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ETF flows slow: Q2 2022 report

Key takeaways

  • US-listed ETF flows are positive this year, but down sharply from 2021's record pace.
  • Stock ETF flows in particular have slowed dramatically.
  • More mutual funds have converted to ETFs.

Compared to most other years, ETF net flows (i.e., inflows minus outflows) thus far this year would be considered strong. But that's not the case when contrasted with 2021, when US-listed ETF flows set all-time records. For the second straight quarter, ETF flows were once again down year-over-year. They gathered $294 billion in the first half of 2022, down from $466 billion in the first half of last year.*

Here are highlights from recent ETF trends.

Stock ETF flows slow amid volatility

Issuance hasn't been a problem for ETFs thus far this year. 206 new ETFs have launched in 2022, as of early July, keeping pace with last year's annual record of over 450 launches. Of the 206 launches, 125 are actively managed ETFs.

But ETF flows are down substantially compared with 2021's blockbuster pace (see Quarterly ETF flows in billions chart below). Demand for US equity (i.e., stock) ETFs in particular was impacted by interest rate hikes, lingering COVID-19 complications, global supply chain problems, and geopolitical tensions that have stocks on pace for their first negative year since 2018.

This chart is described in the text below.
Source: Bloomberg, as of 06/30/2022

There was generally a rotation by ETF investors into defensive sectors during Q2. Among the 11 stock market sectors, defensive sectors had inflows while nearly all cyclical sectors had outflows (see US sector ETF flows in billions chart below). Health care ($5 billion), utilities ($2 billion), and consumer staples ($2 billion) attracted the most net flows, while financials (-$14 billion) saw the most outflows. Notably, technology was the lone cyclical sector to attract positive flows.

This chart is described in the text below.
Source: Bloomberg as of 06/30/2022.

The rotation to defensive sectors reflects the shift in market sentiment this year and runs counter to a longer-term trend. Looking at the past 10 quarters, defensive sector flows have only outperformed cyclical flows for 2 other quarters (Q3 2021 and Q1 2020).

Bond flows keep pace

For the first time in 6 quarters, stock and bond flows were nearly even due to a combination of slowing demand for stock ETFs and robust demand for bond ETFs (see Q2 US-domiciled ETF flows in billions chart below).

Government bond ETFs saw $41 billion net flows, which more than doubled their previous quarterly inflow record. Short-term bond ETFs accounted for $26 billion of the flows, compared to only $9 billion in Q1. On the other hand, high-yield bond funds have seen massive outflows in the first half of the year, losing $16 billion—that category's worst first half of a year on record.

This chart is described in the text below.
Source: Bloomberg, as of 06/30/2022. DM/Global Equity = Developed Market/Global Equity. EM Equity = Emerging market equity.

Other notable trends

Commodities and inflation have been big factors for investors and consumers this year. Yet rising gas prices, which saw the average US national price per gallon top $5 in mid-June (they have since fallen below that level), have not resulted in big flows for ETFs that track oil. Actually, oil-focused ETFs have seen outflows throughout the first half of the year.

Broadly, commodity ETFs had net outflows in Q2. Gold ETFs, in particular, experienced sizeable outflows ($3 billion) after gathering $10 billion in Q1.

Another interesting trend that has been gaining traction over the past couple years is the conversion of some mutual funds to ETFs. Beginning in 2021, 16 mutual funds with over $40 billion in assets converted to ETFs. So far in 2022, 8 mutual funds with $17 billion in assets have completed conversions to ETFs, and more are expected to do so by year end. In sum, the 32 converted funds have attracted $4 billion in net flows in the first half of 2022. It's worth noting that converting funds can bring over their track record and assets, unlike a newly launched ETF.

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 Fidelity Investments and Bloomberg, as of 04/11/2022. 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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