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Q1 ETF flows on record-shattering pace

Key takeaways

  • ETFs have already accumulated more than half of last year’s net flows in the first quarter (Q1) of 2021 alone.
  • Stock ETF flows set a quarterly record, propelled by cyclical sectors.
  • Bond ETF flows, while positive, slowed from their previous record pace.

After 2020 saw US-domiciled ETFs gain $476 billion in net flows (i.e., inflows less outflows)—which broke the annual record of $470 billion set in 2017—they accumulated nearly $248 billion in just Q1 this year. That according to BlackRock's most recent Follow the Flow quarterly report.*

As global economies have continued to reopen, exchange-traded products (ETPs), which are composed almost entirely of exchange-traded funds (ETFs), continue to attract massive net flows relative to previous years. At this pace, ETF flows could more than double last year’s record-setting amount.

Here were the most recent trends in ETF flows.

Equity ETF flows blow the field away

Up until recently, fixed income (i.e., bond) ETFs had been the hottest category, in terms of flows. In 2020, net bond ETF flows grew by $205 billion, after increasing by $150 billion in 2019 (both representing record annual totals for bond ETFs). During the first quarter of 2021, it was equity (i.e., stock) ETFs’ turn to break records.

In just the first quarter of 2021, stock ETF net flows grew by a staggering $209 billion (see US-domiciled ETP flows chart). Momentum spilled over from last year, when stock ETFs accumulated $246 billion in net flows, representing a new annual record. Developed market/global stock ETF flows were strong as well, relative to other recent quarters, tallying more than $50 billion in net flows. In particular, global stock ETFs scored their best quarterly mark ever, taking in $30 billion in net flows.

US-domiciled ETP flows

Source: BlackRock, as of April 27, 2021. US EQY = US Equity. DM/Global EQY = Developed market/Global equity. EM EQY = Emerging market equity. EM Debt = Emerging market debt.

The Q1 stock/bond dynamic continued a trend from the end of 2020—which had reversed a previous trend, where bond ETF flows were outpacing stock ETF flows for most of last year, as well as in 2019.

That trend flipped at the end of 2020 and accelerated in early 2021, as a rotation into stock ETFs was spurred on by the continued reopening of global economies (see Stock and bond ETF flow comparison chart). All told, stock ETF flows outpaced bond ETF flows by a 5-to-1 margin in Q1.

Stock and bond ETF flow comparison

Source: BlackRock, as of April 27, 2021.

Stock and bond ETF flows generally trended higher throughout the first 3 months of this year, whereas ETF flows during the same period last year were more volatile—obviously due to the unfolding COVID-19 pandemic in February and March of 2020.

Among the 11 stock market sectors, cyclicals generally outperformed defensive sectors, in terms of net flows. Financials ($15 billion), technology ($14 billion), and energy ($10 billion) attracted the most net flows, while consumer staples, health care, communication services, and utilities saw negative flows during Q1 (see US sector ETP flows chart).

US sector ETP flows

Source: BlackRock, as of April 27, 2021.

Clearly, government and central bank support, coupled with the vaccine rollout, has helped support optimism for cyclical sectors—and risk assets in general. Of note, value outperformed growth ETF flows in Q1, with the former taking in $27 billion in net assets.

Exploring the ETF universe

Of course, recent or historical trends are not necessarily a harbinger for the future. Moreover, it is generally inadvisable to take action based on any one piece of information, including fund flow data. Nevertheless, 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.

Why follow fund flows?

Tracking fund flows can help you evaluate which parts of the market may have momentum, and can be useful if you incorporate trends and patterns in your analysis. You can assess fund flows by asset category, region, and objective, among other characteristics. Additionally, if you're a long-term investor, you might look at annual or multiyear trends. If you have a shorter investment horizon, you might track weekly, monthly, or quarterly fund flows.

Find the right ETF for you

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

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 the BlackRock Follow the Flow report, as of January 15, 2021. 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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