Summer road trip: Resilient fundamentals remain in the driver's seat for ETF flows
Summer road trips are supposed to be simple: map the route, fill the tank, load the playlist, and go. But there is always a backseat driver, the friend asking to change the music every three songs, pushing for an unnecessary detour, or suddenly needing a stop after ordering a large Dunkin’ iced coffee.
In 2026, macro risks have been that backseat driver for markets. Like an overly opinionated passenger questioning every turn, each new macro headline has raised doubts about the rest of the ride—slowing progress even as the main driver, resilient fundamentals, has stayed in control.
Despite the macro bumps, positioning indicates investors have retained a firm “risk-on” grip on the wheel.
Risk-on positioning runs deeper than headline inflows
US-listed ETFs gathered $189 billion in July, lifting the year-to-date total to $1.2 trillion and trailing 12-month inflows to $2 trillion. Over 70% of July inflows went to equities, underscoring a risk-on market.
But that headline figure masks a more nuanced picture. Looking only at asset classes can overlook meaningful differences in risk exposure.
To assess risk-on positioning more precisely, I estimated each US-listed ETF’s sensitivity to a range of equity, factor, regional, and credit exposures. I then ranked ETFs by their overall “risk-on beta” and grouped flows into deciles, with the highest decile representing funds most sensitive to equity and other risk-on factors.1
Inflows into deciles above the midpoint (50th percentile) exceeded those below the midpoint by $40 billion, signaling deliberate risk-on positioning (Figure 1). The weighted average risk-on beta of all July flows was 1.10, driven by the above midpoint deciles capturing 61% of flows, with each of those deciles carrying a beta above 1.
Risk-on positioning looks even stronger through the lens of levered ETF use. Leveraged ETFs expressing long positions took in a record $8.5 billion in July, while combined inflows of both levered long and short ETFs reached $6 billion—the sixth-most ever.
July’s strength followed a strong June when levered long ETFs took in $8 billion while the broader levered ETF industry gathered $7 billion, the fifth-most ever. As a result, trailing three-month inflows for levered long ETFs and the broader industry ranked as the highest and fourth-highest on record, respectively—a clear sign of recent risk-seeking behavior. This is a reversal of the massive outflows earlier this year and late 2025 (Figure 2).
Concentrated sector trends
Sectors had a record $25 billion of inflows, led by a record $19 billion into Tech. This was despite the average -10% return on Tech sector and industry ETFs in July.2 In fact, 89% of tech-classified ETFs had negative returns last month. Still, 82% are positive on the year, suggesting recent inflows may reflect either momentum chasing or dip buying in a sector central to the AI-driven productivity and growth story.
Outside of Tech, flows were still positive. Financials gathered $3 billion of inflows following a strong earnings season in which 90% of firms beat expectations and earnings growth exceeded 21%.3
This pushed Financials’ year-to-date flows positive, as investors returned to the sector after it has outperformed the broader market by 7% over the past three months.4 Strong growth, supportive valuations, an accommodative economic backdrop, and the potential for a more relaxed regulatory environment may help spur further interest.
Health Care inflows pushed defensive sector flows (+$3.5 billion) nearly in line with cyclicals (+$3.8 billion). However, those Health Care inflows were far from broad-based. Instead, they were concentrated in biotechnology and pharmaceutical ETFs where strong innovation across biopharma and a robust M&A pipeline have helped those industries outperform the broader sector and market so far in 2026.5
Figure 3: Sector flows
| In millions ($) | July | Year to date | Trailing 3-month | Trailing 12-month | Year to date (% of AUM) |
|---|---|---|---|---|---|
| Technology | 18,725 | 63,486 | 45,078 | 68,779 | 18.36% |
| Financial | 3,442 | 1,681 | 2,874 | -248 | 1.76% |
| Health Care | 2,228 | 3,245 | 2,940 | 7,958 | 3.54% |
| Consumer Discretionary | -469 | -2,319 | -642 | -1,795 | -5.74% |
| Consumer Staples | 711 | -1,164 | -282 | -2,131 | -4.64% |
| Energy | 181 | 9,602 | -2,342 | 8,606 | 15.70% |
| Materials | -703 | 5,505 | -1,379 | 11,410 | 7.93% |
| Industrials | 714 | 10,664 | 2,201 | 17,717 | 15.09% |
| Real Estate | 664 | 4,338 | 4,387 | 7,163 | 6.36% |
| Utilities | 604 | -219 | -37 | 2,352 | -0.59% |
| Communications | -723 | -2,563 | -1,286 | -1,391 | -7.04% |
Source: Bloomberg Finance, L.P., State Street Investment Management, as of July 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.
Macro resilience still sought amid risk-on vibes
Despite a softer-than-expected July CPI print, renewed macro pressures in the Middle East and concerns about their inflationary impact kept inflation in focus. Inflation-linked bond ETFs gathered $1.4 billion in July and now have $10 billion on the year.
Beyond geopolitical pressures, structural investment trends may also support inflation. The AI CapEx buildout is increasing demand for infrastructure, energy, and resources, while resilient consumption and economic growth could keep inflation from falling as quickly as expected. That backdrop may help explain inflation-linked bonds' outperformance versus nominals (1% excess return so far in 2026) and continued investor interest.6
The demand for inflation resilience extended beyond bonds; commodity ETFs took in $1.5 billion in July. Inflows were led by $1.3 billion into broad-based commodity exposures, marking their 13th month of inflows over the past 14 months.
Over that 14-month period, broad commodity ETFs have taken in $6.6 billion, helping lift 2026 inflows to nearly $5 billion. If that pace continues, full-year inflows could surpass the annual record of $8.1 billion set in 2021.
The other macro-inspired trend was the preference for shorter duration exposures. Short-duration inflows ($9 billion) continued to outpace long-duration flows ($3 billion), as they have all year (+$67 billion versus -$3 billion). Long-duration flows were positive in July, but most came early in the month. Long-duration government ETFs posted outflows in the final week as rates rose sharply following the Federal Reserve meeting.
Figure 4: Fixed income flows
| In millions ($) | July | Year to date | Trailing 3-month | Trailing 12-month | Year to date (% of AUM) |
|---|---|---|---|---|---|
| Aggregate | 23,259 | 145,543 | 70,253 | 235,419 | 17.72% |
| Government | 14,571 | 83,595 | 35,940 | 133,560 | 15.93% |
| Short term | 8,594 | 66,808 | 26,889 | 97,137 | 26.23% |
| Intermediate | 2,628 | 19,953 | 8,133 | 37,721 | 12.59% |
| Long term (>10 yr) | 3,349 | -3,166 | 919 | -1,297 | -3.53% |
| Inflation-protected | 1,452 | 10,298 | 5,999 | 14,892 | 14.78% |
| Mortgage-backed | 689 | 7,340 | 4,044 | 10,599 | 7.33% |
| IG-corporate | 4,088 | 45,598 | 20,320 | 74,699 | 14.89% |
| High yield corp. | 509 | 4,646 | 6,314 | 16,255 | 4.16% |
| Bank loans | -153 | -22 | 946 | -687 | -0.11% |
| Asset-backed | 2,759 | 14,515 | 6,801 | 19,385 | 36.98% |
| EM-bond | 236 | 780 | 772 | 6,272 | 2.25% |
| Preferred | 233 | 1,876 | 1,277 | 3,456 | 4.73% |
| Convertible | -156 | 3,024 | 1,024 | 4,045 | 34.48% |
| Municipal | 4,386 | 34,757 | 18,359 | 59,737 | 18.54% |
Source: Bloomberg Finance, L.P., State Street Investment Management, as of July 31, 2026. The top two/bottom two categories per period are highlighted. Past performance is not a reliable indicator of future performance.
Don’t let the backseat driver dictate the route
Despite the bumps, the 60/40 stock-and-bond mix remains positive for the year and ahead of cash (5.9% versus 2.05%), led by equities as bonds are roughly flat.7 Other key asset classes also have delivered positive returns this year; commodities are up double digits.8
In other words, owning assets has mattered more than trying to time every market lane change. The macro noise may be loud—like a backseat driver belting out their own version of John Denver’s road trip classic Take Me Home, Country Roads, but staying invested has been more valuable than pulling over in cash.
Whether driving down I-95 or dealing with macro headlines, no one can predict the traffic, weather, or detours ahead. But portfolios can be prepared for uncertainty. That requires emphasizing resilience over precision.
In the core, broad diversification—including exposures beyond large caps, inflation-aware assets, diverse income sources, and greater geographic balance—can help investors navigate a winding road while keeping the long-term destination in view.
After all, the goal isn’t to avoid every bump in the road. It’s to make sure the backseat driver doesn’t knock the group off course. Along the same lines, thoughtful diversification cannot remove every twist in the return path, but it can help smooth the ride down the market’s country roads.
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