Strong flows and saving par

Track shifting investor sentiment through our latest ETF flows analysis.

A shanked drive into the rough, a perfect punch-out into the fairway, a chunked 5-iron into the sand trap 30 yards short of the green, followed by a picked clean trap shot that soars over the pin but lands on the apron to leave you with a 40-foot-par putt.

Then, drain-o! A par-saving putt to end the par-5 9th hole as you make the turn to the back nine.

That was the market’s first half. The scorecard shows a par (gains), but it was an ugly par with a lot of ups and downs. It’s also one of those pars that makes you feel nervously optimistic. What are the odds of sinking another 40-foot putt? But also, your drive and iron play can only get better from here.

For the markets, we’re entering the back nine with the same nervous optimism. And flow trends indicate investors are searching their bag for the right clubs.

Flows show resilient clubs selected

Despite the ups and downs of the first half, ETFs took in a record $556 billion through the first six months of the year. A simple proration indicates ETFs could take in $1.11 trillion for all of 2025, just below the record $1.15 trillion from 2024. A more robust projection, accounting for cyclicality, forecasts total 2025 inflows at a record $1.24 trillion—with a real chance of $1.3 trillion if market sentiment doesn’t hit any rough patches.

Unfortunately, the course ahead has plenty of deep cut rough for investors (and flows) to navigate—like the fescue at the Open Championship courses like St. Andrews or Royal Portrush. Fiscal (trade), monetary (Federal Reserve wait-and-see outcome), fundamental (Q2 earnings will reveal first reactions/impact to tariffs), and geopolitical (multi-faceted/fronted conflicts) risks are all in play.

This complexity of the 2025 course layout has investors seeking to bolster portfolio resiliency heading into the back nine. This is reflected in the nearly $50 billion of inflows through the first half into non-traditional market exposures. Gold, broad commodities, short-term government bonds, inflation-linked bonds, defined outcome strategies, and digital asset exposures have all garnered inflows throughout the first half (Figure 1).

Those markets react differently to growth, inflation, and macro volatility than the typical stock and bond allocation. And when taken together, inflows across those six markets equate to 16% of first half flows—well above their 6% market share of assets.

Investors grabbed their overseas clubs too

Investors gravitated overseas to end the first half; non-US equity ETFs took in $26 billion in June. Their second-highest inflow ever was boosted by $12 billion from developed ex-US (also second-most) and emerging market ETFs’ $7 billion (fifth-most ever). Single-country ETFs added $3 billion.

For the year, non-US equity exposures have taken in $85 billion and 27% of all equity flows year to date. That flow share capture is above their 20% share of assets and illustrates how investors are choosing geographical diversification to add resilience to portfolios at a time of heightened uncertainty.

This preference for non-US markets accelerated in June and the second quarter overall, as their share capture rate is well above their market share (Figure 2). This is a clear departure from the prior 12-month trend (just 17% of the flows) and coincides with international markets’ stronger returns versus the US alongside the new macroeconomic paradigm brought on by the Trump administration’s mercantilist polices that have replaced global cooperation with coercion to reach geopolitical outcomes.

The trends in single-country ETFs further highlight this interest overseas. The $3 billion of inflows during June was fueled by 70% of countries being allocated to—a hit rate above the prior 12-month trend (47%). The depth of allocations across countries underscores that one market isn’t driving overseas interest.

Investors go for the green with cyclicals and credit

Sectors had $3 billion of inflows in June, predominantly led by cyclical market exposures. That’s an indication of improving sentiment and investor confidence in the market’s outlook.

Cyclical sectors’ $3.3 billion inflow was led by the $1.1 billion in Real Estate and $1 billion into Consumer Discretionary. More importantly, all cyclicals (Financials, Energy, Materials, Industrials, Discretionary, and Real Estate) had inflows in June. This is a divergence from the year-to-date trend where cyclicals have net outflows of $14 billion led by Energy and Materials.

Within fixed income, credit sector bond ETFs added $7 billion in June, led by the $4 billion into high yield. The strong June inflows helped credit sector bond exposures (IG corporate, high yield, bank loan & CLOs) have positive flows for the quarter—despite the record outflows in April.

This trend indicates a risk reversal with sentiment once again positive heading into the back half of the year.

Making the turn and onto the back nine

Despite the gains, macro risks persist. But trade deals are being discussed, cease fires have been achieved, US central bank policy will likely move from wait-and-see to implementation mode, and fundamentals still indicate positive earnings growth.

So, the macro risks that frayed investors’ nerves in the first half of the year may be less onerous in the second half.

But that doesn’t mean the market’s back nine will be a birdie machine. Trade deal discussions are bumping into an early July deadline and have not been turmoil free. The cause and effect of any deal on growth and inflation dynamics are still to be determined too, given the fluidity of the trade talks.

And while ugly pars are still pars, they typically require a lot of resiliency out on the course. Trust your training and equipment. There’s a reason why there are 14 golf clubs in a golf bag. Each shot requires a unique approach, and you can’t always let the big dog eat off the tee.

Navigating the market’s back nine and the confluence of risks and opportunities calls for the same level of diversification you find in a golf bag. Positioning toward growth and policy tailwinds while mixing in non-traditional assets can help improve resiliency for the course ahead where the range of outcomes is still wide.

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