ETF Flows Power Through Predictable Unpredictability
Track shifting investor sentiment through our latest ETF flows analysis.
Every Paw Patrol episode follows the same script. A person in Adventure Bay is faced with an unforeseen event, and they call Ryder and his team of pups for help. Ryder, a very entitled teenager with a tech arsenal that would make Tony Stark jealous, then organizes the right team to solve the crisis.
The market is following the predictable unpredictability script of the beginning of every Paw Patrol episode. In other words, here’s what we knew or could have predicted:
- Market leadership was concentrated in a handful of expensive stocks.
- The Trump administration’s confrontational, transactional, and mercantilist trade policy framework would likely be implemented in a frenetic manner like it was in his first term.
- Global central banks were likely to take diverging policy normalization paths amid stubborn inflation and uneven growth.
- And, when market headwinds create uncertainty, investors tend to turn to ETFs.
Investors’ Inflation Sensitivity Increases
Given the potential for stagflation following the Atlanta Fed GDPNow report,1 tariff announcements, and consumer inflation expectations hitting a 30-year high,2 interest in inflation-sensitive real assets like commodities, gold, and inflation-linked bonds has increased.
Those three markets took in a combined $9 billion in February, led by gold-backed ETFs’ $6.6 billion in inflows. And with that haul, this trio of inflation-fighting assets’ rolling-three month figure turned positive — reaching a level not seen since May 2022 (Figure 1).
Gold wasn’t the only driver. Broad commodity funds took in $600 million in February for a year-to-date (YTD) total of more than $1 billion — just as broad commodities, including gold, are outperforming both stocks and bonds.3
Inflation-protected ETFs also saw a turnaround in flows. In fact, the $1.8 billion of flows into this sector is the most since March 2022. With concerns about stagflation, Treasury Inflation-Protected Securities (TIPS) have outperformed nominal bonds so far in 2025 as well as over the past year.
Given the macro environment and the performance trends, these inflation-sensitive markets could see additional allocations throughout 2025.
Playing Offense and Defense in Bonds
February saw a record-setting $42 billion of inflows into fixed income ETFs, propelled by a record $17.7 billion into active bond ETFs. And so far this year, with $35 billion year-to-date, active bonds ETFs are on pace for over $200 billion of inflows.
Every major bond ETF sector category had inflows in February — led by the $16 billion into Aggregate bond exposures, dominated by active ETF inflows of $10 billion.
With the Fed signaling a shallower rate-cutting path and a spike in equity volatility, investors gravitated toward the short end of the curve. Defensive short-term government funds took in $7 billion, 80% of the entire government bond category, as long-term bonds had outflows.
Figure 2: Bond Sector Flows
| In Millions ($) | February | Year to Date | Trailing 3 Month | Trailing 12 Month | Year to Date (% of AUM) |
|---|---|---|---|---|---|
| Aggregate | 15,698 | 25,832 | 38,036 | 140,306 | 4.13% |
| Government | 8,775 | 18,795 | 18,489 | 71,054 | 4.49% |
| Short Term | 7,047 | 11,875 | 18,966 | 36,197 | 5.36% |
| Intermediate | 1,839 | 4,278 | 3,819 | 25,756 | 3.54% |
| Long Term (>10 yr) | -110 | 2,641 | -4,297 | 9,101 | 3.13% |
| Inflation-protected | 1,842 | 2,528 | 2,318 | -289 | 4.49% |
| Mortgage-backed | 1,096 | 3,012 | 5,929 | 19,446 | 3.92% |
| IG Corporate | 4,117 | 7,579 | 11,155 | 40,337 | 2.82% |
| High Yield Corp. | 2,448 | 3,652 | 2,382 | 16,661 | 4.23% |
| Bank Loans and CLOs | 3,847 | 11,372 | 14,260 | 34,343 | 24.26% |
| EM Bond | 598 | -20 | -1,215 | -189 | -0.07% |
| Preferred | 242 | 599 | 624 | 3,374 | 1.58% |
| Convertible | 39 | -11 | 347 | 1,117 | -0.15% |
| Municipal | 3,771 | 5,896 | 6,984 | 24,772 | 4.22% |
Source: Bloomberg Finance, L.P., State Street Global Advisors, as of February 28, 2025. Top two/bottom two categories per period are highlighted. Past performance is not a reliable indicator of future performance.
But it wasn’t all defense in bonds. Credit sector ETFs (IG corporate, high yield, loans, convertibles, and preferreds) took in a combined $10 billion and have now had more than $22 billion in inflows so far this year.
This equates to 28% of all fixed income ETF inflows in 2025, above their market share of bond ETF assets (25%) and reflecting a clear overweight toward credit for both income and alpha. Loans and CLOs, the driver of the credit flows, took in a record $4 billion in February.
Equity Flows Start to Head Overseas, But Still US-Centric
While the US garnered the most inflows (+$50 billion, 80% of equity flows), non-US markets took in a combined $13 billion in February. And, the $3.2 billion into regional exposures was a staggering 5% of their start-of-month assets. That relative rate is second only to currency-hedged ETFs’ $2 billion of inflows, which represents 8% of their own start-of-month assets, as investors sought to mitigate dollar movements while navigating international markets.
The regional ETF flows were 100% fueled by European exposures — a cohort that had outflows in six of the last seven months entering February. This $3 billion is a clear reversal of sentiment and is likely driven by some return-chasing, given European equities are up 12% to start 2025 versus the S&P 500’s 1.2% gain.4
Sectors had net outflows. In fact, eight sectors had outflows in February for a total of $1.6 billion. Financials continued to have inflows in February (+$340 million), prolonging their trend (+$4.6 billion over the past three months) as investors position toward the sector’s strong momentum and supportive fundamentals.
Figure 3: ETF Flows by Geography
| In Millions ($) | February | Year to Date | Trailing 3 Month | Trailing 12 Month | Year to Date (% of AUM) |
|---|---|---|---|---|---|
| U.S. | 49,592 | 90,929 | 210,707 | 723,374 | 1.34% |
| Global | -989 | 863 | 7,059 | 21,551 | 0.38% |
| International: Developed | 3,674 | 7,346 | 20,361 | 72,965 | 0.97% |
| International: Emerging Markets | 3,440 | 2,173 | 4,492 | 10,762 | 0.82% |
| International: Region | 3,210 | 3,458 | -318 | -3,101 | 5.66% |
| International: Single Country | 642 | -95 | -1,257 | 3,537 | -0.08% |
| Currency Hedged | 2,196 | 2,898 | 3,279 | 6,220 | 10.98% |
Source: Bloomberg Finance, L.P., State Street Global Advisors, as of February 28, 2025. Top two/bottom two categories per period are highlighted. Past performance is not a reliable indicator of future performance.
Diversifying Helps Investors Prepare for the Unpredictable
Unfortunately, the market rarely delivers the kind of easy problem-solving ending that a Paw Patrol episode does. This is why investors shouldn’t try to predict the outcome, but rather prepare for a wide range of possible outcomes.
That means building a truly diversified portfolio with a mix of global equities, global bonds, inflation-linked bonds, commodities, and gold — to be as prepared as Ryder is whenever he hears a yelp for help.
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