Skip to main content
Flash Flows

How ETF Investors Can Put the Ball In Play Now

  • Both stocks and bonds have gains to start the year, but the path to gains hasn’t been linear.
  • ETF inflows ($81 billion) were 6% below their historical Q1 average due to US equity outflows.
  • Bond ETFs did the heavy lifting with 65% of total inflows in Q1, led by government bonds and ultra-short funds.
Head of SPDR Americas Research

After another positive month, both stocks and bonds have gains to start the year. But the path to these gains hasn’t been linear. In particular, the banking crisis sparked cross-asset volatility in March, resulting in both stocks and bonds registering multiple days of gains and losses in excess of 1%.1

Despite this, certain equities thrived. With rates falling, longer-duration growth equity exposures rallied significantly and are now up double digits in 2023.2

On the whole, however, investors largely left their bats on their shoulders, too afraid to swing amid the recent volatility.

Taking Defensive Swings With Bond ETFs

When investors did swing, it was a defensive slap at the ball, as bond funds, led by ultra-short government bond exposures, dominated flow totals.

But a hit is still a hit.

Bond ETFs took in $53 billion, 114% above their historical 10-year average for a first quarter. Meanwhile, led by outflows in US equity exposures, equity ETFs posted flows 47% below their typical Q1 figure, as shown below.

The strong flows for fixed income funds equate to over 65% of all flows into ETFs so far this year. Given that fixed income ETFs make up only 20% of the overall industry assets, this reflects a clear overweight to bonds from investors as part of a defensive bias or a relative value play, in light of elevated yields.

Both rationales for strong bond flows are supported at the sector level, as government funds took in 94% of the flows on the month and 83% on the quarter, $27.5 billion and $44.1 billion, respectively.

Ultra-short bond funds were the main driver, taking in $16 and $27 billion in March and for the quarter, respectively. In fact, flows into ultra-short government bond funds were the third-most ever for a month, fourth-most ever for any three-month period, and most ever for a Q1.

As a result, rolling three-month flows into ultra-short-and-short-term government bond funds surpassed the 90th percentile and have been above their median figure since December 2021, as shown below.

Non-US Equities Seen as Brighter Prospects

While US equity funds had well-below-average flows this past quarter, non-US exposures saw flows 27% above their historical Q1 figure.

The strong quarterly inflows were led by multiple non-US geographical regions, as all areas, except for global funds, had inflows. In fact, regional funds, led by ETFs focused on Europe, posted their ninth-best flows for any three-month period ever this quarter.

The trend of investors heading overseas while shunning US equities has pushed the three-month differential between the two major areas above the historical 90th percentile. This spike in interest for non-US equity exposures reversed a multi-year downward trend where the differential had a hard time turning positive.

In fact, this is the largest positive differential for non-US versus US since early 2018, as shown below.

Some of the US weakness stems from the $7 billion of outflows from sectors during the quarter, including $3 billion in March. In fact, flows have been negative for four months in a row, tying the longest streak of outflows. There was a similar trend of negativity in 2019, but outflows totaled $27 billion. So, while the outflow trends are similar, the magnitude is very different.

As shown below, Energy sector funds posted the most outflows on month and quarter. Interestingly, and speaking to ETFs’ use-case flexibility, financial sector funds had just minor outflows in March amid the recent banking crisis.

Technology and Consumer Discretionary sectors led on inflows, mirroring the return trends of these longer-duration growth-oriented sectors. Yet, the near $1 billion of inflows in March for Tech wasn’t enough to push year-to-date figures positive.

Sector Flows

In Millions ($)


Year to Date

Trailing 3 Month

Trailing 12 Month

Year to Date
 (% of AUM)













Health Care






Consumer Discretionary






Consumer Staples
























Real Estate


















Source: Bloomberg Finance, L.P., State Street Global Advisors, as of March 31, 2023. Top two/bottom two categories per period are highlighted. Past performance is not a reliable indicator of future performance.

This year’s outflows are being driven by both cyclical and defensive sectors, as shown above. And outflows in both cyclicals and defensives at the same time has only occurred in 6% of periods over the past 15 years. Additionally, this is the second consecutive month that both segments have had net outflows at the same time on rolling-three-month basis, as shown below.

Back-to-back months of rolling three-month outflows for both areas has occurred just three other times over the past 15 years. This could indicate that risk-off positioning has gone too far.

Two Ways to Try to Put the Ball in Play

Unlike the upside movement in prices, full-year 2023 earnings estimates were downgraded during the quarter. An increase in price (the numerator) with a decrease in earnings (the denominator) has materially impacted valuations for US equities, pushing the price-to-next-12-month earnings ratio above its 20-year average.3

Yet, these trends were apparent to start the year, and risk assets have still produced gains. But, weak earnings and elevated valuations aren’t the only two headwinds investors have to consider for the quarters ahead.

While the May FOMC meeting is likely to bring another rate hike, there is less consensus on what happens after that. As a result, the market will have to contend with more macro policy uncertainty than before.

In fact, policymakers’ view of the path ahead is at odds with the market’s view. As a result, the pendulum is likely to swing wildly with any too-hot or too-cold reading.

Overall, despite the gains, there’s no “fat pitch” to take a big swing at in this market. Working the count and being selective may allow investors to put the ball in play. After all, 30% of the time a batter puts the ball in play, they get on base.4

For today’s portfolios, this means two things:

  1. Focusing on non-US equities, where there are more attractive valuations and better relative sentiment.
  2. And, like shortening your swing to make better contact, shortening duration to limit risks in pursuit of income.

For timely ETF insights like this and for the latest charts, scorecards, and investment ideas, visit Market Trends.

More on SPDR Blog