ETF flows slow in a market with more questions than answers
Track shifting investor sentiment through our latest ETF flows analysis.
Today’s markets resemble a multiple‑choice exam with only half of the questions covered in the study guide. Investors must commit to views with incomplete information. A correct answer (a relief rally) is immediately followed by new questions as the frenetic news cycle evolves. Is this an achievable endpoint? Will the rally last? Progress is possible, but absolute clarity remains elusive.
That dynamic is evident in the macro response to the war in the Middle East, which has raised volatility, growth concerns, policy uncertainty, and inflation risks. And assets that require investors to step away from the safety and liquidity of the risk‑free rate have seen risk premia widen, as higher yields reduce the present value of future earnings and income streams.
As a result, both global stocks and bonds fell in March. And fund flow trends reflect the macro response and the uptick in cross-asset volatility.
Weak broad sentiment, but some inflation-biased tactical buying
ETF buying behavior was restrained last month. The $104 billion added to the $438 billion total Q1 haul—over $140 billion more than the Q1 record in 2025—was 40% off the $172 billion six-month average.
Still, there were pockets of tactical buying strength, as investors sought to rotate toward areas of the market that could help them navigate the macro response to the war in the Middle East. Given the nature of the energy supply shock, the rise in the spot price of oil, and the performance of energy stocks as well as their upward revised earnings expectations (the Energy sector has the highest upgrade‑to‑downgrade ratio over the past month),1 energy sector ETFs saw outsized investment.
With a record $5 billion of inflows in March, Energy’s rolling three-month flows accelerated sharply, ending the quarter with a record $12 billion (Figure 1). But some of this momentum started before the war; energy sector ETFs have now had inflows for a record 14 straight weeks.
In test‑taking terms, it’s one of the few answers investors felt confident circling.
Along the same lines, while the high-level commodity category, including five sub-commodity categories, had outflows driven by gold, $2.3 billion was added to commodity ETFs focused on Energy commodity markets (third-best).
But more importantly, $1.3 billion was added to broad-based commodity ETFs in March, a record 10th month in a row with inflows. The continuation of that record run helped push rolling-three month flows well above the 80th percentile (Figure 2).
While still below the peaks from 2021/2022 when inflation was spiking, this trend indicates that investors are seeking resilience amid increased geopolitical tensions, constrained supply chains, and the derivative impacts on prices and near-term inflation.
And with inflation remaining stubborn heading into March, inflation-linked bond ETFs continued to have inflows. Last month’s +$1.3 billion is their 12th month out of the past 13 with inflows.
Some risk-off sentiment in sectors too
Sectors had $5 billion of outflows in March, as sentiment soured. This ended a 10-month streak of inflows that began following the prior risk-off period around Liberation Day in 2025.
Figure 3: Sector flows
| In millions ($) | March | Year to date | Trailing 3-month | Trailing 12-month | Year to date (% of AUM) |
|---|---|---|---|---|---|
| Technology | -3,302 | 4,672 | 4,672 | 13,659 | 1.35% |
| Financial | -613 | -1,926 | -1,926 | -6,108 | -2.02% |
| Health Care | -1,624 | 973 | 973 | 892 | 1.06% |
| Consumer Discretionary | -658 | -1,986 | -1,986 | -1,696 | -4.92% |
| Consumer Staples | -63 | 400 | 400 | -1,024 | 1.60% |
| Energy | 4,667 | 12,274 | 12,274 | 6,883 | 20.07% |
| Materials | -2,037 | 5,723 | 5,723 | 9,095 | 8.24% |
| Industrials | -1,226 | 6,333 | 6,333 | 15,658 | 8.96% |
| Real Estate | 440 | 711 | 711 | 4,030 | 1.04% |
| Utilities | 1,143 | 247 | 247 | 4,751 | 0.67% |
| Communications | -1,700 | -2,062 | -2,062 | 964 | -5.67% |
Source: Bloomberg Finance, L.P., State Street Investment Management, as of March 31, 2026. The top two/bottom two categories per period are highlighted. Performance data quoted represents past performance. Past performance does not guarantee future results.
While the weakness was broad-based, with eight of the 11 sectors experiencing outflows, there were some pockets of positivity. Energy, as discussed above, gathered the greatest inflows in March. Utilities was next; this defensive sector took in $1.1 billion last month, as investors positioned toward a market segment that has historically done well during periods of falling growth. And while Industrials had outflows, one corner of that sector had strong inflows.
ETFs focused on Aerospace & Defense firms had $3 billion of inflows in March, a record monthly total amid the conflict and the potential need for more defense spending. The rolling trend (Figure 4) illustrates that these flows are more than a one-month trend, as interest in defense firms has coincided with the reworking of the global geopolitical macro paradigm.
Three macro sentiment trends from bond flows
Bond flows revealed three buying behavior traits accelerated by the alteration of the macro landscape:
- Preference for defensive short-term (a record +$28 billion) over long-term government exposures (-$2.7 billion) as rates rose across the curve, driven by wider risk premia and increased inflation concerns more significantly impacting longer-term bond price performance (down 4% in March)2
- Inflows into inflation-linked bond ETFs (+$1.3 billion) due to the same inflation concerns
- Outflows in growth-sensitive credit sectors (-$5 billion) led by high yield and growth-biased emerging market debt (-$2.2 billion), as a result of the risk-off temperament and the potential for the conflict to weaken growth dynamics
The lack of interest in owning long-term US Treasurys is not a March 2026 phenomenon. This trend has emerged over the past year and is reflected in the trailing three-month flow trend: short-term government funds’ +$42 billion is at records while long-terms’ -$6 billion resides at its second-lowest point ever.
Figure 5: Fixed income flows
| In millions ($) | March | Year to date | Trailing 3-month | Trailing 12-month | Year to date (% of AUM) |
|---|---|---|---|---|---|
| Aggregate | 12,955 | 61,387 | 61,387 | 198,951 | 7.51% |
| Government | 30,383 | 48,368 | 48,368 | 125,998 | 9.15% |
| Short term | 28,983 | 42,208 | 42,208 | 93,046 | 16.44% |
| Intermediate | 4,099 | 12,337 | 12,337 | 37,836 | 6.15% |
| Long term (>10 yr) | -2,699 | -6,177 | -6,177 | -4,884 | -6.88% |
| Inflation-protected | 1,349 | 2,602 | 2,602 | 10,318 | 3.73% |
| Mortgage-backed | 892 | 2,905 | 2,905 | 13,301 | 2.90% |
| IG corporate | 357 | 18,330 | 18,330 | 47,051 | 5.98% |
| High yield corp. | -5,260 | -5,596 | -5,596 | 13,257 | -5.00% |
| Bank loans and CLOs | 218 | 4,210 | 4,210 | 9,685 | 7.04% |
| EM bond | -2,237 | -208 | -208 | 4,691 | -0.60% |
| Preferred | -188 | 231 | 231 | 1,729 | 0.58% |
| Convertible | -790 | 907 | 907 | 2,148 | 10.33% |
| Municipal | 4,365 | 12,246 | 12,246 | 48,544 | 6.53% |
Source: Bloomberg Finance, L.P., State Street Investment Management, as of March 31, 2026. The top two/bottom two categories per period are highlighted. Past performance is not a reliable indicator of future performance.
Scanning the answer key for clarity
Heading into April, markets are approaching the next sheet of questions as Q1 2026 earnings season begins. And despite elevated macro uncertainty, full year 2026 earnings estimates for the S&P 500 have been revised higher throughout the quarter—up nearly 4%.3 Historically, that is unusual. Over the past 15 years, forward calendar‑year earnings estimates have typically declined by about 1% over the same period.4
If companies fail to meet these higher expectations amid rising rates and geopolitical risks, equities could move lower. Conversely, broad‑based earnings beats could help establish a near‑term floor. This means until earnings or policy and inflation dynamics improve clarity, investors remain stuck in an exam where conviction builds slowly and certainty remains scarce.
In other words, this market feels like that college blue book test you still have nightmares about—with answers emerging slowly, questions multiplying quickly, and the finish line always just out of reach.
Prepared investors with a balanced, diversified mix of assets may perform better than investors trying to time the market or guess the market’s next move by penciling in “A B A C A D A.”