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ETF flows ride active summer wave

While stocks were treading water in Q3, ETF flows surged again thanks in large part to active ETFs.

Key takeaways

  • US-listed ETFs gathered a net $107 billion in flows during Q3 of this year.
  • That brings 2023 YTD net flows to $328 billion.
  • Actively managed ETFs accounted for 29% ($31 billion) of overall Q3 ETF flows.

While the tide for stocks went back and forth during the third quarter (Q3), ETFs made another splash. A relatively strong $107 billion in quarterly net ETF flows (ETF inflows less ETF outflows) nearly matched Q2, which was a bounce-back quarter from a slow start to the year. That’s helped put ETFs back on pace to bring in a big annual haul, with YTD net flows at $328 billion.

Here were the most notable summer trends in ETF flows.

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Active stands out

There’s a tidal wave of momentum behind actively managed ETFs, which are ETFs that intend to outperform a benchmark. They’ve accumulated over $82 billion (25%) of total net flows this year already—an annual record for this category—including $31 billion (29%) of overall Q3 ETF flows.

Moreover, there appears to be plenty of space for active ETFs to wash into: They currently represent just 6% ($439 billion) of total ETF assets under management. To meet growing demand, nearly 80% (114) of the 146 new ETFs that were launched in Q3 were actively managed.

The momentum behind actively managed ETFs has helped underpin flows into equity ETFs (which are predominantly made up of stock ETFs). In the wake of a record-setting Q4 2022, equity ETF flows plunged during Q1 2023. But over the past 6 months, they have rebounded (see ETF flows by quarter chart below).

Source: Bloomberg, as of 09/30/2023.

Among the 11 stock market sectors, net flows for cyclical-sector-focused ETFs generally outperformed defensive sector ETFs in Q3. As oil prices bubbled up over the summer, so too did demand for energy sector ETFs. In fact, energy ETFs led inflows after sizeable outflows in 4 of the last 5 quarters. Energy ($2 billion), consumer discretionary ($2 billion), and tech ($2 billion) attracted inflows, while health care (–$3 billion), financials (–$2 billion), and consumer staples (–$2 billion) led outflows (see US sector ETF flows chart).

Source: Bloomberg as of 09/30/2023.

Bond ETF flows fall again

Another multiquarter trend has been a steady decrease in demand for fixed income ETFs (which are made up almost entirely of bond ETFs). While still positive, bond ETF flows have fallen 3 straight quarters, reaching a multiyear low in Q3.

Among bond ETFs, government bond ETF flows have dominated year to date. Outflows for corporate bond ETFs in Q1 and Q3 sandwiched healthy Q2 flows, resulting in muted flows so far this year for this category.

Source: Bloomberg, as of 09/30/2023. “Other” consists of preferred, convertible, asset backed, mortgage backed, and bank loan ETFs.

Interested in ETFs?

ETF flows can be a useful tool to help identify market trends, to see where investors are broadly putting their money. If you are exploring the ETF universe, the key is to find those that align with your objectives and risk constraints, regardless of the trend in flows.

One tool that may be of use is Fidelity's ETF Screener, which can quickly sort through a lot of data based on the filtering selections you make. You can search for ETFs using a variety of characteristics, like the fund's objectives, fundamentals, technicals, performance, volatility, trading characteristics, tax considerations, and analyst ratings.

Find the right ETF for you

Use our screener to identify ETFs and ETPs that match your investment goals.

Screen ETFs now

More to explore

Exchange-traded products (ETPs) are subject to market volatility and the risks of their underlying securities, which may include the risks associated with investing in smaller companies, foreign securities, commodities, and fixed income investments. Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks, all of which are magnified in emerging markets. ETPs that target a small universe of securities, such as a specific region or market sector, are generally subject to greater market volatility, as well as to the specific risks associated with that sector, region, or other focus. ETPs that use derivatives, leverage, or complex investment strategies are subject to additional risks. The return of an index ETP is usually different from that of the index it tracks because of fees, expenses, and tracking error. An ETP may trade at a premium or discount to its net asset value (NAV) (or indicative value in the case of exchange-traded notes). The degree of liquidity can vary significantly from one ETP to another and losses may be magnified if no liquid market exists for the ETP's shares when attempting to sell them. Each ETP has a unique risk profile, detailed in its prospectus, offering circular, or similar material, which should be considered carefully when making investment decisions.

ETFs are subject to market fluctuation and the risks of their underlying investments. ETFs are subject to management fees and other expenses.

Past performance is no guarantee of future results.

The Fidelity ETF Screener is a research tool provided to help self-directed investors evaluate these types of securities. The criteria and inputs entered are at the sole discretion of the user, and all screens or strategies with preselected criteria (including expert ones) are solely for the convenience of the user. Expert Screeners are provided by independent companies not affiliated with Fidelity. Information supplied or obtained from these Screeners is for informational purposes only and should not be considered investment advice or guidance, an offer of or a solicitation of an offer to buy or sell securities, or a recommendation or endorsement by Fidelity of any security or investment strategy. Fidelity does not endorse or adopt any particular investment strategy or approach to screening or evaluating stocks, preferred securities, exchange-traded products, or closed-end funds. Fidelity makes no guarantees that information supplied is accurate, complete, or timely, and does not provide any warranties regarding results obtained from its use. Determine which securities are right for you based on your investment objectives, risk tolerance, financial situation, and other individual factors, and reevaluate them on a periodic basis. All the data presented within are from Fidelity Investments and Bloomberg, as of 07/20/2023. For our purposes, we refer to funds, ETPs, and ETFs interchangeably. These data do not reflect mutual fund data, and investors who would like to monitor the entire fund flow universe may want to consider flows going into or out of mutual funds.

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