MW ETFs are on pace to take in a record $1.3 trillion in 2025. Here's where the money's going.
By Christine Idzelis
'We're still seeing interest overseas from a flow perspective,' says State Street's Matthew Bartolini of U.S.-listed ETFs
Investors keep piling into exchange-traded funds - with the latest monthly flow data reflecting some limit to their appetite for risk in the U.S., as well as a desire to diversify internationally.
U.S.-listed ETFs attracted $121 billion in July, pushing their total this year to $677 billion and putting them on pace for a record $1.3 trillion in 2025, according to a note from Matthew Bartolini, head of ETF research for the Americas at State Street Investment Management.
Signs of a "risk-on" mentality were evident in some tactical allocations into cyclical sectors within equities, but that was juxtaposed by the longest stretch of outflows from U.S. small-cap stocks on record, he said in a phone interview. Also, investors demonstrated a relatively strong appetite for international exposure in the wake of concerns around the Trump administration's "liberation day" tariffs, according to Bartolini.
The U.S. stock market has staged a big recovery since its tumble after President Donald Trump announced so-called reciprocal tariffs on April 2, which he referred to as "liberation day." So far this year, the S&P 500 SPX, a measure of U.S. large-cap equities, has trounced the struggling Russell 2000 index RUT, a gauge of small-cap equities in the U.S. But international stocks broadly outperformed the S&P 500 in 2025 through July.
"It's not a full, risk-on market everywhere," with U.S. small-cap equity ETFs posting a seventh straight month of outflows for "a record stretch of negative activity," said Bartolini. "We're not out of the woods just yet."
Investors appear keen on diversifying their portfolios beyond U.S. assets.
"We're still seeing interest overseas from a flow perspective," said Bartolini. U.S.-listed ETFs focused on international stocks attracted about 30% of equity inflows in July - even as they comprise just 19% of the equity assets under management in the industry, he noted.
The S&P 500 index gained 7.8% this year through July, lagging the 15.5% rise in shares of the iShares MSCI ACWI ex-U.S. ETF ACWX, which tracks an index of equities globally excluding the U.S., according to FactSet data. The Russell 2000 index lost 0.8% over the same period.
Investors have been closely monitoring the uncertain effects of tariffs on the economy, with Trump announcing some higher levies last week.
"The new 'reciprocal' tariff rates for most trading partners that had not yet reached deals with the U.S. are generally higher than the 10% baseline rate that has been in effect since April," said David Mericle, chief U.S. economist at Goldman Sachs, in a note emailed Monday.
"We already assumed the baseline tariff rate would rise to 15% in August, and the average effect of these rates would be similar but slightly higher," he said. "However, we expect some of them to be negotiated down over the next several weeks, which would put the overall effect roughly in line with our forecast."
Investors have worried about tariffs potentially putting a drag on growth and increasing inflation.
'Downside risks' to labor market
The Federal Reserve, after concluding its monetary-policy meeting last week, said in its July 30 statement that U.S. economic growth moderated during the first half of the year, but that the labor market was still "solid" and inflation was "somewhat elevated." At his press conference later that same day, Fed Chair Jerome Powell "emphasized 'downside risks' to the labor market," Mericle noted.
The Bureau of Labor Statistics released a report on Aug. 1 showing the U.S. economy added fewer jobs in July than Wall Street forecast. The BLS also made large downward revisions to jobs-growth data for June and May.
"We couldn't help but wonder if Fed Chair Powell cringed when he saw these revisions, having recently called government economic data 'the gold standard' and basing his 'wait-and-see' approach to rate cuts on a narrative which is now in question," said Nicholas Colas, co-founder of DataTrek Research, in a note emailed Monday.
The Fed decided on July 30 to keep its benchmark interest rate unchanged at the current target range of 4.25% to 4.5%, as the market widely expected. After the disappointing July jobs report, Treasury yields tumbled, with the 2-year rate BX:TMUBMUSD02Y seeing a steeper fall than the 10-year yield BX:TMUBMUSD10Y.
See: 2-year Treasury yield plunges as Friday's jobs report flashes 'warning signs
The labor market didn't look solid in the July jobs report, according to Russell Price, chief economist at Ameriprise Financial. It was "weak," with the data showing that "the job market is further deteriorating," he said in a phone interview. In Price's view, the report may sway more members of the Federal Open Market Committee to support a rate cut in September.
Treasury yields appeared relatively stable on Monday, while the U.S. stock market climbed sharply. The S&P 500 stock index closed 1.5% higher; in the bond market, the yield on the 10-year Treasury note shed 2.1 basis points to 4.197%, while the 2-year Treasury rate retreated 2.2 basis points to 3.680%, according to Dow Jones Market Data.
Fast pace of bond flows in 2025
Investors have been hungry for bonds in 2025, with fixed-income ETF inflows hitting the $200 billion mark for a year at the quickest pace ever, research from State Street found.
"You're still seeing some good flows into fixed income," said Bartolini. July inflows pushed bond ETFs' inflows to more than $200 billion this year - reaching that level faster than in 2024, when it took them until September to do so, he said. Bond ETFs saw record inflows last year, he noted.
Check out: Inside the great ETF boom of 2025: 'How do you navigate all this?'
Investors have been drawn to elevated yields available in the bond market.
"We are pretty sanguine that interest rates in this cycle are going to settle higher than they did in the last cycle," said BlackRock's Tom Becker, a senior macro portfolio manager at the firm, in a phone interview. But with historically large deficits in the U.S. and the annual pace of inflation above the Fed's 2% target, the real yield from Treasurys could sometimes be "lower than what you could get on foreign hedged bonds," he added, citing the benefits of diversification.
Becker is the lead portfolio manager of the actively run iShares Global Government Bond USD Hedged Active ETF GGOV, which invests broadly in sovereign debt globally but hedges them back into U.S. dollars DXY. The currency hedges may provide "a yield uplift," he said. Historically, "hedged global bonds tend to do well in environments where U.S. cash rates are high relative to other countries," according to Becker.
Investors have been turning to actively managed bond ETFs for help in navigating the complexities of the global fixed-income market.
Last month, active bond ETFs received about 60% of all flows into U.S.-listed exchange-traded funds that focus on fixed income, although their assets equate to a much smaller share of the industry's total housed in fixed income, said Bartolini. "There's a clear sign of growing usage," he said.
-Christine Idzelis
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August 04, 2025 16:32 ET (20:32 GMT)
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