Markets send the signals—ETF flows show where investors are headed
Track shifting investor sentiment through our latest ETF flows analysis.
Signs and signals are everywhere. They help us orient ourselves, make decisions, and act. Street signs keep you from turning down a wrong way. Trail markers tell you whether the next mile is a steep scramble or a scenic path. Even in baseball, a catcher flashes three fingers and taps his thigh to signal what pitch to throw and where to place it.
Signs and signals are information we can process and act on.
Markets send signals too. Investors today are navigating an abundance of them—elevated valuations, both optimism and anxiety around artificial intelligence (AI), rising global deficits, and tech/software-led credit stress. And now, military escalation in the Middle East threatens global shipping lanes, energy supply, and inflation expectations. The signals are loud, frequent, and sometimes conflicting.
Recent fund flow trends suggest how investors are interpreting the signals and positioning portfolios now.
ETF investors are going overweight overseas
Non-US equity ETFs attracted $57 billion of inflows in February, the second-highest monthly total on record. But more importantly, these inflows accounted for 51% of all equity flows on the month—well above non-US equity ETFs’ market share (21%).
This 51% share of flows for non-US equity ETFs is also greater than their share of flows over the past three-and-twelve months (42% and 33%). This may signal investors are taking two actions:
- Expressing an overweight to non-US equities
- Increasing that overweight
Underscoring this trend, the rolling three-month flows for each of the major sub-segments within the broader non-US equity category (international developed, emerging markets, and single country) are now sitting at records (Figure 1).
This renewed interest in non-US equity exposures comes after sizeable concentration in US equities over the last few years, and as market forces (e.g., trade policy counter measures, fiscal stimulus, softer inflation, attractive starting valuations, weaker dollar, etc.) have helped propel non-US equity market returns above that of the US.
While the flows into non-US equities were the breakout star from a geographical perspective, the US did have a robust $54 billion of inflows in February (Figure 2). This signals that there is no broad “sell U.S. assets” trade underway—rather, investors are adding to non US exposure while maintaining allocations to the US trend.
Figure 2: Geographic flows
| $M | February | Year to date | Trailing 3 month | Trailing 12 month | Year to date (% of AUM) |
|---|---|---|---|---|---|
| US | 53,809 | 91,402 | 219,772 | 665,818 | 1.08% |
| Global | 9,614 | 22,125 | 30,453 | 69,697 | 7.71% |
| International: Developed | 23,980 | 41,176 | 66,635 | 156,211 | 3.70% |
| International: Emerging markets | 11,137 | 31,685 | 39,385 | 66,582 | 8.54% |
| International: Region | 1,320 | 4,544 | 6,414 | 19,420 | 4.66% |
| International: Single country | 10,253 | 16,226 | 18,411 | 25,656 | 10.77% |
| Currency hedged | 671 | 1,564 | 1,785 | 3,954 | 4.07% |
Source: Bloomberg Finance, L.P., State Street Investment Management, as of February 28, 2026. The top two/bottom two categories per period are highlighted. Performance data quoted represents past performance. Past performance does not guarantee future results.
Risk-on signal with sectors and styles
Sectors had a record $10 billion of inflows in February. Combined with the $19 billion from January, this is sectors’ best start to a year ever and a sign of a renewed trend of risk taking.
The renewed risk-taking continues to be supported by cyclicals. Industrials, Energy, and Materials had a combined $8.5 billion of inflows, more than offsetting the $5 billion of outflows from Financials. Cyclicals now have $19 billion of inflows so far this year, or 65% of all sector flows. This is far above their market share of sector assets (47%), a sign of a change in market leadership that is no longer as tech-driven.
The three sectors leading this rotation (Energy, Materials, and Industrials) are up an average 20% to start the year, outpacing the broader market (+0.5%) as well as the bellwether tech sector returns (-6%).1 And those three sectors are likely to receive additional interest following the start of the conflict in Iran and its likely impact on defense industries, oil infrastructure, supply chains, and commodity prices.
Figure 3: Sector flows
| $M | February | Year to date | Trailing 3 month | Trailing 12 month | Year to date (% of AUM) |
|---|---|---|---|---|---|
| Technology | 5,873 | 7,975 | 7,411 | 14,855 | 2.31% |
| Financial | -5,235 | -1,325 | -1,239 | -6,493 | -1.39% |
| Health Care | 171 | 2,596 | 1,721 | 1,749 | 2.83% |
| Consumer Discretionary | -406 | -1,318 | -164 | -3,376 | -3.26% |
| Consumer Staples | 304 | 463 | -135 | -419 | 1.85% |
| Energy | 3,360 | 7,590 | 7,608 | 1,582 | 12.41% |
| Materials | 1,350 | 7,758 | 11,058 | 10,309 | 11.18% |
| Industrials | 3,850 | 6,865 | 9,140 | 15,208 | 9.71% |
| Real Estate | 448 | 270 | 1,927 | 3,928 | 0.40% |
| Utilities | 359 | -896 | -383 | 4,871 | -2.41% |
| Communications | -314 | -362 | 298 | 1,445 | -0.99% |
Source: Bloomberg Finance, L.P., State Street Investment Management, as of February 28, 2026. The top two/bottom two categories per period are highlighted. Performance data quoted represents past performance. Past performance does not guarantee future results.
The same cyclical signal is visible in styles. Value ETFs took in $15.4 billion of inflows versus Growth’s $743 million of outflows, a sign of market trends shifting away from a growth-dominant mindset among buyers.
Small caps, after witnessing outflows to start 2026 and for all of 2025, bounced backed with $5 billion of inflows. Small caps, despite their outperformance versus large caps over the past year (21.7% versus 15.5%), still trail large caps on flows over the same time period.2 In fact, small-cap ETFs still have outflows (-$3.8 billion) over the last twelve months, even though there are signs for optimism given fundamental, fiscal, and monetary impulses.
Figure 4: US style flows
| $M | February | Year to date | Trailing 3 month | Trailing 12 month | Year to date (% of AUM) |
|---|---|---|---|---|---|
| Broad market | 10,777 | 20,937 | 30,795 | 100,648 | 1.94% |
| Large-cap | 23,293 | 40,966 | 139,991 | 479,202 | 1.37% |
| Mid-cap | 3,292 | 4,378 | 13,338 | 31,619 | 0.93% |
| Small-cap | 5,202 | 468 | 5,808 | -3,889 | 0.10% |
| Growth | -743 | 6,020 | 25,437 | 114,285 | 0.44% |
| Value | 15,405 | 14,175 | 28,677 | 77,029 | 1.24% |
Source: Bloomberg Finance, L.P., State Street Investment Management, as of February 28, 2026. The top two/bottom two categories per period are highlighted. Performance data quoted represents past performance. Past performance does not guarantee future results.
Duration and credit risks trimmed
February bond flows helped provide signs for where investors were looking to express risk. Within rates, there was a desire to trim duration risk, as February marked another month of curve-positioning bias toward the short end. Investors deposited $8 billion into short-term government bond ETFs and another $4 billion into the intermediate-term portion of the government bond market. At the same time, long-term government bond ETFs had outflows.
These curve-related flow trends signal investors’ unwillingness to take on outsized duration risks. This trend began in 2025 as rising deficits, stubborn inflation trends, monetary easing, and rising term premiums led long-term US Treasurys to underperform short-term US Treasurys and the broader US Treasury market over the last year.
Within credit, signs point to the desire to limit below investment-grade risk. With headlines on AI/software driving credit concerns, below investment-grade sectors saw outflows. High yield as well as bank loans and CLOs had slight outflows of $220 million.
The last signaling of risk behavior was within inflation-linked (IL) bond flows. IL bond ETFs had $1.8 billion of inflows in February. They now have $2 billion of inflows over the last three months and $11 billion over the las twelve months, a sign that investors may be looking to manage inflation risks amid the stubborn inflation trends and potential upward biases from geopolitical risks.
Figure 5: Fixed income flows
| $M | February | Year to date | Trailing 3 month | Trailing 12 month | Year to date (% of AUM) |
|---|---|---|---|---|---|
| Aggregate | 22,456 | 48,237 | 69,200 | 198,185 | 5.90% |
| Government | 11,710 | 17,986 | 24,209 | 104,320 | 3.40% |
| Short-term | 8,152 | 10,826 | 14,912 | 65,397 | 4.10% |
| Intermediate | 3,719 | 10,637 | 12,963 | 40,286 | 5.33% |
| Long-term (>10 yr) | -162 | -3,478 | -3,666 | -1,363 | -3.87% |
| Inflation-protected | 1,810 | 1,253 | 1,597 | 10,958 | 1.80% |
| Mortgage-backed | 1,380 | 2,013 | 3,352 | 12,816 | 2.01% |
| IG corporate | 11,849 | 17,973 | 20,531 | 47,646 | 5.87% |
| High yield corp. | -74 | -388 | 2,912 | 21,923 | -0.35% |
| Bank loans and CLOs | -148 | 3,969 | 4,218 | 6,357 | 6.64% |
| EM bond | 453 | 2,029 | 3,587 | 6,459 | 5.85% |
| Preferred | 393 | 419 | 688 | 1,932 | 1.06% |
| Convertible | 492 | 1,697 | 1,902 | 2,544 | 19.34% |
| Municipal | 1,683 | 7,882 | 13,761 | 43,914 | 4.20% |
Source: Bloomberg Finance, L.P., State Street Investment Management, as of February 28, 2026. The top two/bottom two categories per period are highlighted. Performance data quoted represents past performance. Past performance does not guarantee future results.
Reading market signs at speed
The market’s path will be littered with signs, much like a major highway under construction. As it relates to events in the Middle East, the key risk lies in tail scenarios—a large, sustained oil shock that re anchors inflation expectations, tightens financial conditions via equity markets, or disrupts global shipping through critical bottlenecks that raise prices around the world.
Against this backdrop, investors should expect near-term volatility in many areas. Oil & Gas and Aerospace & Defense industries may witness upside surprises, as higher energy prices and rising defense needs drive performance. Yet, that upside may be met with headline-driven volatility with non-linear movements. Meanwhile, second order inflation dynamics could potentially ripple positively through commodities, inflation‑linked bonds, and other natural resource equities.
But not every sign warrants taking a sharp left turn. Today’s signals should help inform portfolio positioning, not prompt wholesale course changes like moving to cash. A resilient, balanced portfolio helps investors stay on track as conditions come into better focus and the signs get easier to read.
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