A macro Odyssey August ETF flows show unwavering investor focus
Despite the siren song of macroeconomic headlines, capital markets stayed the course in August, posting broad gains. Like the sailors aboard Odysseus’s ship in Homer’s Odyssey, investors seemed to plug their ears with wax—tuning out the noise of unsettling headlines.
Trade deals and tariff assessments, concerns about the independence of the Federal Reserve (Fed), ongoing geopolitical strife, softening labor markets, and stubborn inflation prints all stood in the way of risk assets in August.
But strong corporate fundamentals and the potential for rate cuts acted as a counterbalance, helping to boost sentiment and drive gains across stocks and bonds. But these gains are stretching valuations.
With investors blocking out the noise, ETF flows continued their record-setting pace. Yet, tactical allocations signal both risk-on optimism and a desire for enhancing resilience.
Big flows in August show capital was put to work
August tends to be the weakest month for ETF inflows, averaging roughly $36 billion over the past 10 years compared to the general monthly average of $50 billion. But this seasonality quirk was upended this August, as ETFs’ $118 billion of inflows was the seventh-most all-time and second-most of any month in 2025.
Behind this trend-busting number was the ongoing Telemachus-like fixed income ETF coming of age story. Bond ETFs amassed a record $49 billion of inflows last month—well above the prior record from this year (February 2025, $39 billion) and their historical monthly average of $17 billion (Figure 1).
Equities’ $58 billion and bonds’ $49 billion accounted for 90% of the overall inflows in August, a massive share but still below their 96% combined market share of total assets. Commodity exposures’ inflow of $5 billion is one of the prime reasons why. And gold did the heavy lifting in that category.
Gold ETFs took in $4 billion in August, their tenth-most ever, to total $25 billion on the year. Elevated macro uncertainty, strong price momentum from fundamental drivers (i.e., central bank demand), the potential for rate cuts, the fading dollar, and secular deficit concerns supported these golden flows.
Figure 2: Asset class flows
| In millions ($) | August | Year-to-date | Trailing 3-month |
Trailing 12-month |
Year-to-date (% of AUM) |
|---|---|---|---|---|---|
| Equity | 58,364 | 461,458 | 199,519 | 859,404 | 5.61% |
| Fixed income | 49,112 | 259,528 | 106,856 | 373,494 | 14.48% |
| Commodity | 5,008 | 28,700 | 13,996 | 31,965 | 17.91% |
| Specialty | 144 | 2,070 | 1,120 | 2,177 | 36.89% |
| Mixed allocation | 785 | 5,200 | 2,008 | 7,873 | 20.69% |
| Alternative | 5,528 | 39,535 | 24,466 | 64,242 | 28.08% |
Source: Bloomberg Finance, L.P., State Street Investment Management, as of August 30, 2025. The top two/bottom two categories per period are highlighted. Past performance is not a reliable indicator of future performance.
Investors overweight cyclical sectors but not all non-US markets
Sectors had $3 billion inflows in August, led by $2 billion of inflows into cyclical sectors. For the entire sector category, these August flows push year-to-date totals into positive territory and a full recovery from the post-Liberation Day swoon.
Cyclical sectors still have more room to go, as the $6 billion of outflows in Energy continues to weigh on that cohort. Yet, cyclicals have now had inflows for three consecutive months, a healthy sign of sentiment returning.
Utilities continues to be the defensive outlier (+$728 million), as increased spending on artificial intelligence and power consumption needs has sparked interest in the sector.
Figure 3: Sector flows
| In millions ($) | August | Year-to-date | Trailing 3-month |
Trailing 12-month |
Year-to-date (% of AUM) |
|---|---|---|---|---|---|
| Technology | 569 | 8,841 | 961 | 11,693 | 2.89% |
| Financial | 348 | 2,163 | 3,487 | 7,064 | 2.31% |
| Health Care | -414 | -7,080 | -3,374 | -11,250 | -8.12% |
| Consumer Discretionary | 689 | -1,435 | 1,511 | -687 | -3.41% |
| Consumer Staples | -267 | -387 | -376 | -846 | -1.42% |
| Energy | -394 | -6,658 | -306 | -7,538 | -8.56% |
| Materials | 1,034 | -4,504 | 1,486 | -3,736 | -12.25% |
| Industrials | 500 | 2,323 | 2,946 | 4,941 | 4.38% |
| Real Estate | 94 | 514 | 998 | 1,218 | 0.65% |
| Utilities | 728 | 4,866 | 2,240 | 4,626 | 18.00% |
| Communications | 157 | 2,484 | 1,478 | 2,665 | 9.19% |
Source: Bloomberg Finance, L.P., State Street Investment Management, as of August 30, 2025. The top two/bottom two categories per period are highlighted. Past performance is not a reliable indicator of future performance.
From a regional perspective, US equity ETFs’ $44 billion represents 76% of all equity flows in August. That’s a massive share of the total flows. But non-US equites’ share of flows is 24%, and that is still greater than their 20% share of assets. This indicates investors are still expressing a relative overweight toward overseas allocations.
The majority of the August flows were driven by developed ex-US ETFs. That cohort took in $10 billion, while emerging market (EM) and regional ETF exposures had limited inflows and single-country ETFs had over $1 billion of outflows in August.
Figure 4: Geographic flows
| In millions ($) | August | Year-to-date | Trailing 3-month |
Trailing 12-month |
Year-to-date (% of AUM) |
|---|---|---|---|---|---|
| US | 44,109 | 335,175 | 132,456 | 676,479 | 4.95% |
| Global | 4,287 | 20,630 | 14,497 | 36,906 | 9.10% |
| International: Developed | 10,493 | 67,344 | 34,626 | 100,932 | 8.89% |
| International: Emerging markets | 382 | 15,209 | 10,691 | 22,331 | 5.74% |
| International: Region | 21 | 11,617 | 899 | 5,395 | 19.58% |
| International: Single country | -1,315 | 4,878 | 3,967 | 10,928 | 4.25% |
| Currency hedged | -35 | 3,738 | 170 | 3,003 | 14.17% |
Source: Bloomberg Finance, L.P., State Street Investment Management, as of August 30, 2025. The top two/bottom two categories per period are highlighted. Past performance is not a reliable indicator of future performance.
Bond investors focused on high quality credit
Investment grade (IG) corporate bond ETFs took in $13 billion. This is their second-most ever, just behind the $16 billion of inflows from June 2020 when the Fed was buying IG corporate bond ETFs as part of its pandemic liquidity and crisis fighting policy.
Not only is this the second-most flows on an absolute basis, but August’s total also represents IG corporate bond ETFs’ second-most flows relative to high yield corporate bond ETFs.
Fifty-five percent of this influx of IG corporate capital was allocated to short- and intermediate-term exposures. Broad corporate exposures took the rest, as long-term corporate bond ETFs had just 7% of the overall figure (+$900 million). The attractive breakeven of yield to volatility at the shorter end of the curve is driving these flows.
Outside of credit trends, investors continued to seek inflation protection. Inflation-linked bonds took in $865 million in August—their eighth month in a row with inflows and the longest inflow streak since 2021—for a total of more than $8 billion invested in 2025.
These flow and performance trends may continue, fueled by inflationary pressures that could continue to reduce the allure of long-term government bonds (-$2.7 billion of outflows over the past three months), particularly if the curve bear steepens.
Figure 5: Fixed income flows
| In millions ($) | August | Year-to-date | Trailing 3-month |
Trailing 12-month |
Year-to-date (% of AUM) |
|---|---|---|---|---|---|
| Aggregate | 15,852 | 101,062 | 43,450 | 159,609 | 16.18% |
| Government | 7,571 | 62,560 | 9,673 | 69,850 | 14.92% |
| Short-term | 5,635 | 44,455 | 8,510 | 55,837 | 20.14% |
| Intermediate | 1,271 | 14,314 | 3,908 | 20,308 | 10.82% |
| Long term (>10 yr) | 665 | 3,791 | -2,746 | -6,295 | 4.49% |
| Inflation-protected | 865 | 8,319 | 1,709 | 7,202 | 14.76% |
| Mortgage-backed | 1,374 | 17,617 | 10,993 | 26,385 | 22.95% |
| IG corporate | 13,351 | 20,362 | 11,087 | 32,402 | 7.58% |
| High yield corp. | 1,772 | 15,992 | 9,083 | 20,483 | 18.51% |
| Bank loans and CLOs | 2,678 | 11,935 | 7,200 | 25,189 | 25.46% |
| EM bond | 303 | -845 | 1,096 | -2,849 | -3.00% |
| Preferred | 323 | 802 | 631 | 2,366 | 2.12% |
| Convertible | -121 | -320 | 566 | 1,149 | -4.51% |
| Municipal | 5,135 | 21,929 | 11,255 | 31,593 | 15.68% |
Source: Bloomberg Finance, L.P., State Street Investment Management, as of August 30, 2025. The top two/bottom two categories per period are highlighted. Past performance is not a reliable indicator of future performance.
More macro sirens ahead for investors to navigate
Despite the strong momentum heading into September, seasonality may be the next siren song for markets. Since 1985, September has been the weakest month for the S&P 500, with gains only 49% of the time—suggesting that one or two idiosyncratic large September returns aren’t the only factors pulling the average down.1
But perhaps the most alluring macro narrative is the expectation of a rate cut at the Fed’s September meeting. While a cut seems priced in, the downside risk surrounding this event is out of balance to the upside. This could be a “buy the rumor sell the news” event, as short-term yields have already moved ahead of this expected rate cut (the US 3-month T-bill is trading at a more than 30 bps discount to the fedfunds rate).2
Adding to the uncertainty are fresh legal challenges to Trump administration tariffs, which could inject another wave of volatility into the market’s journey.
Investors’ best move might be to take a cue from Odysseus himself. Rather than block out the sirens entirely, he had his crew bind him to the mast—allowing him to hear their song without succumbing to it.
A modern “mast portfolio” similarly acknowledges market noise but remains anchored through diversification. By holding assets with offsetting risks, returns, and economic sensitivities, investors can stay the course—seeking their own version of Ithaca.
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