January Flows Stay Strong, But Will It Last?
Track shifting investor sentiment through our latest ETF flows analysis.
“As January goes, so goes the year” is a colloquial investing idiom. If that’s true, then we’re in for a long year.
Despite positive cross asset returns, the number of world events made January’s 31 days feel like 55. From AI disruptors and diverging central bank actions to numerous executive orders, January filled up the macro event bingo card.
The last macro marker to make its way onto the card was the news of tariffs on imports from Mexico, Canada, and China. While not a surprise, the tariffs may have a sizable impact on the market’s trajectory for the rest of 2025.
Investors continue to position for risk-on markets, however. And with capital concentrated in certain areas, this may pose problems for portfolios if macro risks spill over.
January Flows Signal Positive Sentiment
Historically, January tends to be a weak month for inflows. But ETFs entered 2025 on a hot streak, taking in more than $100 billion for two consecutive months and registering record flows for all of 2024. In fact, over the past 12 months, flows have averaged $92 billion. And that’s the exact amount ETFs took in this January, as supportive markets helped them remain on trend.
January 2025 inflows were 142% greater than the average January and more than $15 billion above January 2018’s prior record of $77 billion (Figure 1).
January’s record inflows were driven by more of what drove 2024’s calendar-year records:
- Increased use of low-cost (+$47 billion) and active (+$43 billion) ETFs.
- Risk-on behavior across asset classes, especially in US equities where $43 billion of inflows accounted for 90% of all equity flows.
- Bond ETFs’ +$37 billion benefiting from risk-on credit overweight allocations, including a monthly record $7 billion into bank loan and CLO ETFs.
- Ongoing expansion into non-traditional/alternative exposures (+$6 billion) and outcome-oriented active strategies such as defined outcome (+$1 billion) and derivative income (+$5 billion, a monthly record).
Equity Capital Concentrated in the US
In 2024, US equity ETFs took in 87% of all equity flows for the year, as investors heavily concentrated their capital in one specific region. As an encore, US equity ETFs took in 90% of all equity flows in January — even as the rest of the world outperformed (+4%) versus the US (+3%) to start the year. That lead is likely to decline following the tariff announcements.1
Outside the US, while core developed ex-US ETFs had inflows, emerging market and single-country exposures had outflows. Single-country outflows were driven by $900 million of outflows from both China- and India-focused exposures. Japan ETFs (+$444 million) had inflows, as did Mexico (+$290 million).
Given the ability to create shares to then short, the Mexico inflows are either a poorly timed long allocation or a well-timed short allocation.
Figure 2: Geographic Flows
| In Millions ($) | January | Year to Date | Trailing 3 Month | Trailing 12 Month | Year to Date (% of AUM) |
|---|---|---|---|---|---|
| U.S. | 43,342 | 43,342 | 276,480 | 701,828 | 0.64% |
| Global | 1,852 | 1,852 | 12,672 | 22,103 | 0.82% |
| International: Developed | 3,805 | 3,805 | 21,620 | 72,499 | 0.50% |
| International: Emerging Markets | -1,266 | -1,266 | 1,309 | 8,798 | -0.48% |
| International: Region | 248 | 248 | -4,971 | -5,092 | 0.41% |
| International: Single Country | -739 | -739 | -8,053 | 4,827 | -0.65% |
| Currency Hedged | 702 | 702 | 1,604 | 5,142 | 2.66% |
Source: Bloomberg Finance, L.P., State Street Global Advisors, as of January 31, 2025. Top two/bottom two categories per period are highlighted. Past performance is not a reliable indicator of future performance.
With such strong inflows for US equities and a lack of interest overseas, the rolling three-month flow differential between US and non-US equity ETFs maintained its elevated reading and hit a new record (+$252 billion) — reflecting the high level of investor capital concentration (Figure 3).
With the potential for growth-restraining tariffs on top of an already lower economic and fundamental growth profile, it’s no surprise investors are favoring the US over non-US markets. Yet, the DeepSeek disruption illustrated the fragile foundation of US market dominance and the perils over concentrating in one area.
Equity Sectors Indicate Risk-on Sentiment
Despite Technology being the only sector with losses in January, Tech ETFs took in $6 billion, the most out of any sector. Financials had the second-most with $3.7 billion.
Those two sectors also led over the past three and 12 months — driven by the dual positioning trend of AI transformational growth opportunities within Tech and fundamental and regulatory tailwinds for financial firms.
The strong inflows into Financials helped boost cyclical sector flows overall, with that cohort taking in $5 billion during January. Defensives had outflows, led by over $1 billion from Health Care and $344 million from Utilities.
This is now the fourth month in a row where cyclicals — mainly led by strength in Financials — have outpaced defensives. A clear sign of risk taking and pro-growth positioning to start the year.
Given that Financials, a more service-based than goods-based sector, is leading cyclical flows, this trend may continue even in light of the tariffs. Yet, Materials, Industrials, and Consumer Discretionary are sectors to watch within cyclicals.
Figure 4: Equity Sector Flows
| In Millions ($) | January | Year to Date | Trailing 3 Month | Trailing 12 Month | Year to Date (% of AUM) |
|---|---|---|---|---|---|
| Technology | 5,990 | 5,990 | 11,957 | 35,999 | 1.84% |
| Financial | 3,742 | 3,742 | 11,870 | 14,836 | 3.90% |
| Health Care | -616 | -616 | -2,813 | -8,327 | -0.71% |
| Consumer Discretionary | 2,371 | 2,371 | 2,945 | 4,226 | 4.90% |
| Consumer Staples | 193 | 193 | -117 | -516 | 0.71% |
| Energy | -1,139 | -1,139 | 36 | -3,116 | -1.46% |
| Materials | -1,558 | -1,558 | -1,056 | -2,528 | -4.24% |
| Industrials | 1,409 | 1,409 | 3,409 | 6,717 | 2.66% |
| Real Estate | -598 | -598 | -1,895 | 3,165 | -0.76% |
| Utilities | 387 | 387 | -492 | 2,589 | 1.44% |
| Communications | 630 | 630 | 1,564 | 164 | 2.30% |
Source: Bloomberg Finance, L.P., State Street Global Advisors, as of January 31, 2025. Top two/bottom two categories per period are highlighted. Past performance is not a reliable indicator of future performance.
Short Duration, Credit, and Inflation Underpin Bond Flows
With the Fed signaling a shallower rate cutting path amid positive economic data and still-stubborn inflation, investors gravitated toward the short end of the curve. Short-term government funds took in $5 billion, outpacing inflows into the long end of the curve.
Inflation-protected ETFs had inflows for the first time since August, a valuable trade given Treasury Inflation-Protected Securities (TIPS) outperformed nominal US Treasurys by 80 basis points in January — extending their lead over the past year.2 With the potential for stagflation (slowing growth and rising inflation), TIPS may witness additional allocations throughout 2025.
Credit sector ETFs (IG corporate, high yield, loans, convertibles, and preferreds) were the other notable market sentiment based allocations. They took in a combined $13 billion and have now had more than $30 billion in inflows over the past three months as investors seek high income opportunities.
Figure 5: Bond Sector Flows
| In Millions ($) | January | Year to Date | Trailing 3 Month | Trailing 12 Month | Year to Date (% of AUM) |
|---|---|---|---|---|---|
| Aggregate | 10,638 | 10,638 | 32,904 | 131,325 | 1.70% |
| Government | 10,260 | 10,260 | 10,922 | 67,569 | 2.45% |
| Short Term | 4,844 | 4,844 | 15,929 | 27,088 | 2.19% |
| Intermediate | 2,564 | 2,564 | 2,608 | 28,299 | 2.21% |
| Long Term (>10 Yr) | 2,851 | 2,851 | -7,615 | 12,183 | 3.38% |
| Inflation-protected | 687 | 687 | 241 | -2,353 | 1.22% |
| Mortgage-backed | 1,928 | 1,928 | 7,504 | 17,907 | 2.51% |
| IG Corporate | 3,533 | 3,533 | 10,147 | 37,318 | 1.31% |
| High Yield Corp. | 1,204 | 1,204 | 3,050 | 12,543 | 1.39% |
| Bank Loans and CLOs | 7,524 | 7,524 | 16,015 | 31,898 | 16.05% |
| EM Bond | -618 | -618 | -2,071 | -1,597 | -2.19% |
| Preferred | 356 | 356 | 702 | 3,485 | 0.94% |
| Convertible | -50 | -50 | 758 | 1,096 | -0.70% |
| Municipal | 2,166 | 2,166 | 6,746 | 20,737 | 1.55% |
Source: Bloomberg Finance, L.P., State Street Global Advisors, as of January 31, 2025. Top two/bottom two categories per period are highlighted. Past performance is not a reliable indicator of future performance.
Will Sentiment Change as We Flip to February?
Analysts estimate the proposed tariffs could deliver an 8% hit to 2025 S&P 500 earnings-per-share (EPS) growth and reduce economic growth.3 Tariffs also are likely to ignite inflation as well as the real threat of stagflation.
Those economic factors present issues for traditional portfolios exposed to a simple mix of equities and nominal bonds. Stocks, which are also trading at elevated valuations, don’t behave particularly well when growth falls. And nominal bonds don’t respond well to rising inflation. Think about 2022.
If 2024 was the year of concentration, perhaps 2025 will be the year where diversification is the more prevailing portfolio construction trend. And if the January idiom is true, investors should seek more balance across macro regimes by broadening their traditional allocations to include more inflation-sensitive and alternative exposures.
After all, in January, commodities and gold both outperformed stocks and bonds.4 Meanwhile, TIPS outperformed nominals.5 And broad commodity and TIPS ETFs had a combined $1.2 billion of inflows in January.
Investors with more balanced portfolios certainly had a smoother ride over January’s 55 days. Something to consider as the calendar flips to February.
For more insight, download our Chart Pack or bookmark our Market Trends page.