past five years. And through the first few days of the month, it looked as if depressed inflows would stop the record-breaking pace ETFs had established this year.
Through the first seven trading days when the market was selling off, ETFs had net outflows on two days and less than $1 billion of inflows on two others. With $17 billion of inflows overall, flows averaged just $2.4 billion a day through August 9.
Yet, as the market rallied and sentiment improved, flows recovered — averaging $4 billion a day and +$56 billion for the rest of the month (Figure 1).
With flows rebounding and the longer-term secular drivers (low-cost, bond, and active ETFs) continuing to add non-market related support, ETFs gathered more than double the historical August average.
In fact, this August’s $73 billion pushed 2024’s total to $610 billion — a record haul for the first eight months of any year — outpacing the $591 billion through August 2021 and just $9 billion away from unseating 2022 as the second-most annual total (Figure 2).
Based on a blended model, 2024 inflows could reach a record $950 billion — beating 2021’s $909 billion. And one model input has flows at an impressive $977 billion.
US Dominates Geographic Equity Flows
With $38 billion in inflows, US equity ETFs drove 103% of August’s equity flows, as investors remained focused on the US during the short-term burst of volatility.
Non-US markets had net outflows of $1.3 billion in August. But if you remove the $3.6 billion of inflows from broad-based international-developed ETFs, supported by secular trends in the active and low-cost categories, non-US August outflows total almost $5 billion (Figure 3).
Figure 3: Geographic Flows
| In Millions ($) | August | Year to Date | Trailing 3 Mth |
Trailing 12 Mth |
Year to Date (% of AUM) |
|---|---|---|---|---|---|
| US | 37,996 | 329,282 | 153,829 | 527,088 | 6.46% |
| Global | 275 | 3,484 | 1,929 | 7,315 | 1.85% |
| International: Developed | 3,644 | 38,578 | 17,476 | 54,806 | 5.64% |
| International: Emerging Markets | -699 | 4,265 | -792 | 7,897 | 1.76% |
| International: Region | -1,367 | 667 | -1,959 | -1,675 | 1.00% |
| International: Single Country | -2,560 | 1,249 | -5,535 | 3,727 | 1.16% |
| Currency Hedged | -591 | 5,929 | -152 | 6,569 | 31.31% |
Source: Bloomberg Finance, L.P., State Street Global Advisors, as of August 31, 2024. Top two/bottom two categories per period are highlighted. Past performance is not a reliable indicator of future performance.
Emerging market (EM) ETFs had $700 million of outflows. But when you remove the EM ex-China ETFs (a style with $1 billion of inflows in August), the broad-based EM outflows worsen to $1.7 billion.
At the single-country level, the same trends exist. China ETFs lost $1.3 billion in August and have had $5 billion of outflows in 2024. In fact, on a trailing three-month basis, the $4 billion of outflows from China-focused ETFs is the worst three-month outflow total in 15 years (Figure 4).
In fact, this time series has been negative since August 2023 — the longest stretch of negativity on record. Combined with the sizable inflows in EM ex-China ETFs this year (+$7 billion), it appears investors view China as a separate allocation to underweight.
Sector Flows Stay Risk-on
Despite the flashes of volatility, sectors took in $5 billion in August. And inflows of $19 billion over the past three-months reflect investors’ desire to express risk in this market, tactically overweighting segments in pursuit of momentum, trends, and sentiment — common reasons for using sectors.
This was not the case earlier in the year, or in 2023, when recession fears loomed large. The trailing three-month sector flows were negative for most of 2023 and have shot higher as investors now seek to express more specific views (Figure 5).
But the inflows remain very tech centric. Technology ETFs took in 118% of the sector inflows in August, as only four other sectors posted inflows on the month.
Real Estate, with its negative beta sensitivity to changes in rates, had the second-most inflows (+$2.3 billion)3 as rates began to decline ahead of a potential Fed rate cut in September.
Financials had the third-most inflows with $1.2 billion and now have the second-most flows over the past three months (+$6 billion) and year to date (+$5.9 billion). This positivity stems from a cyclical broadening trade that has coincided with more breadth in market returns outside of the Magnificent Seven.
Figure 6: Sector Flows
| In Millions ($) | August | Year to Date | Trailing 3 Mth |
Trailing 12 Mth |
Year to Date (% of AUM) |
|---|---|---|---|---|---|
| Technology | 6,554 | 23,824 | 14,787 | 25,227 | 10.15% |
| Financial | 1,289 | 5,391 | 6,036 | 3,818 | 7.99% |
| Health Care | -981 | -3,621 | -880 | -9,280 | -3.86% |
| Consumer Discretionary | -333 | 155 | -411 | 1,152 | 0.41% |
| Consumer Staples | 690 | -650 | 704 | -4,984 | -2.48% |
| Energy | -2,405 | -2,256 | -3,708 | 44 | -2.91% |
| Materials | -936 | -1,890 | -1,915 | -3,324 | -5.26% |
| Industrials | -571 | 2,454 | -321 | 2,064 | 5.94% |
| Real Estate | 2,219 | 3,244 | 3,002 | 5,641 | 4.35% |
| Utilities | 643 | 1,314 | 2,956 | 72 | 5.99% |
| Communications | -623 | -1,337 | -1,353 | -718 | -6.19% |
Source: Bloomberg Finance, L.P., State Street Global Advisors, as of August 31, 2024. Top two/bottom two categories per period are highlighted. Past performance is not a reliable indicator of future performance.
Bond Flows on Pace to Break Records
Bond ETFs took in $33 billion in August and now have a record haul of $190 billion through the first eight months of the year. With such a strong pace this year (+$23.8 billion a month), bond ETFs could break the annual record set in 2021 (+$212 billion) by September. Even if they don’t, bond ETFs are on pace to take in a record-setting $285 billion for 2024.
The strong bond flows were supported by over $12 billion of inflows into government bond ETFs. Intermediate and long-duration government bonds attracted $10 billion as investors sought to participate in the duration-induced price appreciation from falling interest rates.
Ultra-short and short-term government bond ETFs had $3 billion of inflows. But that primarily came during the market’s downturn, as investors sought to de-risk as key technical indicators were breached (e.g., 50- and 100-day moving averages). Over the last half of August, this subset of government bond ETFs had $801 million of outflows.
Despite the monthly outflows from bank loans, credit sectors (investment-grade and high yield) had $4 billion of net inflows. On the year, those three segments now have taken in a collective $52 billion, or 27% of all bond ETF inflows in 2024 compared to a 20% market share of assets. That’s a clear sign investors are still overweighting credit.
Figure 7: Fixed Income Sector Flows
| In Millions ($) | August | Year to Date | Trailing 3 Mth |
Trailing 12 Mth |
Year to Date (% of AUM) |
|---|---|---|---|---|---|
| Aggregate | 12,388 | 71,325 | 28,561 | 100,298 | 14.12% |
| Government | 12,681 | 49,511 | 31,298 | 75,293 | 13.02% |
| Short Term | 2,975 | 6,490 | 7,800 | 11,423 | 3.19% |
| Intermediate | 5,060 | 23,290 | 8,958 | 29,242 | 20.10% |
| Long Term (>10 yr) | 4,647 | 19,730 | 14,541 | 34,628 | 23.19% |
| Inflation Protected | 631 | -2,436 | 673 | -9,395 | -4.06% |
| Mortgage Backed | 623 | 8,455 | 3,591 | 13,006 | 13.71% |
| IG Corporate | 5,936 | 30,982 | 18,764 | 37,153 | 13.17% |
| High Yield Corp. | 414 | 9,008 | 5,429 | 17,484 | 12.34% |
| Bank Loans and CLOs | -2,264 | 12,482 | 2,240 | 17,293 | 59.63% |
| EM Bond | 469 | 693 | 942 | 1,931 | 2.31% |
| Preferred | 505 | 1,610 | 865 | 2,031 | 4.73% |
| Convertible | -85 | -216 | -428 | -1,184 | -3.97% |
| Municipal | 1,775 | 8,713 | 6,343 | 19,392 | 7.03% |
Source: Bloomberg Finance, L.P., State Street Global Advisors, as of August 31, 2024. Top two/bottom two categories per period are highlighted. Past performance is not a reliable indicator of future performance.
Beware a Backdraft of Volatility in September
Healthy fundamental reports (11% growth, with double-digit forecasts for 2024 and 2025) helped investors stomach short-term volatility, boosting ETF inflows in August.4 Yet, with more than 90% of firms having reported earnings, fundamentals may not continue to support sentiment in September, a month that has registered losses 55% of the time since 1926 (the worst rate of any month).5
That’s something to keep in mind because between economic data releases, central bank meetings, and US election headlines, there’s real potential for a macro surprise to once again ignite volatility. And that could cause this September to go the way of most Septembers, even as positive growth underpins the market’s longer-term rally.
If there is volatility, that may help sustain the recent strong inflows into gold, as gold ETFs’ $877 million in August helped propel trailing three-month flows to $2.2 billion.6
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