ETF flows gain again in Q3

Stock, bond, and commodity flows had another big quarter.

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Key takeaways

  • It was yet another strong 3 months for ETF net flows.
  • Bond ETF net flows led the pace once again among asset classes.
  • Gold ETF flows shined, even though gold prices were volatile.

While not quite as large as the record-shattering quarterly pace that ETF flows have had in years past, ETF assets under management kept rising during the third quarter (Q3) even as the COVID-19 pandemic lingers over the global economy. Momentum behind ETFs was boosted by $109 billion in net fund flows (inflows minus outflows) during Q3, according to BlackRock's most recent Follow the Flow report.* That brings the year-to-date total to $304 billion, as US-domiciled ETF assets under management zoom well past $4 trillion.

Here were the recent trends for exchange-traded products (ETPs), which are composed almost entirely of ETFs.

No stopping ETF flows

Q3 ETF flows were strong across the board once again, as equity (i.e., stock), fixed income (i.e., bond), and commodity ETFs all had robust net inflows (see US-domiciled ETP flows chart).

US-domiciled ETP flows

US equity ETFs accumulated $15 billion in net assets during Q3, and developed markets ex-US gathered $12 billion. Global equity ETFs added $12 billion in net flows last quarter—a dramatic improvement from a mostly flat prior quarter. Commodity ETFs also had a stellar Q3, attracting $12 billion in net flows—a significant tally relative to historical trends—as the price of gold, silver, and some other metals trade near relatively high historical price levels.

Standing above them all, bond fund flows brought in $55 billion in net assets during Q3. This is now a multiyear story, as bond fund flows have led all asset classes since early 2019.

Tech tops US sector flows, factor flows steady

Among the 11 US stock market sectors, technology ETFs attracted by far the most net flows (over $5 billion) in Q3. That was followed by consumer discretionary and industrial ETFs. Notably, real estate saw a fairly significant amount of net outflows (see Q3 US sector flows chart).

Q3 US sector flows

Among US factor flows, momentum, value, quality, and dividend ETFs all attracted roughly $1 billion during Q3, while growth was flat and low volatility had nearly $3 billion in outflows.

Bond ETFs keep rolling

Once again, bond ETFs posted the best quarter in terms of net flows among asset classes. While net flows for bond ETFs were down from the quarterly record set in Q2 ($85 billion), massive flows relative to historical levels into corporate credit funds helped bond ETFs accumulate a strong $55 billion in assets during Q3.

It is worth noting, however, that US Treasury flows were muted relative to previous quarters—and negative for some categories. Short-term and intermediate-term bond ETFs saw net outflows of nearly $4 billion and $3 billion, respectively (see Q3 US Treasury ETP flows chart).

Q3 US Treasury ETP flows

Gold ETFs at it again

For the second consecutive quarter, gold ETFs had a massive haul, in terms of net flows relative to historical levels—even though gold prices were up and down in Q3. Roughly $11 billion in net flows last quarter pushed total gold ETF assets under management near $130 billion (see Q3 gold ETF flows chart).

Q3 gold ETF flows

To a much lesser extent compared with gold, silver ETF flows also continue to benefit from relatively higher prices. While nowhere close to its 2011 high water mark, silver prices have been on the rise throughout 2020 and silver ETF flows have followed suit. In Q3, silver ETFs accumulated roughly $1 billion in net flows.

ETF flows in context

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.

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.

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